Answer:
The price hike in the price of steel would cause an inflationary push in the U.S. economy, because steel is a input to the production processes of many firms.
In this scenario, the fed would lower the money supply in order to stop the inflationary push from continuing. To do so, the fed would sell government securities.
The following comparative income statement (in thousands of dollars) for the two recent fiscal years was adapted from the annual report of Speedway Motorsports, Inc., owner and operator of several major motor speedways, such as the Atlanta, Texas, and Las Vegas Motor Speedways.
1 Current Year Previous Year
2 Revenues:
3 Admissions $116,034.00 $130,239.00
4 Event-related revenue 151,562.00 163,621.00
5 NASCAR broadcasting revenue 192,662.00 185,394.00
6 Other operating revenue 29,902.00 26,951.00
7 Total revenue $490,160.00 $506,205.00
8 Expenses and other:
9 Direct expense of events $101,402.00 $106,204.00
10 NASCAR purse and sanction fees 122,950.00 120,146.00
11Other direct expenses 18,908.00 20,352.00
12 General and administrative 183,215.00 241,223.00
13 Total expenses and other $426,475.00 $487,925.00
14 Income from continuing operations $63,685.00 $18,280.00
Required:
A. Prepare a comparative income statement for these two years in vertical form, stating each item as a percent of revenues. Enter all amounts as positive numbers. Rounding instructions
B. Comment on the significant changes.
Prepare a comparative income statement for these two years in vertical form, stating each item as a percent of revenues. Enter all amounts as positive numbers. Rounding instructions
Answer:
A)
Speedway Motorsports, Inc.
Comparative Income statement
For the Years 202x and 202x₋₁
202x 202x₋₁
Total revenue $490,160 $506,205
Admissions 23.67% 25.73%Event related 30.92% 32.32%NASCAR broadcasting 39.31% 36.63%Other operating revenue 6.1% 5.32%Direct expenses: 49.63% 48.74%
Direct expense of events 20.69% 20.98% NASCAR purse & sanction fees 25.08% 23.73%Other direct expenses 3.86% 4.03%General and administrative 37.38% 47.65%
Income from continuing operations 12.99% 3.61%
B) The most significant changes are that total revenues actually decreased, but net income from operating activities actually creased both in $ amounts and as % of total revenue. Direct expenses remained at similar levels during both years, even 202x₋₁ direct expenses were lower. But the most significant cost reduction was made on general and administrative expenses which were lowered by almost 10% (compared to total revenues). Only NASCAR broadcasting related revenues increased, while all the other revenues decreased in % and absolute amounts.
Barbara owns a manufacturing plant with four facilities (North, South, East, and West) in the state of Indiana. The workers at one of those facilities, North, have just decided to join a union. The union negotiates with Barbara and receives average wages that are 5% higher than the workers at the South, East, and West facilities. This wage differential is a likely example of:
Answer:
Union power
Explanation:
The difference in wages is as a result of Union power because the North now belongs to a labor union that protects their interest. A labor union is an organization that plays the role of an intermediary between their members and their employers. The workers in the North through the union are able to negotiate for better wages. Through collective bargaining, the union gives workers In the North the power to request for better work pay than workers in the east, West and South facilities.
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.10 (given its target capital structure). Vandell has $8.67 million in debt that trades at par and pays an 7.3% interest rate. Vandell’s free cash flow (FCF0) is $1 million per year and is expected to grow at a constant rate of 6% a year. Both Vandell and Hastings pay a 40% combined federal and state tax rate. The risk-free rate of interest is 6% and the market risk premium is 7%. Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.5 million, $3.2 million, $3.5 million, and $3.57 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 6% rate. Hastings plans to assume Vandell’s $8.67 million in debt (which has an 7.3% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.5 million each year for Years 1, 2, and 3. After Year 3, a target capital structure of 30% debt will be maintained. Interest at Year 4 will be $1.465 million, after which the interest and the tax shield will grow at 6%. Indicate the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition. Round your answers to the nearest cent. Do not round intermediate calculations.
The bid for each share should range between $ ______ per share and $ _______ per share.
Answer:
$40.79 per share and $52.90 per share
Explanation:
Cost of Debt (Kd) = Wd * Rd (1 - T)
Cost of Debt for Vandell Corporation is $7.30 * (1 - 0.40) = 4.38%
Cost of Equity (Ke) = Rf + [tex]\beta[/tex] * Rp
Cost of Equity for Vandell Corporation is 6 + 1.10 * 7 = 13.70%
Weighted Average Cost of Capital (WACC) = Wd * Kd + We * Ke
Cash Flow of Firm = $2.5m + $3.2m + $3.5m + $3.57m = $12.77
Weight of Equity = $8.94
WACC = 30% * 4.38% + 70% * 13.70% = 10.9%
CashFlows after discounting synergy will be = $40.79
You’re about ready to sign a big new client to a contract worth over $50,000. Your boss is under a lot of pressure to increase sales. He calls you into his office and tells you his job is on the line, and he asks you to include the revenue for your contract in the sales figures for the quarter that ends tomorrow. You know the contract is a sure thing but the client is out of town and cannot possibly sign by tomorrow. What do you do?
