Answer:
Expenditures $600,000; Supplies inventory $200,000
Explanation:
Expenditures $600,000; Supplies inventory $200,000
Purchased supplies for use - Part of the supplies used.
$600,000-$400,000=$200,000
If at the beginning of the year the city had no supplies on hand in which it purchased $600,000 of supplies for use by activities accounted for in the general fund that means city used $400,000 out of the $600,000 of those supplies during the year in which the balance left of those supplies is $200,000 which will be the supplies inventory while the Purchased supplies for use of $600,000 will be the expenditure .
TL Company has expected earnings of $75 in one year if it does well and $25 if it does poorly. The firm has outstanding debt of $50 that is due in one year. However, given the financial distress costs, the debtholders will only receive $40 in one year if the firm does well and $15 if it does poorly. There is a 60 percent chance the firm will do well and a 40 percent chance that it will do poorly. What is the current value of the debt if the interest rate on bonds is 8 percent
Answer:$27.78
Explanation:
Expected value of debt after one year = (40* .60)+(15*.40)
= 24 + 6
=$ 30
Current value of debt = Value at 1year / (1+r)^n
= 30/ (1+.08)^1
= 30 / 1.08
=$ 27.78
The current value of the TL Company's outstanding debt, with an 8 percent market interest rate, is calculated to be approximately $27.78, based on expected payoffs and individual probabilities.
Explanation:The current value of the outstanding debt can be calculated using the expected payoff and the market interest rate. The calculation method involves deriving the expected payoff by multiplying each scenario's payoff by the probability, then adding these up, and finally dividing by the interest rate. The expected payout on the debt that the TL Company has is $40*0.6 (probability firm does well) + $15*0.4 (probability firm does poorly) = $24 + $6 = $30. Given an interest rate of 8 percent, the current value of the debt would be $30 divided by 1.08 (the interest rate expressed as a decimal plus 1), Equalling approximately $27.78.
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Given the following history, use a three-quarter moving average to forecast the demand for the third quarter of this year. Note, the 1st quarter is Jan, Feb, and Mar; 2nd quarter Apr, May, Jun; 3rd quarter Jul, Aug, Sep; and 4th quarter Oct, Nov, Dec.
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Last year 100 125 135 175 185 200 150 140 130 200 225 250
This year 125 135 135 190 200 190
Forecast for the third quarter:
The forecast for the third quarter of this year (Jul, Aug, Sep) is 193.33 units using a three-quarter moving average.
To forecast the demand for the third quarter of this year using a three-quarter moving average, we'll calculate the average demand for the first and second quarters and use that average as the forecast for the third quarter.
First, calculate the moving averages for the last year's data and this year's data:
For last year (LY), the moving averages are:
- Q1 (Jan, Feb, Mar): (100 + 125 + 135) / 3 = 120
- Q2 (Apr, May, Jun): (175 + 185 + 200) / 3 = 186.67
- Q3 (Jul, Aug, Sep): (150 + 140 + 130) / 3 = 140
- Q4 (Oct, Nov, Dec): (200 + 225 + 250) / 3 = 225
For this year (TY), the moving averages for the available data are:
- Q1 (Jan, Feb, Mar): (125 + 135 + 135) / 3 = 131.67
- Q2 (Apr, May, Jun): (190 + 200 + 190) / 3 = 193.33
Now, we'll use the moving average of this year's Q2 (193.33) as the forecast for Q3 since it's the most recent data available.
So, the forecast for the third quarter (Jul, Aug, Sep) of this year is 193.33 units. This moving average method provides a simple forecast based on historical patterns, assuming that the recent trend in demand will continue into the next quarter.
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To forecast the demand for the third quarter, use the 3/4 moving average formula applied to the given history data
Given data:
The 3/4 moving average for the third quarter this year can be calculated using the following steps:
Calculate the moving average for the first two quarters of this year.Then, apply the 3/4 moving average formula: ((Last year Q1 + Q2 + Q3 + This year Q1 + Q2 + Q3 + Q4) + (This year Q1 + Q2 + Q3))/3.Finally, substitute the actual values and calculate the forecast for the third quarter.A company purchased factory equipment on April 1, 2013 for $80,000. It is estimated that the equipment will have an $10,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2013 is A. $5,250. B. $8,000. C. $7,000. D. $6,000.
Answer:
A.$5,250
Explanation:
=(80,000-10,000)/10=7,000*9/12=$5,250
The depreciation have been worked out on pro rata basis for 9 months starting from April 1st to 31 December 2013.
Answer:
A.$5,250
Explanation:
=(80,000-10,000)/10=7,000*9/12=$5,250
The depreciation for 9 months starting from April 1st to 31 December 2013.recoded as depreciation expense $5,250
Assume that Bon Temps is expected to experience supernormal growth of 30% for the next 3 years, then to return to its long-run constant growth rate of 6%. What is the stock’s value under these conditions? What are its expected dividend yield and its capital gains yield in Year 1? In Year 4?
Answer:
Expected value one year from now=D2/(k-g)
=2.25/(16%-6%)
=22.5
Explanation:
Staples, the office supply store, owns Quill, which specializes in selling to more than 1 million small and mid-sized U.S. businesses. For example, Quill offers medical supplies to doctors’ offices. Staples has found it pays to departmentalize by _______.
A. Product
B. Function
C. Customer
Final answer:
Staples has found it pays to departmentalize by customer, as exemplified by its subsidiary Quill, which targets small and mid-sized U.S. businesses with specific product offerings like medical supplies for doctors' offices. This approach takes advantage of specialization and addresses the unique needs of different customer segments.
Explanation:
Staples, the office supply store, owns Quill, which specializes in selling to small and mid-sized U.S. businesses, such as providing medical supplies to doctors' offices. When we consider the organization of departments in major grocery stores in the United States, which are sorted into departments like dairy, meats, produce, etc., this is an example of a business that is departmentalized by product. Each product category is specialized to cater to the needs of different consumers and to manage the vast array of items effectively.
In the context of business operations, companies like Staples departmentalize to take advantage of specialization, which allows employees to focus on a part of the production process where they have an advantage, similar to how people have different skills and interests. Whether it be educational choices, regional advantages, or the scale of operation, specialization can lead to greater productivity and effectiveness. In Staples' case, through Quill, it has chosen to departmentalize by customer type, which allows the organization to cater specifically to the needs of small and mid-sized businesses, providing them with tailored products and services.
