Answer and Explanation:
The computation is shown below:
a. For coefficient of variation
CVx is
= Standard deviation ÷ expected return
= 35% ÷ 10.5%
= 3.33
CVy is
= Standard deviation ÷ expected return
= 25% ÷ 12.5%
= 2
b. For required rate of return using the Capital Asset Pricing model , the formula is shown below:
= Risk free rate of return + Beta × market risk premium
For rx, it is
= 6% + 1 × 5%
= 6% + 5%
= 11%
For ry, it is
= 6% + 1.2 × 5%
= 6% + 6%
= 12%
c. For required rate of return of a portfolio, first we have to find out the beta which is shown below
Beta = (Invested amount in Stock X ÷ Total investment amount) × (Beta of stock X) + (Invested amount in Stock Y ÷ Total investment amount) × (Beta of stock Y)
= ($9,000 ÷ $12,500) × (1) + ($3,500 ÷ $12,500) × 1.2)
= 0.72 + 0.336
= 1.056
The total investment amount is
= $9,000 + $3,500
= $12,500
Now the required rate of return of a portfolio is
= Risk free rate of return + Beta × market risk premium
= 6% + 1.056 × 5%
= 6% + 5.28%
= 11.28%
Therefore we applied the above formulas
Kegler Bowling installs automatic scorekeeping equipment with an invoice cost of $190,000. The electrical work required for the installation costs $20,000. Additional costs are $4,000 for delivery and $13,700 for sales tax. During the installation, a component of the equipment is carelessly left on a lane and hit by the automatic lane-cleaning machine. The cost of repairing the component is $1,850. What is the total recorded cost of the automatic scorekeeping equipment?
Answer:
Recorded cost = $229,550.00
Explanation:
According to International Accounting Standards (IAS) 16, property plants and equipment, the cost of an equipment includes all of the cost necessary to bring and make it ready for the intended use.
These costs include purchase cost, installation cost, delivery fees and commission associated with the purchase transaction.
Applying this principles, the recorded cost of the scorekeeping machine would be
=$190,000 + $20,000 + 4,000 + 13,700 + $1,850.
= $229,550.
Frank & Sons, a 100% equity financed firm, has a beta equal to 1.3. The firm’s stock is currently trading at $25 per share, and pays a $1.50 per share dividend. Treasury securities are trading at prices that result in a 7% yield, while current projections claim a 15% return from the stock market. What is Frank & Sons’ required rate of return on average risk projects?
Answer:
The required rate of return on the risky projects is 17.40%
Explanation:
The required rate of return on average risky projects of Frank and Sons can be computed using the cost of equity formula below:
Ke=Rf+beta*(Mr-Rf)
Rf is the risk rate of return on government security which is 7%
beta is the sensitivity of the project to market return is 1.3
Mr is the market expected return which is 15%
Ke=7%+1.3*(15%-7%)
Ke=7%+1.3*8%
Ke=7%+10.4%
Ke=17.40%
The required rate of return on the risky projects is 17.40%
At the end of the current year, using the aging of receivable method, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? Multiple Choice Accounts Receivable 15,750 Bad Debts Expense 375 Sales 16,125 Bad Debts Expense 15,750 Allowance for Doubtful Accounts 15,750 Bad Debts Expense 16,125 Allowance for Doubtful Accounts 16,125 Accounts Receivable 16,125 Allowance for Doubtful Accounts 16,125 Bad Debts Expense 15,375 Allowance for Doubtful Accounts 15,375
Answer:
The correct option is Bad Debts Expense 16,125 Allowance for Doubtful Accounts 16,125.
Explanation:
Aging of receivable method is a way of putting the total amount of accounts receivable into a bucket based on aging of the accounts receivble and allocating credit risk loss percentage to each bucket. For example, Not due, 1-30 days, 31-60 days, over 60 days, with each class having 0%, 0.5%, 1%, 2% respectively.
The company had debit balance of $375 in the allowance for doubtful accounts and already estimated the $15,750 should be the portion of the accounts receivable that was deemed uncollectible. To reinstate the allowance account to $15,750, we need to add $375 to arrive at $16,125. So, the appropriate journals would be:
Debit Bad debt expense $16,125
Credit Allowance for doubtful accounts $16,125
(To record bad debt expense for the year)
Suppose in 1992, the average price level in Pacifica was 100, and that in Atlantica it was also 100. In the foreign exchange market 1 Pacifica pound was exchanged for 1 Atlantica mark. In 2012, the price level in Pacifica had risen to 280 and the price level in Atlantica had risen to 360. According to the relative purchasing power parity (PPP) theory, what should the pound-mark exchange rate be in 2012? If the actual pound per mark exchange rate is 0.5 pound/mark in 2012, is the mark overvalued or undervalued relative to its PPP value?
Answer:
a. 1 Pound/1.29 or 0.78 Pound/Mark
b. Overvalued
Explanation:
a. What should the pound-mark exchange rate be in 2012?
Ratio of Pacifica pound to Atlantica mark in 2012 = 360/280 = 1.29
Or,
Ratio of Atlantica mark to Pacifica pound in 2012 = 280/360 = 0.78
Therefore, according to the relative purchasing power parity (PPP) theory, one Pacifica pound should equal to 1.29 Atlantica mark, i.e. 1 Pound/1.29 Mark.