Answer:
This is a complicated ethical dilemma because generally you wouldn't want to hurt or do things that can be negative for your boss, specially if he is a good boss. But including unrealized sales is also a bad thing.
This is not only unethical but also violates accounting principles (known as accounting fraud). This can lead to several and severe penalties, which in some cases include jail time. In this case and for this amounts that would not be the case, but other negative consequences can result.
What happens if something goes wrong and the sales is not closed. The answer is simple, you will lose your job. If other employees learn about this your credibility will suffer a lot. Everyone will believe that you always lie about your sales figures.
Personally, I would find an excuse for not including that sales contract in the current month. No choice is easy, but you should do the right and legal thing.
This is a difficult ethical problem because you normally don't want to damage or do things that could harm your boss, especially if he is a nice one. However, counting anticipated sales is also problematic.
Not only is immoral, but it also goes against accounting standards . This can result in a variety of harsh sanctions, including jail time in some situations. That would not be the case in this circumstance and for these amounts, but other undesirable repercussions could occur.
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Selma operates a contractor's supply store. She maintains her books using the cash method. At the end of the year, her accountant computes her accrual basis income that is used on her tax return. For 2015, Selma had cash receipts of $1.4 million, which included $200,000 collected on accounts receivable from 2014 sales. It also included the proceeds of a $100,000 bank loan. At the end of 2015, she had $250,000 in accounts receivale from customers, all from 2015 sales.
a. Compute Selma's accrual basis gross receipts for 2015
b. Selma paid cash for all of the purchases. The total amount paid for merchandise in 2014 was $1.3 million. At the end of 2014, she had merchandise on hand with a cost of $150,000. At the end of 2015, the cost of merchandise on hand was $300,000. Compute Selma's gross income from merchandise sales for 2015
Answer:
A.$1,350,000
B.$ 200,000
Explanation:
Selma
a.
Selma's accrual basis gross receipts for 2015 will be ;
Amount of Cash received by Selma $1,400,000
Less:
Accounts receivable collected (200,000)
Bank loan proceed(100,000)
Add: Ending accounts receivable 250,000
Gross receipts $1,350,000
b.Selma's gross income from merchandise sales for 2015 will be :
Gross receipts brought forward(A) $1,350,000
Cost of goods sold:
Selma Purchases$1,300,000
Inventory at the beginning 150,000
Ending inventory(300,000)
Gross income$ 200,000
(1,350,000-1,150,000)
(1,300,000+150,000-300,000)
=1,150,000
The law of diminishing marginal productivity states that:________.
a. As you expand output, your marginal productivity eventually increases
b. As you expand output, your marginal productivity eventually declines
c. As you expand output, the total product eventually increases
d. None of the above
2. What are economies of scale?
a. decreasing average costs as production increases
b. increasing average costs as production increases
c. increasing fixed costs as production increases
d. none of the above
3. What are economies of scope?
a. lower average costs when multiple different products are produced
b. higher average costs when multiple different products are produced
c. Constant average costs when multiple different products are produced
d. none of the above
Answer:
b. As you expand output, your marginal productivity eventually declines
a. decreasing average costs as production increases
a. lower average costs when multiple different products are produced
Explanation:
The law of diminishing marginal returns states that as more unit of variable factors of production are added to production, output would increase at first but after a period, it would increase at a negative rate.
Economies of scale is the reduction in cost thay accrue to firms as they increase production. For example, a supplier might give a firm a discount for buying in bulk.
Economies of scope states that average cost would fall as the production of similar products increases. For example, a fashion designer who makes women's clothings decides to make scarfs with the scraps of clothes left.
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You are looking to buy a car. You can afford $700 in monthly payments for five years. In addition to the loan, you can make a $800 down payment. If interest rates are 9.25 percent APR, what price of car can you afford (loan plus down payment)
Answer:
$34,333
Explanation:
A fix periodic payment for a specific period of time is an annuity payment. Price of the car can be determined by the sum of the present value of all payments and down payment made.