Required and excess reserves Suppose that Second Republic Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%.What are the Reserves, Required Reserves, and Excess Reserves?
Answer:
Reserves = $70,000
Required reserves = $20,000
Excess Reserves = $50,000
Explanation:
The data given from the question:
Demand deposits = $200,000
Outstanding loans = $130,000
Reserve requirement = 10%
And we are solving for:
Reserves, Required Reserves and Excess Reserves
For these we will look at 3 balance sheet
Assets = Total liabilities + capital
Reserves + Outstanding Loan = Demand Deposits
Reserves + $130,000 = $200,000
Reserves = $70,000
Since reserve ratio =10%, Out of total $200,000 deposits, required reserves = $200,000 x 10% = $20,000
Excess Reserves = Total Reserves - Required Reserves = $(70,000 - 20,000) = $50,000.
Final answer:
Second Republic Bank has total Reserves of $70,000, Required Reserves of $20,000, and Excess Reserves of $50,000, with each calculated based on the given demand deposit of $200,000 and a 10% Federal Reserve requirement.
Explanation:
The question asks us to calculate the Reserves, Required Reserves, and Excess Reserves for Second Republic Bank given its demand deposits and outstanding loans, with the Federal Reserve setting the reserve requirement at 10%. To clarify these terms:
Reserves are the amount of funds a bank has on hand to cover any withdrawals made by clients.
Required Reserves is the amount that a bank must hold by regulation, which in this case is 10% of demand deposits.
Excess Reserves is any amount of money that a bank holds over the required minimum.
Assuming that Second Republic Bank must maintain 10% of demand deposits as reserves, we calculate the Required Reserves as 10% of $200,000, equaling $20,000.
Given that the bank has $130,000 in loans and loans and reserves together should equal total deposits, the total Reserves would equal demand deposits minus outstanding loans, which is $200,000 - $130,000 = $70,000. Therefore, the Excess Reserves would be the total Reserves minus the Required Reserves, which is $70,000 - $20,000 = $50,000.
Write a Risk Management Plan (RMP) using the content found in the PMBOK 6e (Section 11.1.3.1). At a minimum, the plan should address all elements of a RMP found in the PMBOK. The plan should include the following figures and tables:
Answer:
The risk management plan describes how risk management activities will be structured and performed. There are 6 elements to be included in the risk management plan
Explanation:
According to the Project Management Institute (PMI, 2017), a risk management plan should consist of the following elements:
•Risk strategy – a risk strategy describes the approach to managing risk. It consists of looking at the project from all perspectives, identifying risks and choosing the best possible solution to the risk.
•Methodology – this defines the specific tools, ideas, and sources of data that will be used to undertake the risk management task
•Roles and Responsibilities – everyone on the team should have a clear understanding of what is expected of them and how they should react should a certain problem arise. Leaders, supporters and the entire team should have a specific task assigned to them.
•Funding – possible sources of financial assistance and calculated estimates of how much would be needed for each specific risk identified, should be established in the plan and potential funders should be contacted
•Timing – defines when and how often the processes will be performed and defines risky activities and how much time would be needed to deal with each risk
•Risk categories – risks should be categorized in terms of their severity and/ or likeliness to occur. A scale of 1 – 5 can be used, where 1 is lease likely to occur and 5 is most likely, or, 1 being least severe and 5 being very severe
It is important to monitor, evaluate and review the plan once it is implemented.
Seneca Hill Winery recently purchased land for the purpose of establishing a new vineyard. Management is considering two varieties of white grapes for the new vineyard: Chardonnay and Riesling. The Chardonnay grapes would be used to produce a dry Chardonnay wine, and the Riesling grapes would be used to produce a semidry Riesling wine. It takes approximately four years from the time of planting before new grapes can be harvested. This length of time creates a great deal of uncertainty concerning future demand and makes the decision about the type of grapes to plant difficult. Three possibilities are being considered: Chardonnay grapes only; Riesling grapes only; and both Chardonnay and Riesling grapes. Seneca management decided that for planning purposes it would be adequate to consider only two demand possibilities for each type of wine: strong or weak. With two possibilities for each type of wine, it was necessary to assess four probabilities. With the help of some forecasts in industry publications, management made the following probability assessments:
Riesling Demand
Chardonnay Demand Weak Strong
Weak 0.05 0.50
Strong 0.25 0.20
Revenue projections show an annual contribution to profit of $20,000 if Seneca Hill only plants Chardonnay grapes and demand is weak for Chardonnay wine, and $70,000 if they only plant Chardonnay grapes and demand is strong for Chardonnay wine. If they only plant Riesling grapes, the annual profit projection is $25,000 if demand is weak for Riesling grapes and $45,000 if demand is strong for Riesling grapes. If Seneca plants both types of grapes, the annual profit projections are shown in the following table:
Riesling Demand
Chardonnay Demand Weak Strong
Weak $22,000 $40,000
Strong $26,000 $60,000
a. What is the decision to be made, what is the chance event, and what is the consequence? Identify the alternatives for the decisions and the possible outcomes for the chance events.
b. Develop a decision tree.
c. Use the expected value approach to recommend which alternative Seneca Hill Winery should follow in order to maximize expected annual profit.
d. Suppose management is concerned about the probability assessments when demand for Chardonnay wine is strong. Some believe it is likely for Riesling demand to also be strong in this case. Suppose the probability of strong demand for Chardonnay and weak demand for Riesling is 0.05 and that the probability of strong demand for Chardonnay and strong demand for Riesling is 0.40. How does this change the recommended decision? Assume that the probabilities when Chardonnay demand is weak are still 0.05 and 0.50.
e. Other members of the management team expect the Chardonnay market to become saturated at some point in the future, causing a fall in prices. Suppose that the annual profit projections fall to $50,000 when demand for Chardonnay is strong and Chardonnay grapes only are planted. Using the original probability assessments, determine how this change would affect the optimal decision.
Seneca Hill Winery must decide on grape varieties to plant based on probability assessments of future demand. A decision tree and expected value calculations can aid in making a profit-maximizing decision. Changes in probabilities and profit projections affect the decision, as seen with adjustments to the likelihood of demand scenarios and revenue from Chardonnay.
