Author Question: Which of the following statements best differentiates a principle and a rule as per AICPA's Code of ... (Read 196 times)

crazycityslicker · **on:** Jul 6, 2018

Which of the following statements best differentiates a principle and a rule as per AICPA's Code of Professional Conduct?

A) A principle is an external person who oversees the behavioral actions of those who practice a profession, while a rule is a value-based internal force for behavioral action.
B) A principle is an external person who oversees the behavioral actions of those who practice a profession, while a rule is an authoritative regulatory force for behavioral action.
C) A principle is a value-based internal force for behavioral action and a rule is an authoritative regulatory force for behavioral action.
D) A principle is regulatory force with advanced education and training and a rule is a value-based internal force for behavioral action.

Question 2

Proration of overhead.

(Z. Iqbal, adapted) The Zaf Radiator Company uses a normal-costing system with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base. The
following data are for 2014:

Budgeted manufacturing overhead costs 4,800,000
Overhead allocation base Machine-hours
Budgeted machine-hours 80,000
Manufacturing overhead costs incurred 4,900,000
Actual machine-hours 75,000

Machine-hours data and the ending balances (before proration of under- or overallocated overhead) are as follows:

Actual Machine-Hours 2014 End-of-Year Balance
Cost of Goods Sold 60,000 8,000,000
Finished Goods Control 11,000 1,250,000
Work-in-Process Control 4,000 750,000

Required:
1. Compute the budgeted manufacturing overhead rate for 2014.
2. Compute the under- or overallocated manufacturing overhead of Zaf Radiator in 2014. Dispose of this amount using the following:
a. Writeoff to Cost of Goods Sold
b. Proration based on ending balances (before proration) in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold
c. Proration based on the overhead allocated in 2014 (before proration) in the ending balances of Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold
3. Which method do you prefer in requirement 2? Explain.

Viet Thy · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

C
Explanation: C) A principle is a value-based internal force for behavioral action and a rule is an authoritative regulatory force for behavioral action.

Answer to Question 2

2. =
= 4,900,000 4,500,000
= 400,000
60 75,000 actual machine-hours = 4,500,000

a. Write-off to Cost of Goods Sold

Account
(1) Dec. 31, 2014
Account
Balance
(Before Proration)
(2) Write-off
of 400,000
Underallocated
Manufacturing
Overhead
(3) Dec. 31, 2014
Account
Balance
(After Proration)
(4) = (2) + (3)

Work in Process
Finished Goods
Cost of Goods Sold
Total
750,000
1,250,000
8,000,000
10,000,000
0
0
400,000
400,000
750,000
1,250,000
8,400,000
10,400,000

b. Proration based on ending balances (before proration) in Work in Process, Finished Goods, and Cost of Goods Sold.

Account
(1)
Dec. 31, 2014
Account Balance
(Before Proration)
(2) Proration of 400,000
Underallocated
Manufacturing
Overhead
(3) Dec. 31, 2014
Account
Balance
(After Proration)
(4) = (2) + (3)
Work in Process
Finished Goods
Cost of Goods Sold
Total 750,000
1,250,000
8,000,000
10,000,000 ( 7.5)
(12.5)
(80.0)
100.0 0.075 400,000 = 30,000
0.125 400,000 = 50,000
0.800 400,000 = 320,000
400,000 780,000
1,300,000
8,320,000
10,400,000

c. Proration based on the allocated overhead amount (before proration) in the ending balances of Work in Process, Finished Goods, and Cost of Goods Sold.

Account
(1) Dec. 31, 2014
Account
Balance
(Before
Proration)
(2) Allocated Overhead
Included in
Dec. 31, 2014
Account Balance
(Before Proration)
(3) (4) Proration of 400,000
Underallocated
Manufacturing Overhead
(5) Dec. 31, 2014
Account
Balance
(After Proration)
(6) = (2) + (5)
Work in Process 750,000 240,000a (5.33) 0.0533400,000 = 21,320 771,320
Finished Goods 1,250,000 660,000b (14.67) 0.1467400,000 = 58,680 1,308,680
Cost of Goods Sold 8,000,000 3,600,000c (80.00) 0.8000400,000 = 320,000 8,320,000
Total 10,000,000 4,500,000 100.00 400,000 10,400,000
a60 4,000 machine-hours; b60 11,000 machine-hours; c60 60,000 machine-hours

3. Alternative (c) is theoretically preferred over (a) and (b) because the underallocated amount and the balances in work-in-process and finished goods inventories are material. Alternative (c) yields the same ending balances in work in process, finished goods, and cost of goods sold that would have been reported had actual indirect cost rates been used.
Chapter 4 also discusses an adjusted allocation rate approach that results in the same ending balances as does alternative (c). This approach operates via a restatement of the indirect costs allocated to all the individual jobs worked on during the year using the actual indirect cost rate.