First we need o calculate the present value of annuity using following formula
Present value of annuity = P x [ 1 - ( 1 + r )^-n / r ]
P = periodic payment = $700
r = APR = 9.25 /12% = 0.77%
n = numbers of periods = 5 years x 12 months per year = 60 months
Placing values in the formula
Present value of annuity = $700 x [ 1 - ( 1 + 0.77% )^-60 / 0.77% ]
Present value of annuity = $33,532.88
Price of the car = Present value of annuity + Down Payment
Price of the car = $33,532.88 + $800 = $34,332.88
Rank the following instruments in terms of credit risk. In your rankings, use 1 for the greatest credit risk and 4 for the smallest credit risk. Assume a 10 year Treasury trades with a YTM of 5%.a. A Ba1 corporate bond ______b. A ten-year BBB- corporate bond with a YTM of 7% ______c. A secured loan from Argosy Gaming, which is a B- rated firm ______d. A senior subordinated bond from Argosy Gaming
Answer:
a. A Ba1 corporate bond 2 (not investment grade)
b. A ten-year BBB- corporate bond with a YTM of 7% 3 (medium risk but still investment grade)
c. A secured loan from Argosy Gaming, which is a B- rated firm 4 (less risky since it is backed by a collateral)
d. A senior subordinated bond from Argosy Gaming 1 (highest risk)
Explanation:
There are two major bond rating agencies in the US: Moody's and Standard & Poor's.
Their rankings are very similar, although the letters vary a little:
AAA: safest
AA: low risk
A: low risk
BBB: medium risk
BB: a little bit more riskier
B: risky
CCC: very high risk
CC: even riskier
C: riskiest
D: junk, in default
Esquire Comic Book Company had income before tax of $1,000,000 in 2016 before considering the following material items:
1. Esquire sold one of its operating divisions, which qualified as a separate component according to generally accepted accounting principles. The before-tax loss on disposal was $350,000. The division generated beforetax income from operations from the beginning of the year through disposal of $500,000. Neither the loss on disposal nor the operating income is included in the $1,000,000 before-tax income the company generated from its other divisions.
2. The company incurred restructuring costs of $80,000 during the year.
Required: Prepare a 2016 income statement for Esquire beginning with income from continuing operations. Assume an income tax rate of 40%. Ignore EPS disclosures.
Answer:
Esquire Comic Book Company
Income Statement
For the Year Ended December 31, 2016
Operating income $1,000,000
Restructuring costs ($80,000)
Income from continuing operations b/ Taxes $920,000
Income tax expense ($368,000)
Income from continuing operations $552,000
Discontinued operations:
Operating income $500,000Loss on disposal ($350,000)Income tax on discontinued operations ($60,000)Income from discontinued operations $90,000
Net income $642,000
Explanation:
Income from discontinued operations must be reported separately, but any restructuring costs must be included as operational expenses.
On December 31, the following data were accumulated for preparing the adjusting entries for Bellingham Realty: • The supplies account balance on December 31 is $5,635. The supplies on hand on December 31 are $1,495. • The unearned rent account balance on December 31 is $4,600 representing the receipt of an advance payment on December 1 of four months’ rent from tenants. • Wages accrued but not paid at December 31 are $2,035. • Fees earned but unbilled at December 31 are $15,450. • Depreciation of office equipment is $4,420. Required: 1. Journalize the adjusting entries required at December 31. Refer to the Chart of Accounts for exact wording of account titles. 2. What is the difference between adjusting entries and correcting entries?
Answer and Explanation:
Date Adjusting entries Debit Credit Asset Liabilities Equity
Dec 31 Supplies Expense $4,140 Decrease
To Supplies $4,140 Decrease
(Being the supplies expense is recorded)
It is computed below:
= Account balance - still on hand
= $5,635 - $1,495
= $4,140
Dec 31 Unearned Rent revenue $1,150 Decresae
To Rent revenue $1,150 Increase
(Being the unearned rent revenue is recorded)
It is computed below:
= $4,600 ÷ 4 months
= $1,150
Dec 31 Wages Expense $2,035 Decrease
To Wages payable $2,035 Increase
(Being the wages expense is recorded)
Dec 31 Accounts Receivable $15,450 Increase
To Fees earned $15,450 Increase
(Being the fees earned is recorded)
Dec 31 Depreciation expense $4,420 Decrease
To Accumulate depreciation
- Office Equipment $4,420 Decresae
(Being the depreciation expense is recorded)
2 Adjusting entries are the entries that are to be adjusted at the end of the accounting period but it is planed but the correcting entries are not planned it is required when we want to just correct the errors
Miguel works at LoftCo, Inc., and has been asked to help lead the development of the company's new balanced scorecard. He and his multifunctional team developed strategic objectives and performance metrics for each of the four perspectives. This work constitutes the complete set of steps in developing a BSC performance management system.
a. true
b. false
Answer:
The correct answer is A. True
Explanation:
Solution
Balanced scorecard performance management system: It is define as a management system and strategic planning that companies or firms use in communicating their set target and objectives.
