Instructions to candidates: 1. Answer one question in section \( A \) and both questions in section \( B \). 2. You are encouraged to carefully read the questions in order to give appropriate answers. Question One Good Luck a) Define property income and differentiate it from rental income (3 marks) b) Explain how rental tax is computed ( 2 marks) c) Maks earns income from different sources as indicated below. \begin{tabular}{lr} Annual Business income & \( 60,000,000 \) \\ Annual Allowable business expenses & \( 20,000,000 \) \\ Non allowable business expenses & \( 6,000,000 \) \\ Annual taxable employment income & \( 120,000,000 \) \\ Gross Interest earned on her bank account & \( 1,000,000 \) \\ Gross dividends earned from New Vision Ltd & 600,000 \end{tabular} Maks from his earnings he has been able to construct some rental units in Mukono and Bweyogerere. The following are the annual incomes expected from her rental units. \( \begin{array}{ll}\text { Expected annual income } & 36,000,0000\end{array} \) Bweyogerere Other details - The rental units in Mukono were unoccupied for 3 months. - The rental units in Bweyogerere were fully occupied throughout the year - The tenants in Mukono pay their own security costs amounting to 600,000 per annum - The landlord Maks pays water and electricity bills amounting to \( 4,000,000 \) a year for each location. - Stationery expenses for both rental units amount to 400,000 - Maks also uses a lawyer. The annual charges for both units amount to 4,000,000. - Maks pays security costs amounting to \( 3,000,000 \) for the Bweyogerere units per annum. Required. Compute the total annual tax paid by Shiloh during the year. (20 marks)
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Various cost-behavior patterns. (CPA, adapted) Select the graph that matches the numbered manufacturing cost data (requirements 1-9). Indicate by letter which graph best fits the situation or item described. The vertical axes of the graphs represent total cost, and the horizontal axes represent units produced during a calendar year. In each case, the zero point of dollars and production is at the intersection of the two axes. The graphs may be used more than once. 1. Annual depreciation of equipment, where the amount of depreciation charged is computed by the machine-hours method. 2. Electricity bill-a flat fixed charge, plus a variable cost after a certain number of kilowatt-hours are used, in which the quantity of kilowatt-hours used varies proportionately with quantity of units produced. 3. City water bill, which is computed as follows: The gallons of water used vary proportionately with the quantity of production output. 4. cost of direct materials, where direct material cost per unit produced decreases with each pound of material used (for example, if 1 pound is used, the cost is $\$ 10$; if 2 pounds are used, the cost is $\$ 19.98$; if 3 pounds are used, the cost is $\$ 29.94$, with a minimum cost per unit of $\$ 9.20$ 5. Annual depreciation of equipment, where the amount is computed by the straight-line method. When the depreciation schedule was prepared, it was anticipated that the obsolescence factor would be greater than the wear-and-tear factor. 6. Rent on a manufacturing plant donated by the city, where the agreement calls for a fixed-fee payment unless 200,000 labor-hours are worked, in which case no rent is paid. 7. Salaries of repair personnel, where one person is needed for every 1,000 machine-hours or less (that is, 0 to 1,000 hours requires one person, 1,001 to 2,000 hours requires two people, and so onl. 8. cost of direct materials used (assume no quantity discounts). 9. Rent on a manufacturing plant donated by the county, where the agreement calls for rent of $\$ 100,000$ to be reduced by $\$ 1$ for each direct manufacturing labor-hour worked in excess of 200,000 hours, but a minimum rental fee of $\$ 20,000$ must be paid.
1. How would the answer to Problem $2-34$ be modified if you were asked for a schedule of cost of goods manufactured and sold instead of a schedule of cost of goods manufactured? Be specific. 2. Would the sales manager's salary (included in marketing, distribution, and customer-service costs) be accounted for any differently if the Howell Corporation were a merchandising-sector company instead of a manufacturing-sector company? Using the flow of manufacturing costs outlined in Exhibit $2-9$ (p. 42 ), describe how the wages of an assembler in the plant would be accounted for in this manufacturing company. 3. Plant supervisory salaries are usually regarded as manufacturing overhead costs. When might some of these costs be regarded as direct manufacturing costs? Give an example. 4. Suppose that both the direct materials used and the plant and equipment depreciation are related to the manufacture of 1 million units of product. What is the unit cost for the direct materials assigned to those units? What is the unit cost for plant and equipment depreciation? Assume that yearly plant and equipment depreciation is computed on a straight-line basis. 5. Assume that the implied cost-behavior patterns in requirement 4 persist. That is, direct material costs behave as a variable cost, and plant and equipment depreciation behaves as a fixed cost. Repeat the computations in requirement $4,$ assuming that the costs are being predicted for the manufacture of 1.2 million units of product. How would the total costs be affected? 6. As a management accountant, explain concisely to the president why the unit costs differed in requirements 4 and 5.
The tax that you pay to the federal government is a percentage of your taxable income, which is what remains of your gross income after you subtract your allowed deductions. In a recent year, there were five rates or brackets for a single taxpayer, as shown in Table 1 $$\text { Table 1 Single Taxpayer Rates }$$ $$\begin{array}{ccc} \hline \text { Amount Over } & \text { But Not Over } & \text { Tax Rate } \\ \hline \$0 & \$ 27,050 & 15 \% \\ \$ 27,050 & \$ 65,550 & 27.5 \% \\ \$ 65,550 & \$ 136,750 & 30.5 \% \\ \$ 136,750 & \$ 297,350 & 35.5 \% \\ \$ 297,350 & \cdots & 39.1 \% \\ \hline \end{array}$$ So, if you are single and your taxable income was less than $\$ 27,050,$ your tax is your taxable income times $15 \%$ (.15). The maximum amount of tax that you will pay on your income in this first bracket is $15 \%$ of $\$ 27,050,$ or $(.15) \times 27,050=4057.50$ dollars. If your taxable income is more than $\$ 27,050$ but less than $\$ 65,550,$ your tax is $\$ 4057.50$ plus $27.5 \%$ of the amount in excess of $\$ 27,050 .$ So, for example, if your taxable income is $\$ 50,000,$ your tax is $4057.5 + .275(50,000-27,050) = 4057.5+.275 \times 22,950=$ $\$ 10,368.75 .$ Let $x$ denote your taxable income and $T(x)$ your tax. (a) Find a formula for $T(x)$ if $x$ is not over $\$ 136,750 .$ (b) Plot the graph of $T(x)$ for $0 \leq x \leq 136,750.$ (c) Find the maximum amount of tax that you will pay on the portion of your income in the second tax bracket. Express this amount as a difference between two values of $T(x).$
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