Physical control is a key feature in an internal control system. Why is
physical control such an important internal control? Give an example of physical control as an internal control.
Describe the income statement. Why is this statement important to the company, creditors, and investors?
Name and describe one solvency ratio. What does this ratio measure? What is the formula for this ratio?
Question 1. The Von
Pottasnevitch Company sells office products and for the most part has a regular group of customers and fairly predictable sales. Many of the company’s customers are offered credit, while other clients do business on a cash basis. The company’s monthly sales are consistently split between 10% cash business and 90% on credit. The credit sales are collected 50% in the same month of the sale and the remaining 50% is due the following month. Sales for the upcoming first quarter of the next year are estimated as follows:
January: $100,000
February: $200,000
March: $150,000
Calculate the expected cash collections for February.
Question 2. The Walkabout Corporation manufactures boomerangs (its only product). The company’s standards for manufacturing boomerangs are as follows:
| Standard direct labor rate per hour | $ 18.50 per hour |
| Standard direct labor hours per boomerang | 0.4 hours |
During the month of January, the company produced 1,800 boomerangs. Actual production data for the month follows:
| Actual direct labor hours worked | 700 hours |
| Actual direct labor cost incurred | $ 14,000 |
Part A. Calculate the labor rate variance for the month. Is it favorable or unfavorable?
Part B. Calculate the labor efficiency variance for the month. Is it favorable or unfavorable?
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