Furthermore, a balanced scorecard is a measurement of management performance which can recognize and refine internal functions and external results.
Roadside, Inc. had the following balances and transactions during 2018:Beginning Merchandise Inventory10units at $ 72March 10Sold 8unitsJune 10Purchased 20units at $ 82October 30Sold 14unitsWhat is the amount of the company's ending Merchandise Inventory, as disclosed in the December 31, 2018 balance sheet, using the periodic LIFO inventory costing method?
Answer:
$576
Explanation:
The computation of the ending inventory using the periodic LIFO inventory costing method is shown below:
But before determining the ending inventory first we have to find out the ending inventory units which is
Units of ending inventory = Opening Stock + Units purchased - Units sold
= 10 + 20 - (8 + 14)
= 8 units
The Ending inventory is 8 units. So, These should be the units out of opening stock
Therefore
Ending inventory is
= 8 units × $72
= $576
The balance sheet for Campbell Corporation follows:________.
Current assets $238,000
Long-term assets (net) 756,000
Total assets $994,000
Current liabilities $156,000
Long-term liabilities 444,000
Total liabilities 600,000
Common stock and retained earnings 394,000
Total liabilities and stockholders’ equity $994,000
Required Compute the following. (Round ""Ratios"" to 1 decimal place.)
a. Working Capital?
b. Current Ratio?
c. Debt to assets Ratio?
d. Debt to equity Ratio?
Answer:
a.
$82,000
b.
1.53
c.
0.6
d.
1.52
Explanation:
a.
Working capital is the net of current assets and current liabilities.
Working Capital = Current Asset - Current Liabilities
Placing values in the formula
Working Capital = $238,000 - $156,000
Working Capital = $82,000
b.
Current ratio is the ratio of current asset and liabilities.
Current Ratio = Current Assets / Current Liabilities
Placing values in the formula
Current Ratio = $238,000 / $156,000
Current Ratio = 1.53
c.
Debt to asset ratio is the ratio of debt to total assets of the company.
Debt to assets Ratio = Total Liabilities / Total Assets
Placing values in the formula
Debt to assets Ratio = $600,000 / $994,000
Debt to assets Ratio = 0.60
d.
Debt to equity ratio is the ratio of debt to equity of the company.
Debt to equity Ratio = Total Liabilities / equity
Placing values in the formula
Debt to equity Ratio = $600,000 / $394,000
Debt to equity Ratio = 1.52
Trade-Off Theory. Smoke and Mirrors currently has EBIT of $25,000 and is all-equity- financed. EBIT is expected to stay at this level indefinitely. The firm pays corporate taxes equal to 35% of taxable income. The discount rate for the firm’s projects is 10%.(LO3)
a. What is the market value of the firm?
b. Now assume the firm issues $50,000 of debt paying interest of 6% per year, using the proceeds to retire equity. The debt is expected to be permanent. What will happen to the total value of the firm (debt plus equity)?
c. Recompute your answer to (b) under the following assumptions: The debt issue raises the probability of bankruptcy. The firm has a 30% chance of going bankrupt after 3 years. If it does go bankrupt, it will incur bankruptcy costs of $200,000. The discount rate is 10%. Should the firm issue the debt?
Answer:
a. What is the market value of the firm?
$162,500b. Now assume the firm issues $50,000 of debt paying interest of 6% per year, using the proceeds to retire equity. The debt is expected to be permanent. What will happen to the total value of the firm (debt plus equity)?
$200,123c. Recompute your answer to (b) under the following assumptions: The debt issue raises the probability of bankruptcy. The firm has a 30% chance of going bankrupt after 3 years. If it does go bankrupt, it will incur bankruptcy costs of $200,000. The discount rate is 10%. Should the firm issue the debt?
The firm should not issue the debt because the risk of bankruptcy eliminates any possible gains obtained from issuing debt. It actually decreases the value of equity.Explanation:
the firm's current value = [EBIT x (1 - tax rate)] / WACC = [$25,000 x 0.65] / 10% = $162,500
firm's new WACC = ($112,500/$162,500 x 10%) + ($50,000/$162,500 x 6% x 0.65) = 6.92% + 1.2% = 8.12%
the firm's new value = [$25,000 x 0.65] / 8.12% = $200,123
expected cost of bankruptcy = (30% x $200,000) / 1.1³ = $45,079
firm's total value is still $200,123, but the stockholders' equity has been reduced from ($200,123 - $50,000 = $150,123) to $150,123 - $45,079 = $105,044
the gain from issuing debt will be eliminated due to the risk of bankruptcy, before equity had risen from $112,500 to $150,123, but now it decreases to $105,044.