This can also be stated differently that 1 Atlantica mark should equal to 0.78 Pacifica pound, i.e. 0.78 Pound/Mark.
b. If the actual pound per mark exchange rate is 0.5 pound/mark in 2012, is the mark overvalued or undervalued relative to its PPP value
Since the PPP pound per mark exchange rate value estimated in a above is 0.78 Pound/ Mark is higher than the actual pound per mark exchange rate of 0.5 pound/mark in 2012, mark is therefore overvalued.
The payroll register of Castilla Engineering Co. indicates $2,820 of social security withheld and $705 of Medicare tax withheld on total salaries of $47,000 for the period. Federal withholding for the period totaled $7,990. Retirement savings withheld from employee paychecks were $2700 for the period.
Federal withholding for the period totaled $17,820.
Provide the journal entry for the period's payroll.
The journal entry for Castilla Engineering Co.'s payroll includes debiting Salaries and Wages Expense for the total gross salaries and crediting various tax and retirement savings payable accounts for the respective deductions, with the remaining net pay credited to Cash.
The question relates to creating a journal entry for Castilla Engineering Co.'s payroll. Given the data, you will want to record the total gross salaries, deductions for social security, Medicare, federal withholding, and retirement savings. The deductions are subtracted from the gross salaries to arrive at the net pay to employees.
According to the information provided, here is the journal entry:
Debit: Salaries and Wages Expense $47,000
Credit: Withholding Taxes Payable for Social Security $2,820
Credit: Withholding Taxes Payable for Medicare $705
Credit: Withholding Taxes Payable for Federal Income Tax $17,820
Credit: Retirement Savings Payable $2,700
Credit: Cash (Net Pay to Employees) $23,955 (This figure is calculated as $47,000 total salaries - $2,820 social security - $705 Medicare - $17,820 federal withholding - $2,700 retirement savings)
Mary Williams, owner of Williams Products, is evaluating whether to introduce a new product line. After thinking through the production process and the costs of raw material and new equipment, Williams estimates the variable costs of each unit produced and sold at $6 and the fixed costs per year at $60,000.
a. If the selling price is set at $18 each, how many units must be produced and sold for Williams to break even?
b. Williams forecasts sales of 10,000 units for the first year if the selling price is set at $14 each. What would be the total contribution to profits from this new product during the first year?
c. If the selling price is set at $12.50, Williams forecasts that first-year sales would increase to 15,000 units. Which pricing strategy ($14.00 or $12.50) would result in the greater contribution to profits?
d. What other considerations would be crucial to the final decision about making and marketing the new product?
Answer:
Williams Products' Cost Elements:
Variable cost per unit = $6
Fixed Costs = $60,000
a) With selling price at $18, contribution margin = Selling price - Variable cost per unit = $12 $(18 - 6)
Break even point (in units) = Fixed Costs/Contribution Margin
= $60,000/$12 = 5,000 units
b) Forecast sales of 10,000 units with selling price at $14 each:
Total contribution to profits = Sales - Total Variable Costs
Sales = 10,000 x $14 = $140,000
Variable Costs = 10,000 x $6 = $60,000
Total Contribution = $80,000 (140,000 - 60,000)
c) Forecast sales of 15,000 units with selling price at $12.50 each:
Sales = 15,000 x $12.50 = $187,500
Variable Costs = 15,000 x $6 = $90,000
Total Contribution = $97,500.
Therefore, pricing at $12.50 each would result in the greater contribution to profits.
d) Other considerations crucial to the final decision about making and marketing the new product include: competitors' reactions to pricing, demand elasticity, consumers' preference, existing production technology, etc.
Explanation:
a) Contribution margin is equal to Selling price minus variable cost per unit. This is the first element towards calculating break even point in units.
If 5,000 units are produced, total contribution would be equal to $60,000 ($12 x 5,000 units).
b) There are many pricing strategies which a producer can adopt depending on prevailing circumstances. A few of them are price skimming, penetration pricing, price premium, price discrimination, value-based pricing, time-based pricing.
To break even, 6,000 units must be produced and sold at a selling price of $18 each. The total contribution to profits from selling 10,000 units at a selling price of $14 each is $80,000. Pricing the product at $12.50 would result in a greater contribution to profits. Other crucial considerations include market demand, competition, target market, and overall profitability.
Explanation:a. The overall income must match the whole expense in order to break even. Both fixed and variable costs make up the overall cost. Let's assume x represents the number of units produced and sold. The revenue is calculated by multiplying the selling price per unit by the number of units, which is 18x. The cost is calculated by adding the fixed costs to the variable costs, which is 60,000 + 6x. To break even, 18x = 60,000 + 6x. Solving for x gives us x = 6,000 units.
b. The total contribution to profits from selling 10,000 units at a selling price of $14 each can be calculated by multiplying the contribution margin per unit by the number of units sold. The contribution margin per unit is the selling price minus the variable cost per unit, which is 14 - 6 = $8. Therefore, the total contribution to profits is 10,000 units x $8 = $80,000.
c. To determine which pricing strategy results in the greater contribution to profits, we need to compare the total contribution to profits at each selling price. At a selling price of $14, the total contribution to profits is 10,000 units x $8 = $80,000. At a selling price of $12.50, the total contribution to profits is 15,000 units x ($12.50 - $6) = $112,500. Therefore, the pricing strategy of $12.50 would result in a greater contribution to profits.
d. Other crucial considerations for the decision to make and market the new product include market demand, competition, product differentiation, target market, marketing and distribution costs, potential market growth, and the overall profitability of the business.