Decision Making, Chance Events, and Consequences
The decision to be made by Seneca Hill Winery involves choosing which variety or combination of grape varieties to plant: Chardonnay only, Riesling only, or both. The chance event is the future market demand for each type of wine, which could be strong or weak. The consequences are the financial outcomes or annual profits that result from the combination of these decisions and chance events.
Decision Tree Development
A decision tree is a visual representation that starts with the decision node (the choice of grape variety), followed by chance nodes (representing the strong or weak demand for each wine), and the ends with terminal nodes indicating the profits.
Expected Value Analysis
To maximize expected annual profit, we calculate the expected value for each strategy:
Chardonnay only: 0.05*20,000 + 0.25*70,000 = 14,500Riesling only: 0.50*25,000 + 0.20*45,000 = 16,000Both: 0.05*22,000 + 0.50*40,000 + 0.25*26,000 + 0.20*60,000 = 33,500Both grapes offer the highest expected annual profit, so Seneca should plant both Chardonnay and Riesling grapes.
Revised Probabilities and Profit Projections
Changing the probability assessments affects the expected value calculations. With a higher likelihood of strong demand for both varieties when Chardonnay demand is strong, the expected profit changes, potentially altering the optimal decision. If Chardonnay profits decrease to $50,000 under strong demand, this also affects the expected values and might influence Seneca to reconsider the decision to plant Chardonnay only.
On August 1, Ling-Harvey Corporation (a U.S.-based importer) placed an order to purchase merchandise from a foreign supplier at a price of 400,000 ringgits. Ling-Harvey will receive and make payment for the merchandise in three months on October 31. On August 1, Ling-Harvey entered into a forward contract to purchase 400,000 ringgits in three months at a forward rate of $0.60. It properly designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate. Relevant exchange rates for the ringgit are as follows: Date Spot Rate Forward Rate (to October 31) August 1 $ 0.60 $ 0.60 September 30 0.63 0.66 October 31 0.68 N/A Ling-Harvey's incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Ling-Harvey must close its books and prepare its third-quarter financial statements on September 30. Prepare journal entries for the forward contract and firm commitment through October 31. Assuming the inventory is sold in the fourth quarter, what is the impact on net income over the two accounting periods
Answer:
Detailed workings are in the explanations.
Explanation:
August 1
On August 1, Ling Harvey entered into a forward contract to purchase 400000 ringgits in 3 months at a forward rate of $0.60.
If Ling Harvey has to pay 400000 ringgits now, total outflow would be $ 240000 (400000*0.60) and in forward contract it has to pay $ 240000 also (400000*0.60), so ling harvey has not incurred any loss
So, there is a firm commitment to pay $ 240000 on October, 31
For entering into a forward contract, there will be no entry.
On September, 30
Forward contract rate has increased to 0.66 from 0.60 (august, 1), so there is a increase in the fair value of the Forward Contract. Earlier its value was $240,000 on Aug,1 but now its value is $ 264,000, so there is a increase in fair value by $24,000
Since this $24000 will be realized on Oct, 31, we will book it today at present value
Present value = $24000*0.9901= $23,762.4
Journal entry would be as follows:
Debit: Forward Contract a/c $23,762.4
Credit: Gain on Forward Contract $23,762.4
Now, the spot rate determines the fair value of Commitment, so there is an increase in fair value of firm commitment by (0.63 - 0.60) * $400,000 =$12,000.
0.63 is the spot rate on September, 30
Since our Firm commitment value increased by $12,000, we need to book it at present value .
Present Value = $12,000*0.9901=$11,881.2
Journal Entry is as follows:
Debit: Loss on Firm Commitment a/c $11,881.2
Credit: Firm Commitment $11,881.2
So its effect on Net income is as follows:
Debit: Gain on Forward Contract a/c $23,762.4
Credit: Loss on Firm Commitment $11,881.2
Credit: Retained Earnings $11,881.2
On October 31
Today spot rate is 0.68, so the value of the forward contract when compared to its value on Aug 1
= (0.68 - 0.60) *$400,000
= $32,000
So there is an increase in Forward Contract Value by $32,000, since we have already booked $23,762.4, we will book the additional value $82,37.6 as follows:
Debit: Forward Contract a/c $8,237.6
Credit: Gain on Forward Contact $8,237.6
So, the Firm Commitment value has also increased from 0.60(Aug 1) to 0.68
Increase in value = (0.68-0.60) *$400,000 = $32,000
As we have already booked a liability of $11,881.2, we will be book the additional increase in value of $20,118.8 as follows
Debit: Loss on Firm Commitment a/c $20,118.8
Credit: Firm Commitment $20,118.8
So, its effect on Net Income is as follows
Debit: Gain on Forward Contract a/c $8,237.6
Debit: Retained Earnings a/c $11,881.2
Credit: Loss on Firm Commitment $20,118.8
So the total effect on Net income is 0, as on Sept 30 retained earnings has been credited by $11881.2 and on Oct 31, it has been debited by $11881.2... This is due to as there was no difference between spot rate & forward rate on August 1
As on 31st October, there is a debit balance of $32,000 in Forward Contract & credit balance of $32000 in Firm commitment.
Entry for Goods received & payment to foreign supplier is as follows
Debit: Inventory (At spot rate on Aug 1) $240,000
Debit: Firm Commitment (offset) $32,000
Credit: Forward contract (offset) $32,000
Credit: Cash (At forward rate on Aug 1) $240,000
The net cash outflow to foreign supplier is $240,000.