The market value of the firm will be $162500.
Based on the information given, the market value will be calculated thus:
= [EBIT × (1 - Tax rate(] / WACC
= [25000 × (1 - 0.35)] / 10%
= [25000 × 0.65] / 0.10 = $162500
Since the firm's new WACC is 8.12%, then the new value of the firm will be:
= (25000 × 0.65) / 8.12%
= 200,123
Therefore, the total value of the firm is $200,123.
In conclusion, the firm should not issue the debt due to the fact that the risk of bankruptcy will eliminate the gains gotten from the issuance.
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Why is research ethics important?
Answer:
Research ethics are important for the following reasons:
1.They promote the aims of research, such as expanding knowledge.
2.They support the values required for collaborative work
3. They support important social and moral values,
Consider the following scenario and Identify which formal research method would be appropriate.
1. You are preparing a comprehensive report on telecommunication practices in your industry. You need some background information on the history of Internet use in professional environments.
A. Access traditional sources and electronic sources.
B. Conduct primary research for firsthand information.
C. Conduct a scientific experiment. Routine tasks often require informal research methods.
2. Identify which informal research technique would be most appropriate for each situation. After complaining about parking accommodations at your office, you have been asked by your boss to propose a simple solution that will satisfy your coworkers. The best informal information gathering technique for this situation would be to:_______.
A. Talk with your boss.
B. Conduct an informal survey
C. Look in the files.
3. Read the following scenario, and determine which is the best research approach.
While working for an international development agency, you must develop a presentation about primary and secondary education in the Middle East, a topic you are not familiar with. Which is the best research approach?
A. Formal. On the Internet, find statistics gathered by the United Nations showing the dropout rates of students by gender and age. Request that certain reports be sent to you, so you can examine the date yourself.
B. Informal. To get a local perspective on Middle Eastern affous, we nema to a professor there.
C. Informal. To get a local perspective on Middle Easter affairs, conduct a one survey of me who live in the area.
Answer: 1. A. Access traditional sources and electronic sources.
2. B. Conduct an informal survey
3. A. Formal. On the Internet, find statistics gathered by the United Nations showing the dropout rates of students by gender and age. Request that certain reports be sent to you, so you can examine the date yourself.
Explanation:
1. This is a research into the history of the internet in professional Environments. Considering how long the internet has been around which isn't too long but long enough that first hand information is not readily available, consulting Traditional sources and Electronic sources is the best way to go.
It will have information from the past that you can use to come up with a chronological report on the use of the internet in a professional setting.
2. This is not a serious research and involves your immediate surroundings so an informal method can be used. The best informal method would be an informal survey amongst your co-workers who are also affected by the problem. This survey will help you come up with a solution faster and easier because you are getting first hand information from those directly affected.
3. You are working for an International Development Agency and as such can not afford to present information that is false or void of due procedure in way because it will affect the reputation of the Agency if you do so.
For this reason your sources must be formal sources with definite information and the United Nations is a very good source for that. To go a step further you can request reports and double check the figures yourself to ensure that the information used is of the highest quality and accuracy.
Section 103 of the Federal Public Works Employment Act establishes the Minority Business Enterprise program and requires that, absent a waiver by the secretary of commerce, 10 percent of all federal grants given by the Economic Development Administration be used to purchase services or supplies from businesses owned and controlled by U.S. citizens belonging to one of six minority groups: African Americans, Spanish speaking, Asian, Native American, Eskimo, and Aleut. White owners of business contend the Act constitutes illegal reverse discrimination. Discuss.
Explanation:
Looking from a fair point of view, the White owners of businesses have legitimate reasons to feel that the Act constitutes illegal reverse discrimination.
Remember, reverse discrimination implies an unfair treatment of the majority group (White owners) in an effort to please the minority group. This is evident from the fact that the 10 percent of all federal grants to be released by the Economic Development Administration was only to be used to purchase services or supplies from businesses owned and controlled by U.S. citizens belonging to one of six minority groups excluding the White business owners; making the White owners feel discriminated against.
Thus, unintentionally the Act became a reverse discrimination on White business owners.
