Questions -

Q1) CPA is a newly established janitorial firm, and the owner is deciding what type of checking account to open.  CPA is planning to keep a $500 minimum balance in the account for emergencies and plans to write roughly 80 checks per month.  The bank charges $10 per month plus a $0.10 per check charge for a standard business checking account with no minimum balance.  CPA also has the option of a premium business checking account that requires a $2,500 minimum balance but has no monthly fees or per check charges.  If CPA's cost of funds is 10%, which account should CPA choose?

Q2) A firm sells on terms of 2/10 net 60.  It sells 1,000 units per day at a unit price of $10.  On 60% of sales, customers take the cash discount.  On the remaining 40% of sales, customers pay, on average, in 70 days.  What would be the impact on the balance of accounts receivable if the firm initiates a more aggressive collection policy and is able to reduce the average payment period to 60 days for those customers not taking the cash discount?  (Assume sales levels are unaffected by the change in policy)

Q3) CPA Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X5, the following estimates were provided for the coming year:

                                                   Machining           Assembly

Direct labor-hours                         10,000 dlh          90,000 dlh

Machine-hours                              100,000 mh        5,000 mh

Direct labor cost                           $80,000              $720,000

Manufacturing overhead costs        $250,000            $360,000

The accounting records of the company show the following data for Job #846:

                                     Machining           Assembly

Direct labor-hours           50 dlh                120 dlh

Machine-hours                170 mh               10 mh

Direct material cost         $2,700                $1,600

Direct labor cost             $400                   $900

Required:

a. Compute the manufacturing overhead allocation rate for each department.

b. Compute the total cost of Job #846.

c. Provide possible reasons why CPA Manufacturing uses two different cost allocation rates.