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Thome and Crede, CPAs, are preparing their service revenue (sales) budget for the coming year (2017). The practice is divided into three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are provided below. Department Quarter 1 Quarter 2 Quarter 3 Quarter 4 Auditing 2,560 1,780 2,370 2,780 Tax 3,240 2,690 2,400 2,600 Consulting 1,800 1,800 1,800 1,800 Average hourly billing rates are auditing $84, tax $93, and consulting $104. Prepare the service revenue (sales) budget for 2017 by listing the departments and showing for each quarter and the year in total, billable hours, billable rate, and total revenue.
Answer:
Thome and Crede, CPAs' Service Revenue Budget for 2017 is attached.
Explanation:
The revenue for each quarter and each department is obtained by multiplying the billable hours by the billable rate.
The margin of safety is a measure of the distance between budgeted sales and the break-even point. It can be measured in dollars, in units or as a percentage.
These statements are true.
These statements are false.
Statement one is true and statement two is false.
Statement one is false and statement two is true.
Answer:
The correct option is these statements are true
Explanation:
Margin of safety is the measure of the reduction in sales that needs to be recorded before a company makes no profit,invariably the difference the planned sales volume and the sales volume required to break even(makes no profit no loss).
The margin of safety can be expressed in volume,say 100 units of a product,in dollar terms ,say each product sells for $100 each,the margin of safety becomes $10,000($100*100) and can also be expressed in percentage terms depending on the way management wants it stated.
Hiro owns and operates a small business that provides economic consulting services. During the year he spends $57,000 on travel to clients and other expenses. In addition, he owns a computer that he uses for business. If he didn’t use the computer, he could sell it and earn yearly interest of $100 on the money created through this sale. Hiro’s total revenue for the year is $100,000. Instead of working as a consultant for the year, he could teach economics at a small local college and make a salary of $50,000.
Which of the following statements is true:A. If Hiro only spent $50,000 on travel services he would be indifferent between the two careers.B. The salary Hiro earns from his job teaching economics is irrelevant information when calculating his economic profit.C. Since Hiro’s revenues from his consulting job are greater than his salary from his job as an economics teacher, he should continue providing consulting services.D. Since Hiro’s economic profit is negative, he would be better off if he didn’t operate the consulting business and taught economics instead.
Answer: D. Since Hiro’s economic profit is negative, he would be better off if he didn’t operate the consulting business and taught economics instead.
Explanation:
Economic Cost is calculated by taking into account all costs, both Implicit and Explicit. Implicit Costs are also known as Opportunity costs and are referred to as the income you could be earning if you were doing the alternative.
Hiro's Economic Cost can hence be calculated by,
Economic Cost = Implicit costs + Explicit Costs
= (50,000 + 100) + 57,000
= $107,000
Subtracting that from his Revenue per year gives,
= 100,000 - 107,000
= -$7,000
Hiro is experiencing an Economic Loss by operating his business and would be better off Teaching Economics at the small local college.
How could job characteristics theory guide Andrea as she considers ways of combining areas for the staffers? Is there a way to give the new versions of their jobs a higher satisfaction potential than the pre-downsizing versions?
Answer:
Job characteristics theory could guide Andrea as she considers ways of combining areas for the staffers by developing a more challenging versatile job functions that will stimulate performance.
Explanation:
The Job Characteristics Model is a theory that is based on the idea that a task in itself is the key to the employee's motivation. In short, a boring and monotonous job is disastrous to an employee's motivation whereas a challenging, versatile job has a positive effect on motivation.
According to the tenets of job characteristics model, a more challenging and versatile job will give higher satisfaction potential than the pre-downsizing versions which could be counter productive and depressing.
Case A: Compute cash received for interest Case B: Compute cash paid for wages Interest revenue $ 6,600 Wages expense $ 12,200 Interest receivable, beginning of year 920 Wages payable, beginning of year 5,400 Interest receivable, end of year 2,500 Wages payable, end of year 4,200 For each separate case, compute the required cash flow information for BioClean.
Answer:
Interest received is $5.020
Wages paid is $13,400
Explanation:
The task is compute cash for interest for Case A and cash paid as wages for Case B in the year:
Computation of cash for interest:
interest revenue $6,600
opening interest receivable $920
closing interest receivable ($2,500)
Cash received $5,020
The closing balance was deducted because it a part of interest revenue for current year whose cash inflow is yet to be received and the opening interest receivable was added because the related cash would have been received during year.
Wages expense $12,200
wages payable (opening balance) $5,400
wages payable (closing balance) ($4200)
wages paid $13,400
The $5,400 was wages owed last year paid this year and the $4,200 is the wages owed this year expected to paid next year.
Shankar Company uses a perpetual system to record inventory transactions. The company purchases inventory on account on February 2, 2015, for $30,000, with terms 2/10, n/30. On February 10, the company pays on account for the inventory. Record the inventory purchase on February 2 and the payment on February 10. (If no entry is required for a particular transaction/event, select "No journal entry required" in the first account field.)
