Author Question: Which of the following is an example of false credits/discounts? A) Bjorn issued many sales ... (Read 173 times)

cartlidgeashley · **on:** Jul 6, 2018

Which of the following is an example of false credits/discounts?

A) Bjorn issued many sales invoices in the name of Power Top Agency. However, no such agency existed, and the invoices were raised for overstating the revenue of the company.
B) Russell recorded a sale of 10,000 as sale of 9,000 and 1,000 as sales discount. However, no such discount was provided to the customer.
C) Shun altered a few adjusting entries in the company's cash books to conceal 4,000 that he had removed from the cash register.
D) Armin is given a reimbursement for the medical expenses incurred by her and her family. She inflated her hospital bills to the extent of 1,500 to obtain a higher amount from the company.

Question 2

CVP analysis, changing revenues and costs.

Brilliant Travel Agency specializes in flights between Toronto and Jamaica. It books passengers on Ontario Air. Brilliant's fixed costs are 36,000 per month. Ontario Air charges passengers 1,300 per round-trip ticket.
Calculate the number of tickets Brilliant must sell each month to (a) break even and (b) make a target operating income of 12,000 per month in each of the following independent cases.

Required:
1. Brilliant's variable costs are 34 per ticket. Ontario Air pays Brilliant 10 commission on ticket price.
2. Brilliant's variable costs are 30 per ticket. Ontario Air pays Brilliant 10 commission on ticket price.
3. Brilliant's variable costs are 30 per ticket. Ontario Air pays 46 fixed commission per ticket to Brilliant. Comment on the results.
4. Brilliant's variable costs are 30 per ticket. It receives 46 commission per ticket from Ontario Air. It charges its customers a delivery fee of 8 per ticket. Comment on the results.

pallen55 · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

B
Explanation: B) False credits / discounts are the scheme of using false credits or discounts to disguise theft of revenue.

Answer to Question 2

1a. SP = 10 1,300 = 130 per ticket
VCU = 34 per ticket
CMU = 130 34 = 96 per ticket
FC = 36,000 a month

Q = =

= 375 tickets

1b. Q = =

=
= 500 tickets

2a. SP = 130 per ticket
VCU = 30 per ticket
CMU = 130 30 = 100 per ticket
FC = 36,000 a month

Q = =

= 360 tickets

2b. Q = =

=
= 480 tickets

3a. SP = 46 per ticket
VCU = 30 per ticket
CMU = 46 30 = 16 per ticket
FC = 36,000 a month

Q = =
= 2,250 tickets

3b. Q = =

=

= 3,000 tickets

The reduced commission sizably increases the breakeven point and the number of tickets required to yield a target operating income of 12,000:

10
Commission Fixed
(Requirement 2) Commission of 60
Breakeven point 360 2,250
Attain OI of 12,000 480 3,000

4a. The 8 delivery fee can be treated as either an extra source of revenue (as done below) or as a cost offset. Either approach increases CMU 8:

SP = 54 (46 + 8) per ticket
VCU = 30 per ticket
CMU = 54 30 = 24 per ticket
FC = 36,000 a month

Q = =

= 1,500 tickets

4b. Q = =

=

= 2,000 tickets

The 8 delivery fee results in a higher contribution margin, which reduces both the breakeven point and the tickets sold to attain operating income of 12,000.