offers a 6.3 percent bond with a current market price of $767.50. The yield to maturity is 8.49 percent. The face value is $1,000. Interest is paid semiannually. How many years is it until this bond matures
Answer:
9.25 years
Explanation:
Price of the bond is the present value of all cash flows of the bond. These cash flows include the coupon payment and the maturity payment of the bond. Price of the bond is calculated by following formula:
According to given data
Assuming the Face value of the bond is $1,000
Coupon payment = C = $1,000 x 6.3 = $63 annually = $31.5 semiannually
Current Yield = r = 8.49% / 2 = 4.245% semiannually
Market value = $767.50
Market Value of the Bond = $31.5 x [ ( 1 - ( 1 + 4.425% )^-n ) / 4.425% ] + [ $1,000 / ( 1 + 4.425% )^n ]
Market Value of the Bond = $31.5 x [ ( 1 - ( 1 + 4.425% )^-n ) / 4.425% ] + [ $1,000 / ( 1 + 4.425% )^n ]
n = 18.53 / 2
n = 9.25 years
Answer:
27.85years
Explanation:
Nper = ? (indicates the period)
PV = 767.50 (indicates the price)
FV = 1000 (indicates the face value)
Rate = 8.49%/2 (indicates semi-annual YTM)
PMT = 1000 x 6.30% x 1/2 = 31.50 (indicates the amount of interest payment)
Period = Nper(Rate,PMT,PV,FV)/2 = Nper(8.49%/2,31.50,-767.50,1000)/2 = 27.85 Years
Frank Wesley, project manager for the LOGON project, is concerned about the development time for the robotic transporter. Although the subcontractor, Creative Robotics, has promised a delivery time of 6 weeks, Frank knows that the actual delivery time will be a function of the number of other projects Creative Robotics is working on. As an incentive to speed up delivery of the transporter, Frank has three options: S1: Do nothing S2: Promise Creative Robotics a future contract with Iron Butterfly S3: Threaten to never contract with Creative Robotics again. He estimates the impact of these actions on delivery time would be as follows: Payoffs: Strategy Creative Robotics Workload Low Average Busy S1 4 6 8 S2 3 4 7 S3 3 6 6 What strategy should Frank adopt based upon uncertainty criteria
Answer:
s3
Explanation:
Adopting s1 will result in delivery time of 8 weeks when Creative Robotics is busy as per maximin criteria and maximax criteria.
Adopting s3 will result in delivery time of 6 weeks when Creative Robotics is busy as per minimax criteria.
In this scenario, minimax criteria must be used to make decision as worst loss is to be estimated.
Edward McDowell Co. establishes a $138,000,000 liability at the end of 2020 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2021. Also, at the end of 2020, the company has $69,000,000 of temporary differences due to excess depreciation for tax purposes, $9,660,000 of which will reverse in 2021. The enacted tax rate for all years is 20%, and the company pays taxes of $44,160,000 on $220,800,000 of taxable income in 2020. McDowell expects to have taxable income in 2021.
Determine the deferred taxes to be reported at the end of 2020.
Answer:
The answer is given below;
Explanation:
Site-cleanup costs $138,000,000
This will give rise to deferred tax asset of $138,000,000*20%=$27,600,000
Tax Depreciation excessive for the year=$9,660,000
Excess tax depreciation deducted in current year will give rise to deferred tax liability=$9,660,000*20%=$1,932,000
Current Tax Expense =$44,160,000
Deferred Tax During 2020 are;
Deferred Tax Asset $9,660,000
Deferred Tax Liability $1,932,000
Current Tax Expense $44,160,000
Sunland Company purchased $1200000 of 11% bonds of Scott Company on January 1, 2021, paying $1122375. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $77625 provides an effective yield of 12%. Sunland Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2021, Sunland Company should increase its Debt Investments account for the Scott Company bonds by:________
Answer:
Sunderland Company should increase debt investment by $2,685.00
Explanation:
Sunderland Company needs to increase its debt investments account for Scott Company bonds with the difference between effective interest earned on July 1 2021 minus the actual coupon interest received as shown below:
The actual interest revenue earned = $1122375*12%
=$ 134,685.00
The coupon interest received=$1,200,000*11%
=$ 132,000.00
In a nutshell,the investment in bonds earned interest of $134,685 but only $132,000 was received in cash,hence the difference of $2,685 is added to the bonds investment figure($134,685-$132,000)
During January, Luxury Cruise Lines incurs employee salaries of $1.1 million. Withholdings in January are $84,150 for the employee portion of FICA, $165,000 for federal income tax, $68,750 for state income tax, and $11,000 for the employee portion of health insurance (payable to Blue Cross/Blue Shield). The company incurs an additional $68,200 for federal and state unemployment tax and $33,000 for the employer portion of health insurance. Required: 1., 2. & 3. Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions.)
Answer:
See the explanation below.
Explanation:
Details Dr ($) Cr ($)
Salary expenses 1,100,000
Employee portion of FICA payable 84,150
Federal income tax payable 165,000
Employee's State income tax payable 68,750
Employee portion of health ins. payable 11,000
Net salaries payable 771,100
To record gross salaries, withholding taxes and net salaries
Employer portion of FICA expenses 84.150
Federal and state unemployment tax 68,200
Employer portion of health insurance 33,000
Employer portion of FICA payable 84,150
Fed. and state unemploymt tax payable 68,200
Employer portion of health ins. payable 33,000
To record employer's payroll taxes and other expenses
Employee portion of FICA payable 84,150
Federal income tax payable 165,000
State income tax payable 68,750
Employee portion of health ins. payable 11,000
Net salaries payable 771,100
Employer portion of FICA payable 84,150
Fed. and state unemploymt tax payable 68,200
Employer portion of health ins. payable 33,000
Cash 1,285,350
To record payment of payroll liabilities and other expenses
Sleepgood Company produces and sells pillows. It expects to sell 15,000 pillows in the next year and will have 1,500 pillows in finished goods inventory at the end of the current year. Sleepgood would like to complete operations next year with at least 1,350 completed pillows in inventory. There is no ending work-in-process inventory. The pillows sell for $6 each. How many pillows would be produced in the next year?
Answer:
Pillows to be produced next year =14,850 units
Explanation:
The expected units of a product that a business estimates to manufacture gives its sales budget and inventory is known as the production budget.
The production budget can bed determined by adjusting the sales budget for closing and opening inventories.
Production budget = Sales budget +closing inventory - opening inventory
No that the opening inventory for next year would be the closing inventory for the current year. Therefore, the opening inventory for next year is 1,500 units.
Sales budget for next year - 15,000, closing inventory -1,350
Production budget = 15,000 + 1,350 - 1,500
= 14,850 units
Pillows to be produced next year =14,850 units
If the European subsidiary of a U.S. firm has net exposed assets of euro200,000, and the euro increases in value from $1.22/euro to $1.26/euro the U.S. firm has a translation: A. loss of $8,000. B. gain of $8,000. C. loss of euro252,000. D. gain of $252,000.