Answer and Explanation:
1. Merchandise Inventory A/c $30,000
To Accounts payable A/c $30,000
(Being purchase of merchandise inventory is recorded)
2. Account payable $30,000
To Merchandise inventory ($30,000 × 2%) $600
To Cash $29,400
(Being the payment is recorded)
Only these two entries are passed on Feb 2 and Feb 10
This year, Hamilton, a local manufacturer of off-shore drilling platforms, entered into a contract to construct a drilling platform that will be placed in the North Atlantic Ocean. The total contract price is $5,000,000, and Hamilton estimates the total construction cost at $3,000,000. Actual costs incurred this year are $600,000. If Hamilton uses the percentage of completion method, the gross profit for this year is:
Answer:
$400,000
Explanation:
Percentage completed:
$600,000/$3,000,000 20%
Hence:
Revenue $5,000,000 x .20 = $1,000,000
Less Costs to date (600,000)
Gross profit$ 400,000
Therefore If Hamilton uses the percentage of completion method, the gross profit for this year is: $400,000
Net income of Mansfield Company was $47,000. The accounting records reveal depreciation expense of $82,000 as well as increases in prepaid rent, salaries payable, and income taxes payable of $62,000, $25,000, and $22,000, respectively. Prepare the cash flows from operating activities section of Mansfield's statement of cash flows using the indirect method.
Answer:
Cash flows from operating activities
Net Income $47,000
Add: Non cash Expense Adjustments:
Depreciation $82,000
Change in Working Capital:
Prepaid rent ($62,000)
Salaries payable $25,000
Income taxes payable $22,000
Less: Net Change in WC $15,000
Net Operating Cash flow $114,000
Explanation:
Cash Flow from operating activities cash generated from to day to day activities of the business. All the cash flows needed to operate the business smoothly.
Depreciation is a non cash expense deducted in the calculation of Net income.
Increase in Liability will provide the cash and increase in assets will use the cash. So, the increase in prepaid expense is classified as increase in Assets and Increase in the Salaries payable and Taxes payable are classified as the increase in liability.
The cash flow from operating activities is calculated by adjusting the net income with non-cash expenses, and changes in Current Liabilities and Current Assets. For Mansfield Company, the cash flow from operating activities is $114,000.
Explanation:The cash flows from the operating activities section of Mansfield's statement of cash flows using the indirect method can be prepared following these steps:
Start with the Net income which is $47,000.Add back the Depreciation expense (non-cash expense) to the net income which totals to $47,000 + $82,000 = $129,000.Adjust for changes in Current Liabilities and Current Assets. Increases in prepaid rent (a Current Asset) decreases Cash Flow, so subtract $62,000 from $129,000 = $67,000. Increases in salaries payable and income taxes payable (Current Liabilities) increases Cash Flow, so add $25,000 and $22,000 respectively to get $67,000 + $25,000 + $22,000 = $114,000.So, the cash flow from operating activities is $114,000.
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Logistics Solutions provides order fulfillment services for dot merchants. The company maintains warehouses that stock items carried by its dot clients. When a client receives an order from a customer, the order is forwarded to Logistics Solutions, which pulls the item from storage, packs it, and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor-hours. In the most recent month, 120,000 items were shipped to customers using 2,300 direct labor-hours. The company incurred a total of $7,360 in variable overhead costs. According to the company's standards, 0.02 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.25 per direct labor-hour.What variable overhead cost should have been incurred to fill the orders for the 120,000 items? How much does this differ from the actual variable overhead cost?
The variable overhead cost that should have been incurred to fill the orders for the 120,000 items is $7,800. The actual variable overhead cost is $7,360, which is $440 less than the cost that should have been incurred.
Explanation:To calculate the variable overhead cost that should have been incurred to fill the orders for the 120,000 items, we need to multiply the standard direct labor-hours per item by the actual number of items. The standard direct labor-hours per item is given as 0.02, and the actual number of items is 120,000, so the standard direct labor-hours should be 0.02 * 120,000 = 2,400 hours.
To calculate the variable overhead cost, we multiply the standard direct labor-hours by the variable overhead rate per direct labor-hour. The variable overhead rate is given as $3.25 per direct labor-hour, so the variable overhead cost should be 2,400 * 3.25 = $7,800.
The difference between the actual variable overhead cost and the cost that should have been incurred is $7,360 - $7,800 = -$440. This means that the actual variable overhead cost is $440 less than the cost that should have been incurred.
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The variable overhead cost that should have been incurred was $7,800 based on the standard rates and quantity of items shipped. The actual variable overhead cost was $440 lower than expected.
Explanation:To calculate the variable overhead cost that should have been incurred, we need to multiply the total items times the standard rate for direct labor-hours per item, then multiply that by the variable overhead rate per direct labor-hour. That is, (Total items) x (Standard direct labor-hours per item) x (Variable overhead rate per direct labor-hour). So, 120,000 items x 0.02 direct labor-hours per item x $3.25 per direct labor-hour = $7,800.
The difference between this calculated variable cost and the actual cost incurred is found by subtracting the actual variable overhead cost incurred from the calculated cost. That is, $7,800 - $7,360 = $440. Therefore, the company’s variable overhead cost was $440 lower than it should have been according to their standard rates and quantity of items shipped.
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Determine the adjusted basis of each of the following assets:
a. Leineia purchased an automobile 2 years ago for $30,000. She uses it 75% in her business and 25% for personal use. To date, she has deducted $4,209 in allowable depreciation on the business use portion of the automobile.
b. Three years ago, Quon purchased an office building for $330,000. The purchase price was properly allocated as $250,000 to the building and $80,000 to the land. Building remodeling cost $8,000. He paid $12,000 for the installation of a parking lot and sidewalks. Insurance premiums on the building are $5,000 per year. Quon has deducted total allowable depreciation on the building of $70,620 and $1,000 on the land improvements for the 3 years.