Use the following 10% interest factors. Present Value of Ordinary Annuity Future Value of Ordinary Annuity 7 periods 4.86842 9.48717 8 periods 5.33493 11.43589 9 periods 5.75902 13.57948 What amount should be recorded as the cost of a machine purchased December 31, 2020, which is to be financed by making 8 annual payments of $16000 each beginning December 31, 2021? The applicable interest rate is 10%. $182974 $92144 $85359 $112000
Answer:
The cost of the machine will be $85,358.88
Explanation:
To calculate the present value of the machine is given by:
Present value=$16000*Present value of annuity factor(10%,8)
=$16000*5.33493
= $85,358.88
Torino Company has 1,300 shares of $50 par value, 6.0% cumulative and nonparticipating preferred stock and 13,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $3,500 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:
Answer:
The answer is $4,300
Explanation:
Solution
We recall that:
Torino company has 1,200 shares of = $50 per value
The cumulative and nonparticipating preferred stock of = 6.0%
They also have 13,00 shares
Common stock outstanding = $10 per value
Total dividends = $3,500
Now,
The first year amount of dividend that was paid in the first year of working is stated as follows:
6% * 1300 * 50 = $3900
The paid dividend = $3,500
The amount amount payable during the second year to the common stakeholders is
=$3900 + 400 = $4,300
Note: preferred shares are cumulative, for this the amount paid to the stakeholders was $4,300
A type of manager that supports first line managers is known as
Answer:
First-line managers operate their departments. They assign tasks, manage work flow, monitor the quality of work, deal with employee problems, and keep the middle managers and executive managers informed of problems and successes at ground level in the company.
Explanation:
Journalize the following transactions using the direct write-off method of accounting for uncollectible receivables: Feb. 20 Received $1,000 from Andrew Warren and wrote off the remainder owed of $4,000 as uncollectible. May 10 Reinstated the account of Andrew Warren and received $4,000 cash in full payment. If an amount box does not require an entry, leave it blank. Feb. 20 May 10 May 10
Answer:
A journal was entered to determine the following transactions using the direct write-off method of accounting for uncollectible receivable shown below
Explanation:
Solution
PART A:
Particulars Debit Credit
Feb 20 Bad Debt Expense $4,000
Cash $1,000
Accounts receivable $5000
May 10 Accounts receivable $4,000
Bad Debt Expense $4,000
Cash $4,000
Accounts receivable $4,000
Cane Company manufactures two products called Alpha and Beta that sell for $185 and $120, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 112,000 units of each product. Its unit costs for each product at this level of activity are given below:
Alpha Beta
Direct materials $ 30 $ 10
Direct labor 22 29
Variable manufacturing overhead 20 13
Traceable fixed manufacturing overhead 24 26
Variable selling expenses 20 16
Common fixed expenses 23 18
Total cost per unit $ 139 $ 112
The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.
Required:
7.
Assume that Cane normally produces and sells 48,000 Betas per year. If Cane discontinues the Beta product line, how much will profits increase or decrease?
8.
Assume that Cane normally produces and sells 68,000 Betas and 88,000 Alphas per year. If Cane discontinues the Beta product line, its sales representatives could increase sales of Alpha by 12,000 units. If Cane discontinues the Beta product line, how much would profits increase or decrease?
9.
Assume that Cane expects to produce and sell 88,000 Alphas during the current year. A supplier has offered to manufacture and deliver 88,000 Alphas to Cane for a price of $112 per unit. If Cane buys 88,000 units from the supplier instead of making those units, how much will profits increase or decrease?
10.
Assume that Cane expects to produce and sell 58,000 Alphas during the current year. A supplier has offered to manufacture and deliver 58,000 Alphas to Cane for a price of $112 per unit. If Cane buys 58,000 units from the supplier instead of making those units, how much will profits increase or decrease?
13.
Assume that Cane’s customers would buy a maximum of 88,000 units of Alpha and 68,000 units of Beta. Also assume that the company’s raw material available for production is limited to 172,000 pounds. How many units of each product should Cane produce to maximize its profits?
14.
Assume that Cane’s customers would buy a maximum of 88,000 units of Alpha and 68,000 units of Beta. Also assume that the company’s raw material available for production is limited to 172,000 pounds. What is the maximum contribution margin Cane Company can earn given the limited quantity of raw materials?
15.
Assume that Cane’s customers would buy a maximum of 88,000 units of Alpha and 68,000 units of Beta. Also assume that the company’s raw material available for production is limited to 172,000 pounds. Up to how much should it be willing to pay per pound for additional raw materials? (Round your answer to 2 decimal places.)