Answer:
B. Gain $8,000
Explanation:
The calculation of exchange translation is shown below:-
Old exchange rate = Net exposed assets × Value of Euro
= 200,000 × $1.22
= $244,000
New value in euro = Net exposed assets × Increased exchange rate
= 200,000 × $1.26
= $252,000
Translation Profit = New value in euro - Old exchange rate
= $252,000 - $244,000
= $8,000
A U.S. company that manufactures home appliances is interested in entering the foreign market of China. The company has many national appliance competitors in the Chinese market with an understanding of the unique needs of Chinese customers. Based on these facts, the U.S. company should consider what strategy for entering the Chinese market?
Answer: Global strategic alliance
Explanation:
A global strategic alliance is a strategy that is used when a company wants to go into a business and have an edge over others in the business in a new market usually outside the home domain of the company.
A global strategic alliance is also used when a firm is establishing it's branch in another country where the government protects its local industries. Alliances are then formed between two or more firms for a specified period of time.
The purpose of the alliance is to maximize competitive advantage. A global strategic alliance is an arrangement that takes place between two firms to accomplish a mutually beneficial project despite each other retaining their independence.
Maxtor Technology incurred the following costs during the year related to the creation of a new type of personal computer monitor: Salaries $ 280,000 Depreciation on R&D facilities and equipment 155,000 Utilities and other direct costs incurred for the R&D facilities 72,000 Patent filing and related legal costs 28,000 Payment to another company for performing a portion of the development work 150,000 Costs of adapting the new monitor for the specific needs of a customer 86,000 What amount should Maxtor report as research and development expense in its income statement?
Answer:
$657,000
Explanation:
The computation of the research and development expense reported is shown below:
Salaries $280,000
Depreciation R&D facilities and equipment $155,000
Utilities and other direct costs $72,000
Payment to another company $150,000
Total R & D expense $657,000
All other items which are not taken in the computation part is irrelevant. Hence ignored it
Maxtor should report a total of $685,000 as research and development expenses in its income statement, which includes salaries, depreciation on facilities and equipment, utilities and other direct costs, patent filing and legal costs, and payment to another company for development work.
Explanation:The total amount that Maxtor should report as research and development expense in its income statement is the sum of costs directly related to the research and development activity. These include the salaries of $280,000, depreciation on R&D facilities and equipment of $155,000, utilities and other direct costs incurred for the R&D facilities of $72,000, patent filing and related legal costs of $28,000, and payment to another company for performing a portion of the development work $150,000. Therefore, the total R&D expenditure would be $685,000. The cost of adapting the new monitor for the specific needs of a customer is not a part of R&D expenses, it is a production cost.
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Marigold Company estimates that annual manufacturing overhead costs will be $865,920. Estimated annual operating activity bases are direct labor cost $492,000, direct labor hours 49,200, and machine hours 98,400. Compute the predetermined overhead rate for each activity base. (Round answers to 2 decimal places, e.g. 10.50% or 10.50.) Overhead rate per direct labor cost enter percentages rounded to 2 decimal places % Overhead rate per direct labor hour $enter a dollar amount rounded to 2 decimal places Overhead rate per machine hour
Answer:
Instructions are below.
Explanation:
Giving the following information:
Marigold Company estimates that annual manufacturing overhead costs will be $865,920. Estimated annual operating activity bases are direct labor cost $492,000, direct labor hours 49,200, and machine hours 98,400.
To calculate the estimated manufacturing overhead rate we need to use the following formula:
Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Direct labor cost:
Estimated manufacturing overhead rate= 865,920/492,000= $1.76 per direct labor dollar
Direct labor hour:
Estimated manufacturing overhead rate= 865,920/49,200= $17.6 per direct labor hour
Machine-hours:
Estimated manufacturing overhead rate= 865,920/98,400=$8.8 per machine hour
The average ticket price for a concert at the opera house was $50. The average attendance was 2500. When the ticket price was raised to $54, attendance declined to an average of 2100 persons per performance. What should the ticket price be to maximize revenue for the opera house?
Answer:
The price per ticket should be $37.5
Explanation:
First we need to determine the change in demand (attendance) as a result of every $1 increase in the price of ticket.
The ticket price increased by $4 (from 50 to 54) and the demand fell by 400 (from 2500 to 2100). The change per dollar is, 400 / 4 = 100.
So, for every $1 increase in price, demand falls by 100.
The revenue is calculated by multiplying price by quantity demanded. Revenue equation will be,
Let x be the change in price from $50.
Revenue = (50 + x) * (2500 - 100x)
Revenue = 125000 - 5000x + 2500x - 100x²
Revenue = 125000 - 2500x - 100x²
To calculate the price that maximizes the revenue, we need to take the derivative of this equation.
d/dx = 0 - 1 * 2500x° - 2 * 100x
0 = -2500 - 200x
2500 = -200x
2500 / -200 = x
-12.5 = x
Price should be 50 - 12.5 = 37.5
At price $37.5 the revenue of the Opera House is maximized.
Quinlan has ample E & P to cover any distributions made during the year. One distribution made to a shareholder consists of property with an adjusted basis of $536,200 and a fair market value of $321,720. What are the tax consequences of this distribution to Quinlan? If an amount is zero, enter "0". As a result of the distribution, Quinlan Corporation has a realized of $ of which $ is recognized. The shareholder received property with a basis of $
Answer:
1.Quinlan distribution has realized a loss of
$214,480 of which $0 is recognized.
2. The shareholder received property with a basis of $321,720
Explanation:
1.
When property is been said to be distributed to shareholders the amount of dividend equal to the fair value of the said property which is $321,720 on the date of the distribution. Therefore the amount of taxable dividend is $321,720 which is before the dividends received deduction.
Therefore;
Net loss which shall not be allowed ($536,200-$321,720)
=$214,480
Quinlan distribution has realized a loss of
$214,480 which is not allowed to be recognized
2. Adjusted basis of the property distributed is $321,720
Fore Farms reported a pretax operating loss of $137 million for financial reporting purposes in 2021. Contributing to the loss were (a) a penalty of $5 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2021 and (b) an estimated loss of $12 million from accruing a loss contingency. The loss will be tax deductible when paid in 2022. The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2021 other than those described above. Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2021. 2. What is the net operating loss reported in 2021 income statement
Final answer:
To recognize the 2021 income tax benefit from the net operating loss, multiply the $137 million loss by the 25% tax rate to determine the tax benefit, which is $34.25 million, reflected as a Deferred Tax Asset. The net operating loss on the income statement remains $137 million.