Answer and Explanation:
The computation is shown below:
75% 25% 100%
Particulars Business Use Personal Use Total
Initial Basis $22,500 $7,500 $30,000
Less: Depreciation -$4,209 0 -$4,209
Adjusted Basis $18,291 $7,500 $25,791
b
Particulars Building Land Land Improvements
Original Cost $250,000 $80,000
Remodeling cost $8,000
Parking lot and sidewalks $12,000
Depreciation -$70,620 -$1,000
Adjusted basis $187,380 $80,000 $110,000
We simply classify the cost to each type of asset which is shown above
Suppose Intel's stock has an expected return of 20.0% and a volatility of 3.0%, while Coca-Cola's has an expected return of 7.0% and volatility of 3.0%. If these two stocks were perfectly negatively correlated (i.e., their correlation coefficient is negative −1),a. Calculate the portfolio weights that remove all risk.b. If there are no arbitrage opportunities, what is the risk-free rate of interest in this economy?
Answer:
a. The portfolio weights that remove all risk is 50% .
b. The risk-free rate of interest in this economy is 13.5%
Explanation:
The formula for standard deviation of a portfolio, of which i cannot type:
a. If we let sigma p = std. deviation of portfolio
rho 1,2 = correlation
if sigma = 0 and rho = -1, then the first equation can be re-written as :
0 = w1^2 * s1^2 + w2^2 * s2^2 + 2 * w1 * w2 * s1 * s2 * -1
0 = (w1s1 - w2s2)^2
w1s1 = w2s2
w1 * 0.03 = w2 * 0.03
w1 = w2 = 50%
Therefore, The portfolio weights that remove all risk is 50% .
b. Expected return of the portfolio = 0.5*20% + 0.5*7%
= 13.5%
This portfolio has zero risk, risk free rate = 13.5%
Therefore, The risk-free rate of interest in this economy is 13.5%
Your pension plan is an annuity with a guaranteed return of 4% per year (compounded quarterly). You can afford to put $1,600 per quarter into the fund, and you will work for 40 years before retiring. After you retire, you will be paid a quarterly pension based on a 25-year payout. How much will you receive each quarter? (Round your answer to the nearest cent.)
Answer:
The cash to receive each quarter is $9,935.32
Explanation:
There are two tasks here,the first is the computation of future value of the pension in 40 years' time and thereafter computing the quarterly payment for 25 years when retired.
The future value of the pension can be computed using the fv function in excel,=-fv(rate,nper,pmt,pv)
rate is the quarterly rate of interest i.e 4%/4=1%
nper is the number of times the $1,600 would invested in the fund,that is 40*4=160 times
pmt is the $1,600 inflow into the fund per quarter
pv is not known so is assumed zero
=fv(1%,160,-1600,0)
fv=$626,212.22
Second task:
amount of quarterly payment when retired is computed using pmt formula in excel:
=pmt(rate,nper,-pv,fv)
rate is 1%
nper is 25 years *2=100
pv is the pension value when retired is $626,212.22
note that this amount $626,212.22 was future value in year zero,but a present value in year 40th.
fv is zero
=pmt(1%,100,-626212.22,0)
pmt=$9,935.32
Inventory Valuation under Absorption Costing and Variable Costing At the end of the first year of operations, 21,500 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows: Direct materials $30 Direct labor 18 Fixed factory overhead 22 Variable factory overhead 14 Determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept.
Answer:
Absorption Costing = $ 84
Absorption Ending F. Goods$ 1806000
Variable Costing =$ 62
Variable Ending F. Goods $ 1333000
Explanation:
Absorption Costing accounts for the full costs including fixed costs for inventory evaluation whereas Variable Costing only accounts for variable Costs.
Variable Costing Absorption Costing
Materials $ 30 $30
Labor 18 18
FOH
Variable 14 14
Fixed ------- 22
Total Manufacturing Costs 62 84
Ending F. Goods Units 21,500 21,500
Total Costs $ 1333000 $ 1806000
Absorption Costing = Direct materials $30+ Direct labor 18+ Fixed factory overhead 22+ Variable factory overhead 14 = $ 84
Variable Costing =Direct materials $30 + Direct labor 18 +Variable factory overhead 14 = $ 62
a. The cost of finished goods inventory under the concept of absorption costing should be $1,806,000.
b. The cost of finished goods inventory under the variable costing concept should be $1,333,000
Calculation of the cost of finished goods inventory:a. Under the absorption costing:
= (30+18+22+14)*21500
= $1,806,000
b. Under the variable costing
= (30+18+14)*21500
= $1,333,000
Also, the only difference between variable costing and absorption costing should be because of the fixed manufacturing overhead is absorbed since a product cost should be charged under absorption costing while on the other hand, it is charged as a period cost under variable costing
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Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 61% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $4 and $5, respectively. Normal production is 33,300 curtain rods per year.
A supplier offers to make a pair of finials at a price of $12.90 per unit. If Pottery Ranch accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but the $49,200 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products.
Prepare an incremental analysis to decide if Pottery Ranch should buy the finials.