Answer:
7. profits will decrease by:
lost profits = total revenue - total costs = $5,760,000 - $5,376,000 = $384,000unavoidable fixed costs = $18 x 48,000 units = $864,000total decrease in profits ($1,248,000)8. profits will decrease by:
lost profits from Beta product line = $8,160,000 - $7,616,000 = ($544,000)increased profits from Alpha sales = $2,220,000 - $1,668,000 = $552,000unavoidable fixed costs = (68,000 x $18) - (12,000 x $23) = (948,000)total decrease in profits ($940,000)9. profits will increase by:
avoidable costs of producing 88,000 Alphas = 88,000 x $116 = $10,208,000cost of purchasing 88,000 x $112 = ($9,856,000)total increase in profits = $10,208,000 - $9,856,000 = $352,00010. profits will increase by:
avoidable costs of producing 58,000 Alphas = 58,000 x $116 = $6,728,000cost of purchasing 58,000 x $112 = ($6,496,000)total increase in profits = $6,728,000 - $6,496,000 = $232,00013. Since the profit margin per pound of direct materials used for Alphas = $7.67 and Betas = $4, the company should produce Alphas. It should produce 28,666 Alphas and 2 Betas. Total profits = $1,318,636 + $16 = $1,318,652
14. Maximum contribution margin:
Contribution margin Alphas = 28,666 units x $92 = $2,637,272Contribution margin Betas = 2 units x $52 = $104total contribution margin = $2,637,37615. Since the profit margin per pound of materials used Betas is only $4, there is not much room for increasing the materials costs. If you want to produce Betas, you would be willing to pay less than $9 per pound of direct materials.
But since the profit margin per pound of direct materials used on Alphas is much higher ($7.67), as long as you pay less than $12.97 per pound of direct materials you can still make a profit producing Alphas. So you could pay a much higher price if you wanted to produce Alphas and still make a profit.
Explanation:
Alpha Beta
Sales price $185 $120
Direct materials ($5 per pound) $30 $10
pounds of materials used 6 2
profit margin per pound $7.67 $4
Direct labor $22 $29
Variable manufacturing overhead $20 $13
Traceable fixed man. overhead $24 $26
Variable selling expenses $20 $16
Common fixed expenses (unavoidable) $23 $18
Total cost per unit $139 $112
total production capacity 112,000 units per year
contribution margin = sales revenue - variable costs:
contribution margin Alpha = $185 - $93 = $92
contribution margin Beta = $120 - $68 = $52
A local radio commercial costs $600 and reaches an estimated 10,250 listeners. A local cable commercial costs $1000 and reaches an estimated 18,500 viewers. Which medium provides the lowest CPM?
a. The radio commercial
b. The cable commercial
c. The radio and cable commercials have the same CPM
d. The CPM cannot be calculated given the limited information provided
e. None of the above
Answer:
b. The cable commercial
Explanation:
CPM or cost per mille is a measure used in advertising to determine how effectively a promotional message is getting to its audience. It is the cost of getting an advert in front of 1,000 people.
In this scenario when we calculate CPM for the radio station
$600 = 10,250 listeners
x= 1,000 listeners
Cross multiply
x= (600 * 1,000) ÷ 10,250 = $58.54
For the local cable commercial
$1000 = 18,500 viewers
y = 1,000 viewers
Cross multiply
y= (1,000 * 1,000) ÷ 18,500= $54.05
Hardwig Inc. is considering whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are expected to total $3,600,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is $150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed policy its total assets turnover will be 2.2. Refer to the data for Hardwig, Inc. Assume now that the company believes that if it adopts a restricted policy, its sales will fall by 15% and EBIT will fall by 10%, but its total assets turnover, debt ratio, interest rate, and tax rate will all remain the same. In this situation, what's the difference between the projected ROEs under the restricted and relaxed policies? a. 2.46% b. 2.98% c. 3.27% d. 2.24% e. 2.70%
Answer:
d. 2.24%
Explanation:
total annual sales = $3,600,000
fixed asset turnover = total sales / fixed assets = 4, that means that total fixed assets = $3,600,000 / 4 = $900,000
debt = 50% = $450,000
equity = 50% = $450,000
EBIT = $150,000
net income = $150,000 x (1 - 40%) = $90,000
restricted policy:
asset turnover = 2.5
sales = $3,600,000 x (1 - 15%) = $3,060,000
EBIT = $135,000
net income = $81,000
assets = $3,060,000 / 2.5 = $1,224,000
equity = $1,224,000 x 50% = $612,000
ROE = $81,000 / $612,000 = 13.24%
relaxed policy:
asset turnover = 2.2
EBIT = $150,000
net income = $90,000
assets = $3,600,000 / 2.2 = $1,636,364
equity = 50% x $1,636,364 = $818,182
ROE = $90,000 / $818,182 = 11%
difference between ROEs = 13.24% - 11% = 2.24%
Digger Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year.