Explanation:
To recognize the income tax benefit of the net operating loss in 2021, we first need to determine the tax benefits of the $137 million operating loss, the $5 million EPA penalty, and the $12 million estimated loss contingency.
In this case, the entire $137 million loss is tax-deductible. However, the $12 million estimated loss contingency will be tax deductible when actually paid in 2022, not in 2021. Yet, for financial accounting purposes, we recognize the benefit in the year that the loss is reported. Therefore, the income tax benefit will be based on the full $137 million loss.
The journal entry to recognize the income tax benefit is:
Debit: Income Tax Benefit $34.25 millionCredit: Deferred Tax Asset $34.25 millionTo calculate the benefit, multiply the $137 million by the tax rate of 25% (137 million * 0.25 = $34.25 million).
The net operating loss reported in the 2021 income statement is $137 million since that is the pretax operating loss before considering the tax benefit.
Final answer:
The journal entry to recognize the income tax benefit of the net operating loss for Fore Farms in 2021 debits Income Tax Benefit and credits Deferred Tax Asset for $34.25 million, which is 25% of the $137 million pretax operating loss. The net operating loss reported on the 2021 income statement is $137 million.
Explanation:
To recognize the income tax benefit of the net operating loss for Fore Farms in 2021, we need to consider the penalty and the estimated loss from accruing a loss contingency. Since the tax rate is 25% and the total pretax operating loss is $137 million (including both the penalty and the loss contingency), the journal entry would reflect an income tax benefit at this tax rate on the taxable portions of the operating loss.
The journal entry is as follows:
Debit Income Tax Benefit: $137 million x 25% = $34.25 millionCredit Deferred Tax Asset: $34.25 millionThe net operating loss for the income statement would be the pretax operating loss amount, which is $137 million.
Sarah just received an invoice for $12,000 with terms of 2/10, n/30. The invoice date was June 1. Her contract with the vendor indicates a charge of 1.5 percent per month on late payments. If Sarah pays this bill on June 15, she will send the vendor a check forA) $11,760.
B) $12,000.
C) $12,180.
D) Cannot answer without more information
Answer:
B. $12,000
Explanation:
Since it is given that
The invoice received for $12,000 with terms of 2/10, n/30 i.e 2 % discount is given if payment is made within 10 days and the net credit period allowed is 30 days
Plus if there is any delay then it would charge 1.5% per month
Now if Sarah pays this bill on June 15, so she sends the check for $12,000 as neither she is eligible for a discount as the payment is 5 days exceeded nor she paid any charged as she paid within 30 days
Therefore, she sends the check for $12,000 only
Security Technology Inc. (STI) is a manufacturer of an electronic control system used in the manufacture of certain special-duty auto transmissions used primarily for police and military applications. The part sells for $45 per unit and had sales of 24,800 units in the current year, 2018. STI has no inventory on hand at the beginning of 2018 and is projecting sales of 28,400 units in 2019. STI is planning the same production level for 2019 as in 2018, 26,600 units. The variable manufacturing costs for STI are $16, and the variable selling costs are only $0.70 per unit. The fixed manufacturing costs are $133,000 per year, and the fixed selling costs are $660 per year. Required: 1. Prepare an income statement for each year using full costing. 2. Prepare an income statement for each year using variable costing. 3. Prepare a reconciliation of the difference each year in the operating income resulting from the full and variable costing methods.
Answer:
1. Prepare an income statement for each year using full costing.
2018 2019
Sales 1,116,000 1,278,000
Less Cost of Sales (520,800) (596,400)
Opening Stock 0 37,800
Add Cost of Goods Manufactured 558,600 558,600
Less Closing Stock (37,800) 0
Gross Profit 595,200 681,600
Less Expenses
variable selling costs ($0.70) (17,360) (19,880)
fixed selling costs are ($660) ($660)
Net Income 577,180 661,060
2. Prepare an income statement for each year using variable costing.
2018 2019
Sales 1,116,000 1,278,000
Less Cost of Sales (396,800) (454,400)
Opening Stock 0 28,800
Add Cost of Goods Manufactured 425,600 425,600
Less Closing Stock (28,800) 0
Gross Profit 719,200 823,600
Less Expenses
fixed manufacturing costs (133,000) (133,000)
variable selling costs ($0.70) (17,360) (19,880)
fixed selling costs are ($660) ($660)
Net Income 568,180 670,060
3. Prepare a reconciliation of the difference each year in the operating income resulting from the full and variable costing methods.
2018 2019
Full Costing Operating Income 577,180 661,060
Add Fixed Costs in Opening Inventory 0 9,000
Less Fixed Costs in Closing Inventory (9,000) 0
Variable Costing Operating Income 568,180 670,060
Explanation:
Full Costing Product Cost = Variable Overheads + Fixed Overheads
= $16 + ($133,000/26,600 units)
= $21
1. Prepare an income statement for each year using full costing.
2018 2019
Sales 1,116,000 1,278,000
Less Cost of Sales (520,800) (596,400)
Opening Stock 0 37,800
Add Cost of Goods Manufactured 558,600 558,600
Less Closing Stock (37,800) 0
Gross Profit 595,200 681,600
Less Expenses
variable selling costs ($0.70) (17,360) (19,880)
fixed selling costs are ($660) ($660)
Net Income 577,180 661,060
Variable Costing Product Cost = Variable Overheads
= $16
2. Prepare an income statement for each year using variable costing.
2018 2019
Sales 1,116,000 1,278,000
Less Cost of Sales (396,800) (454,400)
Opening Stock 0 28,800
Add Cost of Goods Manufactured 425,600 425,600
Less Closing Stock (28,800) 0
Gross Profit 719,200 823,600
Less Expenses
fixed manufacturing costs (133,000) (133,000)
variable selling costs ($0.70) (17,360) (19,880)
fixed selling costs are ($660) ($660)
Net Income 568,180 670,060
3. Prepare a reconciliation of the difference each year in the operating income resulting from the full and variable costing methods.