Answer:
It should keep producing their own finials
Explanation:
[tex]\left[\begin{array}{ccccc}&$Produce&$Buy&$Differential\\$Variable Cost&12.05&12.9&\\$Units&33,300&33,300&\\$Total&401,265&429,570&-28,305\\$Fixed&49,200&49,200&0\\&&&0\\$Total&450,465&478,770&-28,305\\\end{array}\right][/tex]
As the variable cost to produce are lower than the supplier offer:
4 materials + 5 labor + 61% of labor = 12.05
The company do not save any dollar in taking the offer.
Also to that cost it will be added the fixed overhead which is being allocated to finials thus, increasing further the supplier proposal.
Final answer:
An incremental analysis shows that the cost to make the finials is $12.05 per unit and the cost to buy is $12.90 per unit. Pottery Ranch Inc. should continue making the finials in-house unless it can utilize the capacity for a more profitable product.
Explanation:
To decide if Pottery Ranch should buy the finials, we will perform an incremental analysis comparing the costs of making versus buying the finials. Pottery Ranch currently makes the finials at a direct materials cost of $4 and direct labor cost of $5 per unit. The variable manufacturing overhead is 61% of the direct labor cost, which equals $3.05 ($5 imes 61%). The total cost to make one pair of finials is $12.05 ($4 + $5 + $3.05).
If they buy the finials at $12.90 per unit, they eliminate all variable costs but must still cover the $49,200 of fixed manufacturing overhead. That overhead would be allocated to other products, likely increasing their costs unless those products are also at capacity.
For an accurate incremental cost comparison:
Cost to make: $12.05 per unit.Cost to buy: $12.90 per unit.Given that the cost to make is less than the cost to buy, it would not be financially beneficial for Pottery Ranch to accept the supplier's offer unless they have an opportunity to use the freed-up capacity for a higher-margin product.
Tools Pte Ltd has two operating (production) departments: Assembly and Fabricating. Assembly has 150 employees and occupies 4,400 square metre. Fabricating has 100 employees and occupies 3,600 square metre. Indirect factory expenses for the current period are as follows: Administration: $80,000 Maintenance: 100,000 Administration is allocated based on workers in each department; maintenance is allocated based on areas occupied. The total amount of indirect factory expenses that should be allocated to the Assembly Department for the current period is:
a. $48,000.
b. $55,000.
c. $103,000.
d. $104,000.
e. $110,000.
Answer:
c. $103,000.
Total Assembly Indirect Expenses FOH = $ 103,000
Explanation:
Tools Pte Ltd
Indirect FOH Assembly Fabricating Total
Cost Driver Cost Driver
Administration: $80,000 150 100 250
Maintenance: 100,000 4400 3600 8000
Calculations
Indirect FOH Assembly Fabricating Total
Administration: $80,000 48,000 32000 $80,000
Maintenance: 100,000 $ 55000 45000 100,000
Total $ 103,000 $ 77000
Working:
As administration is allocated based on workers in each department; maintenance is allocated based on areas occupied therefore the total amount in each department will be allocated on the number of employees and the area occupied.It can be calculated as follows.
Administration Costs Assembly = ($80,000/ 250)* 150= $48,000
Maintenance Costs Assembly =100,000/8000)*4400 = $ 55000
Total Assembly Indirect Expenses FOH = $ 103,000
Administration Costs Fabricating = ($80,000/ 250)* 100= $32,000
Maintenance Costs Fabricating =100,000/8000)* 3600 = $ 45000
Total Assembly Indirect Expenses FOH = $ 77,000
the total amount of indirect factory expenses that should be allocated to the Assembly Department for the current period is $103,000, which is option (c).
Administration Expense Allocation
Total Administration Expense = $80,000
Allocation basis: Number of workers in each department
Number of workers in Assembly = 150
Number of workers in Fabricating = 100
Calculate the ratio of workers in the Assembly Department to the total workers:
(150 / (150 + 100)) = (150 / 250) = 3/5
Multiply this ratio by the total administration expense: (3/5) * $80,000 = $48,000
So, the Assembly Department's allocation of administration expenses is $48,000.
Maintenance Expense Allocation
Total Maintenance Expense = $100,000
Allocation basis: Area occupied by each department
Area occupied by Assembly = 4,400 square meters
Area occupied by Fabricating = 3,600 square meters
To allocate maintenance expenses to the Assembly Department:
Calculate the ratio of the area occupied by the Assembly Department to the total area occupied
(4,400 / (4,400 + 3,600)) = (4,400 / 8,000) = 11/20
Multiply this ratio by the total maintenance expense: (11/20) * $100,000 = $55,000
Add the administration allocation and maintenance allocation:
$48,000 (Administration Allocation) + $55,000 (Maintenance Allocation) = $103,000
So, the total amount of indirect factory expenses that should be allocated to the Assembly Department for the current period is $103,000, which is option (c).
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Patent laws:
a. increase incentive to innovate by restricting entry into a market
b. give a firm the right to provide a wide variety of goods or services
c. increase incentive to innovate by giving a firm permanent and exclusive production rights
d. reduce incentive to innovate by restricting market entry
e. reduce incentive to innovate by making it difficult to use the patented innovation
Answer:
c. increase incentive to innovate by giving a firm permanent and exclusive production rights
Explanation:
Patent laws deal with new invention.
A patent is a right granted to an inventor by the government that allows the inventor to prevent others from producing, selling or using the invention for a specified period of time.