Budgeted Actual
Overhead cost $975,000 $950,000
Machine hours 50,000 45,000
Direct labor hours 100,000 92,000
Required:
a. Compute the predetermined overhead rate.
b. Determine the amount of overhead applied for the year.
Answer:
Predetermined overhead rate = $ 9.75 per direct labor hours
Overhead applied = $897,000
Explanation:
Given:
Budgeted Overhead cost = $975,000
Actual Overhead cost = $950,000
Budgeted Machine hours = 50,000
Actual Machine hours = 45,000
Budgeted Direct labor hours = 100,000
Actual Direct labor hours = 92,000
Computation:
(a) Predetermined overhead rate.
Predetermined overhead rate = budgeted overhead cost / budgeted direct labor hours
Predetermined overhead rate = $975,000 / 100,000
Predetermined overhead rate = $ 9.75 per direct labor hours
(b) Amount of overhead applied for the year.
Overhead applied = Actual hours × Predetermined overhead rate
Overhead applied = 92000 × $9.75
Overhead applied = $897,000
Mila is helping to set performance targets for her company, Urban Supply. The target of increasing the company's online customer satisfaction rate by 1% in the next quarter is an example of a performance target focused on the customer perspective of the balance scorecard.
a. true
b. false
Answer: True
Explanation:
The balanced scorecard perspective implies that the company has to satisfy their customer through the provision of quality products and services.
From the question, the target of increasing customers satisfaction is a good example of a performance target that is focused on customer's perspective of the balance scorecard. This means that the statement is true.
Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs are $ 60 comma 000 for proposal A and $ 75 comma 000 for proposal B. The variable cost is $ 12.00 for A and $ 10.00 for B. The revenue generated by each unit is $ 22.00.
Required:
a. What is the break-even point in units for proposal A?
b. What is the break-even point in units for proposal B?
Answer:
Break-event point
Product A 6,000 units
Product B 6,250 units
Explanation:
The break-even point is the level of activity that a business must operate to equate total revenue to total cost . At the break even point, the business makes no profit or loss., and the total contribution is equal to total fixed cost
The break-even point is calculated as follows:
Total general fixed cost/(selling price - variable cost)
Break-even point = 60,000/(22-12)=6000 units
Product B
Beak-even point = 75,000/(22-10)=6250 units
Break-event point
Product A 6,000 units
Product B 6,250 units
Digital Corp is considering investing in project A. Their accountants gave them the following information: Initial investment: $1,200,000 Salvage Value: $340,000 Contribution Margin: $320,000 Present Value of Cash Flows: 4,580,000 Annual Cash Inflow: $850,000 Cost of Capital: 9% Length of project: 5 years What is the payback period
Answer:
The payback period for the investment is 1.41 years
Explanation:
The payback period is the length of time it takes an investment to repay back the investment capital outlay committed to it at the inception of the project.
The payback period is computed as the initial investment divided by annual cash inflow
Initial investment is $1,200,000
Annual cash inflow is $850,000
Payback period=$1,200,000/$850,000= 1.41 years
We can express the 0.41 in months=0.41*12=4.92 approximately 5 months
Gretchen has just started as a fashion marketing intern for an up-and-coming design firm. When she came in, she was asked to work on a project identifying important events where celebrities might wear the fashions. She soon realized that this activity was part of _____________, directly related to marketing.
Answer:
A push-pull strategy
Explanation:
The Push strategy is an aspect of marketing where the marketer aims at taking his products directly to a target audience. This is done so as to stimulate the interest of the consumer in that particular product. Developing brands tend to employ this strategy to showcase themselves to the consumer in hopes of getting them attracted to their products. This is the strategy which the up-and-coming design firm is trying to employ when they seek to identify important events where celebrities might wear the fashions. They engage in this activity because they want to showcase their designs to the target audience- the celebrities.
Pull strategy is the opposite of this strategy as customers are now aware of the reputation of the brand and then seek them out on their own.
Marina had an accident with her car and the repair bill came to $900. She didn't have any emergency fund money and no extra
money in her monthly budget, so she ended up borrowing from a pay-day loan company. As long as she can pay the loan back at
the end of the 30 day period she won't be charged any interest, technically. However, she did have to pay an $18 processing fee
per $100 that she borrowed.
If she were to consider the processing fee to represent interest paid in her formula, what would she discover to
be the annual interest rate she was charged on her short term loan?
Answer:
216%
Explanation:
Ordinary interest is computed on the basis of a 360-day year, so Marina's borrowing period is 1/12 of a year. The annual rate is then 12 times the rate Marina pays for 30 days:
12 × 18/100 = 216/100 = 216%
Marina would discover the annual interest rate is 216%.