Reconciliation of Full Costing Operating Income to Variable Costing Operating Income.
Hint : Difference lies in the Fixed Cost Component deferred in Closing Inventory under the Absorption Cost
2018 2019
Full Costing Operating Income 577,180 661,060
Add Fixed Costs in Opening Inventory 0 9,000
Less Fixed Costs in Closing Inventory (9,000) 0
Variable Costing Operating Income 568,180 670,060
Income statements for STI would be prepared for two years using full costing (absorption costing) and variable costing. Full costing includes both fixed and variable costs in the inventory valuation, while variable costing includes only variable costs, treating fixed overhead as a period expense. The operating income will differ between the two methods due to the treatment of fixed manufacturing overhead.
Explanation:The student has asked to prepare an income statement for two years using both full costing and variable costing methods and to reconcile differences in operating income between the two methods for Security Technology Inc. (STI), a manufacturer of electronic control systems for special-duty auto transmissions. Given that the part sells for $45 per unit, the annual fixed manufacturing costs amount to $133,000, the variable manufacturing costs are $16 per unit, and the variable selling costs are $0.70 per unit, we would calculate the income statements reflecting these costs and the given production and sales units.
Full costing, also known as absorption costing, includes both fixed and variable costs in the cost of goods sold and thus in the inventory valuation. Variable costing, on the other hand, only includes variable costs in the cost of goods sold; fixed manufacturing overhead is treated as a period expense. The operating income will differ between the two methods due to the treatment of fixed manufacturing overhead.
To complete the student's request, we would calculate the cost of goods sold and operating income under each method for both years, then reconcile any differences due to the accounting treatment of fixed manufacturing overhead.
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When a firm uses K units of capital and L units of labor, it can produce Q units of output with the production function Q = K√L. Each unit of capital costs 20, and each unit of labor costs 25. The level of K is fixed at 5 units. Find the equation of the firm’s short-run total cost curve?
Answer:
[tex] STC = 20K + 25L = 20*5 + 25*[\frac{Q^2}{25}] = 100 + Q^2 [/tex]
Explanation:
We are given:
K units of capital and L units of labor.
•Each unit of capital cost = 20
• Each unit of labor cost =25
• Level K is fixed at 5 units
We are told production function Q = K√L
Using the production functions and the values given, we can get that Q=5√L.
To find Q, the amount of labor will be given as:
[tex]L = \frac{Q^2}{25} [/tex]
Therefore, the Short run total cost function (STC) will be:
[tex] 20K + 25L = 20*5 + 25[\frac{Q^2}{25}] = 100 + Q^2 [/tex]
The short-run total cost curve of a firm with a fixed capital of 5 units and variable labor is given by[tex]TC = 100 + 5Q^2.[/tex]
Explanation:When a firm utilizes a production function Q = K√L, where K units of capital are fixed, and L units of labor are variable, we can determine the short-run total cost curve by incorporating the cost of labor and capital. Given that the firm has fixed capital at 5 units, with each unit of capital costing 20, and each unit of labor costing 25, the short-run total cost (TC) of producing Q units of output can be expressed as:
TC = Cost of Capital (K) + Cost of Labor (L)
Since capital is fixed, the cost of capital is constant at 5 units * 20 cost/unit = 100. The firm will alter L, depending on the output level desired. Since Q = 5√L, to find the cost as a function of Q, we solve for L: [tex]L = (Q/5)^2[/tex]. The cost for labor will then be 25 * L.
Substituting L into the total cost equation we get:
[tex]TC = 100 + 25 * (Q/5)^2[/tex]
[tex]TC = 100 + 5Q^2[/tex]
This equation represents the short-run total cost curve for the firm with a fixed capital level and variable labor costs.
Bridgeport Inc. had pretax financial income of $139,400 in 2020. Included in the computation of that amount is insurance expense of $4,400 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000.Prepare Bridgeport’s journal entry to record 2020 taxes, assuming a tax rate of 25%.
Answer:
Dr income expense($33450 +$2500) $35950
Cr income tax payable $33450
Cr deferred income tax $2500
Explanation:
The adjusted taxable income adjusted for disallowed insurance expense of $4,400 as well as the excess depreciation(timing difference) of $10,000
Pretax financial income $139,400
add:
disallowed expense $4,400
less:
additional depreciation ($10,000)
Adjusted taxable income $133,800
income tax expense is $133800 *25%=$33450
deferred tax liability =$10,000*25%=$2500
total tax expense for the year is 35950 ($33450+$2500)
As the contestant with the longest winning streak in the history of Jeopardy, Ken Jennings won more than $2.5 million. Suppose he invested $1.6 million in an ordinary annuity that earned 9.6%, compounded monthly. How much would he receive at the end of each month for the next 20 years
Answer:
Total amount = $10906400
He would receive = $ 45443.33 every month
Explanation:
Ken invested $1.6 million at 9.6% for 20 yes compounded monthly.
n = 20*12= 140
t = 20
P= 1600000
R= 9.6% = 0.096
Amount A is equal to
A = p(1+r/n)^(nt)
A =
1600000(1+(0.096/140))^ (140*20)
A =
1600000(1 + (6.857*10^-4))^(2800)
A= 1600000(1.0006857)^2800
A = 1600000*6.8165
A = 10906400
Every month, he will get
10906400/(12*20)
= 10906400/240
=$ 45443.333
Answer: Therefore, he would recieve $15,018.74 at the end of each month.
Explanation:
$1.6 million investment is the present value (PV)
PV = $1,600,000
INTEREST RATE(r) = 9.6% or 0.096 compounded monthly = (0.096÷12) = 0.008
PERIOD(n) = 20 years = (20×12) = 240 months
Ordinary value of annuity:
Annuity = (rate × PV) ÷ (1 - (1 + r)^-240)
Annuity = (0.008 × $1,600,000) ÷ (1 - (1 + 0.008)^-240)
Annuity = ($12,800) ÷ (1 - (1.008)^-240)
Annuity = $12,800 ÷ 0.8522687768
Annuity = $15,018.74
Therefore, he would recieve $15,018.74 at the end of each month.