I hope my answer helps you
One of the different manual controls necessary for managing risk is ________________, which is a type of formal management verification. In the process, management confirms that a condition is present and that security controls and policies are in place. attestation background checks log reviews access rights review
Answer:
attestation
Explanation:
Attestation can be described as the an action of providing evidence or proof, or to formally certify that necessary security requirements have met and confirming that security measures on ground. One of the purpose of attestation is to assist in managing risk.
Therefore, one of the different manual controls necessary for managing risk is attestation.
Cost of Units Transferred Out and Ending Work in ProcessThe costs per equivalent unit of direct materials and conversion in the Filling Department of Eve Cosmetics Company are $0.25 and $2.00, respectively. The equivalent units to be assigned costs are as follows: Equivalent Units Direct MaterialsConversionInventory in process, beginning of period0 2,500 Started and completed during the period50,000 50,000 Transferred out of Filling (completed)50,000 52,500 Inventory in process, end of period3,000 1,200 Total units to be assigned costs53,000 53,700 The beginning work in process inventory had a cost of $1,530. Determine the cost of completed and transferred-out production and the ending work in process inventory. If required, round to the nearest dollar.Completed and transferred-out production$Inventory in process, ending$
Answer:
Completed and transferred-out production $ 116,500
Inventory in process, ending $3150
Explanation:
Eve Cosmetics Company
Filling Department
Costs per equivalent unit of direct materials $0.25
Costs per equivalent unit of conversion $ 2.00
Equivalent Units
Particulars Direct Materials Conversion
Inventory in process, beginning of period 0 2,500
Started and completed during the period 50,000 50,000
Transferred out of Filling (completed) 50,000 52,500
Inventory in process, end of period 3,000 1,200
Total units to be assigned costs 53,000 53,700
We multiply the cost per unit to the equivalent units of production both in the completed and ending inventory to get the total costs.
Completed and transferred-out production $ 116,500
Materials = 50,000 units * $ 0.25= $12500
Conversion = 52,000 units * $ 2.0= $104,000
Inventory in process, ending $3150
Materials = 3,000 units * $ 0.25= $ 750
Conversion = 12,00 units * $ 2.0= $2400
Presented below are two independent situations.Gambino Cosmetics acquired 10% of the 200,000 shares of common stock of Nevins Fashion at a total cost of $13 per share on March 18, 2015. On June 30, Nevins declared and paid a $60,000 dividend. On December 31, Nevins reported net income of $122,000 for the year. At December 31, the market price of Nevins Fashion was $15 per share. The stock is classified as available-for-sale.Kanza, Inc., obtained significant influence over Rogan Corporation by buying 40% of Rogan’s 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2015. On June 15, Rogan declared and paid a cash dividend of $30,000. On December 31, Rogan reported a net income of $80,000 for the year.InstructionsPrepare all the necessary journal entries for 2015 for (a) Gambino Cosmetics and (b) Kanza, Inc.
Answer:
See the explanation below
Explanation:
(a) Gambino Cosmetics
Since Gambino Cosmetics just 15% which is less than 20% of Nevins Fashion, the cost method for accounting for investments is the relevant method that is used as follows:
Stock investment = 10% * 200,000 * $13 = $260,000
Dividend income = 10% * $60,000 = $6,000
Available-for-sale (AFS) reserve = 10% * $122,000 = $12,000
Date Details Dr ($) Cr ($)
08 Mar. ‘15 Stock investments 260,000
Cash 260,000
To record investment in Nevins Fashion
30 Jun. ‘15 Cash 6,000
Dividend income 6,000
To record dividend income from investment in Nevins Fashion
31 Dec. ’15 Stock investments 12,000
AFS Reserve 12,000
To record share of income in Nevins Fashion
(b) Kanza, Inc.,
Since Kanza, Inc. acquired 40% in Rogan Corporation which is greater than 20%, the equity method for accounting for investments is the relevant method that is used as follows:
Stock investment = 40% * 30,000 * $9 = $108,000
Dividend income = 40% * $30,000 = $12,000
Investment revenue = 40% * $80,000 = $32,000
Date Details Dr ($) Cr ($)
01 Jan. ‘15 Stock investments 108,000
Cash 108,000
To record investment in Rogan Corporation
15 Jun. ‘15 Cash 12,000
Stock investment 12,000
To record dividend received from investment in Rogan Corporation
31 Dec. ’15 Stock investments 32,000
Investment revenue 32,000
To record share of income in Rogan Corporation
Journal entry is the primary record of transactions and events having monetary value in an financial year. Journal entry serves as a basis for preparation of accounts.
The entries for the given questions are provided in the attachment.
Recording of Journal Entries:Journal entries are primary records of a transaction.Accounts are prepared on the basis of entries.Entries are made for transactions that are in terms of money.There is dual effect of every transaction.Journal entry provides detail of every transaction entered into.Learn more about journal entries here:
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Classify the following as either a revenue or a capital expenditure.
a. Paid $40,000 cash to replace a motor on equipment that extends its useful life by four years.
b. Paid $200 cash per truck for the cost of their annual tune-ups.
c. Paid $175 for the monthly cost of replacement filters on an air-conditioning system.
d. Completed an addition to a building for $225,000 cash.
Answer and Explanation:
The capital expenditure is the expenditure which is held for a capital asset i.e fixed assets for improving life, production, etc. It is a one-time expenditure
While on the other hand the revenue expenditure is the expenditure which is incurred on daily basis i.e frequently like repairs, maintenance
So based on the above, the classification is as follows
a. Capital expenditure
b. Revenue expenditure
c. Revenue expenditure
d. Capital expenditure
Sanchez Company's output for the current period was assigned a $419,000 standard direct labor cost. The direct labor variances included a $10,475 unfavorable direct labor rate variance and a $4,190 favorable direct labor efficiency variance. What is the actual total direct labor cost for the current period?
Answer:
the actual total direct labor cost for the current period is $425,285
Explanation:
Reconciling Standard Cost to Actual Cost
Standard Cost $419,000
Add Unfavorable direct labor rate variance $10,475
Less Favorable direct labor efficiency variance ($4,190)
Actual Cost $425,285
You need to accumulate $10,000. To do so, you plan to make deposits of $1,100 per year - with the first payment being made a year from today - into a bank account that pays 11.82% annual interest. Your last deposit will be less than $1,100 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal? Round your answer up to the nearest whole number.
Answer:
Explanation:
Using future annuity formula
Fv = Pmt ( (1+r)ⁿ -1 )/ r
[tex]\frac{FVr}{Pmt}[/tex] + 1 = (1+r)ⁿ
In ( [tex]\frac{FVr}{Pmt}[/tex] + 1) = n In ( 1+r)
n = In ( [tex]\frac{FVr}{Pmt}[/tex] + 1) / In ( 1 + r)
FV, future value = $10,000, Pmt, periodic payment per year = $1,100, r rate = 11.82% = 0.1182 and n = number of years
n = 0.7297 / 0.11172 = 6.53 years approx 7 years
the last year payment will actually be less than $1,100
Brickhouse is expected to pay a dividend of $2.85 and $2.34 over the next two years, respectively. After that, the company is expected to increase its annual dividend at 3.3 percent. What is the stock price today if the required return is 10.7 percent
Answer:
The stock price is $31.14
Explanation:
The value of Brickhouse stock today is the present values of future cash flows from the stock discounted using the required rate of return of 10.7% as the discount rate as done below:
Years cash flows discount factor Present values
1 $2.85 1/(1+10.7%)^1=0.903342367 $2.57
2 $2.34 1/(1+10.7%)^2=0.816027432 $1.91
3 & beyond *$32.67 1/(1+10.7%)^2=0.816027432 $ 26.66
total present values= $31.14
* the year 3 and beyond represents the terminal value of the stock,which is computed using the formula below
=D2*(1+g)/r-g
D2 is the year dividend of $2.34
g is the dividend growth rate of 3.3%
r is the required rate of return which 10.7%
terminal value=$2.34*(1+3.3%)/(10.7%-3.3%)
=2.41722 /0.074 =$32.67
Warrick Boards calculated pension expense for its underfunded pension plan as follows:
($ in millions)
Service cost $ 354
Interest cost 215
Expected return on the plan assets ($165 actual, less $11 gain) (154 )
Amortization of prior service cost 21
Amortization of net loss 4
Pension expense $ 440
Required:
Which elements of Warrick’s balance sheet are affected by the components of pension expense? What are the specific changes in these accounts?
Answer:
(i) PBO - Projected Benefit Obligation.
(ii) Pension Liability.
(iii) OCI - Other Comprehensive Income.
(iv) Retained Earnings.
Explanation:
(i) Service Cost and Interest Cost would result in increase of Projected Benefit Obligation (PBO), So;
PBO = Service Cost + Interest Cost
PBO = $354,000,000 + $215,000,000
PBO = $569,000,000
(ii) Plan Assets are increase by Expected Return of $154,000,000, and this amount will be deducted from the PBO because this has already been included in the Balance Sheet under Assets;
Pension Liability = PBO - Plan Assets
Pension Liability = $569,000,000 - $154,000,000
Pension Liability = $415,000,000
(iii) Other Comprehensive Income - OCI is the amortization of the Prior Service Cost that will reduce the OCI account during the period of time along with the loss on OCI which will also be accounted for, as follows;
OCI = Prior Service Cost + Net Loss
OCI = $21,000,000 + $4,000,000
OCI = $25,000,000
(iv) Retained Earnings will be decreased as pension will be paid from the retained earnings account and can be calculated as follows;
Retained Earnings = - Pension Expense + Prior Service Cost + Net Gain on plan assets + Net Loss on OCI
Retained Earnings = - $440,000,000 + $21,000,000 + $11,000,000 + $4,000,000
Retained Earnings = - $404,000,000
Hence Share holders' Equity will be reduced by $404,000,000.
The components of pension expense affect the Accrued pension cost, Projected benefit obligation, Plan assets, and Accumulated other comprehensive income accounts.
Explanation:The components of pension expense affect several elements of Warrick's balance sheet. The specific changes in these accounts are as follows:
Service cost: This affects the Accrued pension cost account, which represents the portion of the pension liability that has not been funded yet. Interest cost: This affects the Projected benefit obligation account, which represents the present value of the expected pension payments. Expected return on the plan assets: This affects the Plan assets account, which represents the value of the investments held by the pension plan. Amortization of prior service cost: This affects the Accumulated other comprehensive income account, which represents the unrecognized gains and losses in the pension plan. Amortization of net loss: This also affects the Accumulated other comprehensive income account, reducing the unrecognized losses in the pension plan. Learn more about Effect of pension expense on balance sheet accounts here:https://brainly.com/question/29803406
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