Tobias is a 50% member in Solomon LLC, which does not invest in real estate. On January 1, Tobias's adjusted basis for his LLC interest is $130,000, and his at-risk amount is $105,000. His share of losses from Solomon for the current year is $150,000, all of which is passive. Tobias owns another investment that produced $90,000 of passive activity income during the year. (Assume that Tobias is a single taxpayer, there were no distributions or changes in liabilities during the year, and that the Solomon loss is Tobias's only loss for the year from any activity.) How much of Solomon's losses may Tobias deduct on his Form 1040
Answer:
Tobias may deduct $90,000 of his Solomon loss because he has passive activity income.$20,000 of his basis is suspended under Section 704(d).$25,000 of his loss is suspended under Section 465.
Explanation:
In Business Brilliant, Louis Schiff writes that most millionaires are ____ ; for example, they believe that "it's important in negotiations to exploit the weaknesses in others" to come out on top.
A.EXTROVETED
B. MACHIAVELLIAN
C. CONSCIENTIOUS
D. AUTHORITARIAN
Answer: Machiavellian
Explanation:
In Business Brilliant, Louis Schiff writes that most millionaires are MACHIAVELLIAN; for example, they believe that "it's important in negotiations to exploit the weaknesses in others" to come out on top. Thus, option B is the correct option.
What are Machiavellian beliefs?According to Machiavelli, it is preferable for a ruler to be universally feared rather than deeply loved since the former maintains power via duty and the latter through dread of retribution. In his role as a political theorist, Machiavelli stressed the "necessity" of using brutal force or deception methodically, even the eradication of whole noble families, to prevent any possibility of a challenge to the prince's rule.
Historians frequently point out that Machiavelli exalts instrumentality in the establishment of states, an attitude exemplified by the proverb "The aims justify the means," which is frequently linked to readings of The Prince. According to Machiavelli, a ruler must utilize fraud and deception. For the effective stability of power and the installation of new regimes, violence may be required.
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The management of Shatner Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the company’s finished product.
The following information was collected from the accounting records and production data for the year ending December 31, 2017.
1. 8,000 units of CISCO were produced in the Machining Department.
2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.00, direct labor $4.35, indirect labor $0.40, utilities $0.39.
3. Fixed manufacturing costs applicable to the production of CISCO were:
Cost Item Direct Allocated
Depreciation $1,900 $930
Property taxes 560 290
Insurance 950 590
$3,410 $1,810
All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments.
4. The lowest quotation for 8,000 CISCO units from a supplier is $81,590.
5. If CISCO units are purchased, freight and inspection costs would be $0.34 per unit, and receiving costs totaling $1,290 per year would be incurred by the Machining Department.
(a) Prepare an incremental analysis for CISCO. Your analysis should have columns for
1.
Make CISCO,
2.
Buy CISCO, and
3.
Net Income Increase/(Decrease).
(b)
Based on your analysis, what decision should management make?
(c)
Would the decision be different if Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO? Show computations.
(d)
What nonfinancial factors should management consider in making its decision?
Answer:
a)
1. Make Cisco, total cost is $74930
2. Buy Cisco, total cost is $83152
3. Net income decrease is $8222
b. Based on the above, management should continue manufacturing Cisco since the option of purchasing results in a net income decrease of $8222
C. If Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO, the decision will not be different because the additional income does not offset the net decrease in income.
d. Other non financial factors to be considered by management in making its decisions are:
1. The time it takes to manufacture the product.
2. The inventory of materials and work in progress
3. Difference in quality between manufactured and purchased products
4. Delay in delivery
5. Damages due to freight
Explanation:
8000 units of Cisco was produced
Variable costs:
direct materials = $5.00
Direct labor = $4.35
indirect labor = $0.40
utilities = $0.39
Total variable cost = 8000 * (5+4.35+0.4+0.39)
TVC = 8000*9.14 = $73120
Total allocated fixed cost = $1,810
Total cost = TVC + TFC
TC = 73120+1810 = $74930
If on the other hand the units are purchased, we have :
freight and inspection = $0.34 per unit
Receiving costs = $1,290 per year
Therefore total cost = 8000*(0.34) + 1290 = $1562
If the lowest quotation for 8000 units of Cisco is $81,590, therefore the total cost of purchasing the product is 81590+1562 = $83152
(a)
1. Make Cisco, total cost is $74930
2. Buy Cisco, total cost is $83152
3. Net income decrease is $8222
b. Based on the above, management should continue manufacturing Cisco since the option of purchasing results in a net income decrease of $8222
C. If Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO, the decision will not be different because the additional income does not offset the net decrease in income.
d. Other non financial factors to be considered by management in making its decisions are:
1. The time it takes to manufacture the product.
2. The inventory of materials and work in progress
3. Difference in quality between manufactured and purchased products
4. Delay in delivery
5. Damages due to freight
The incremental analysis favors manufacturing CISCO in-house over purchasing, with a cost saving of $1,070. If the company can use the facilities to generate an additional $3,000 net income, buying becomes the more profitable option by $1,930. Nonfinancial factors also play a significant role in the decision-making process.
When making a decision whether to make or buy a component, Shatner Manufacturing Company must conduct an incremental analysis to compare the net costs associated with each option.
To start, calculate the variable costs of making CISCO: Direct materials ($5.00) + direct labor ($4.35) + indirect labor ($0.40) + utilities ($0.39) = $10.14 per unit. For 8,000 units, this amounts to $81,120. Then add direct fixed manufacturing costs ($3,410), but not allocated costs ($1,810), which are sunk in either scenario. Thus, the total cost to Make CISCO is $84,530.
For Buy CISCO, the quoted price from the supplier is $81,590. Additional costs include freight and inspection costs ($0.34/unit x 8,000 units = $2,720) and receiving costs ($1,290). Therefore, the total cost to Buy CISCO is $85,600.
Incremental Analysis:
Based on this analysis, management should make the decision to continue manufacturing CISCO as it is cheaper by $1,070 compared to buying.
If Shatner Company can generate $3,000 of net income by using the facilities for something else, the analysis changes. The opportunity cost of not generating this income must be considered. When subtracted from the saving of making CISCO ($1,070), the net decrease in income would be $3,000 - $1,070 = $1,930. In this case, buying might be the more profitable option.
In addition to financial analyses, management should also consider nonfinancial factors such as the quality of the parts, supplier reliability, and potential long-term strategic benefits of in-house production or sourcing.