Answer:
$1,503.75
Explanation:
Sales $12,500
Operating costs $7,025
Operating income (EBIT) $5,475
WACC 9.5%
Tax rate 40%
Investor-supplied capital $18,750
EVA = EBIT(1 - T) - Investor Capital × WACC
EVA = $3,285.00 -$1,781.25
EVA = $1,503.75
Therefore the management add $1,503.75 value to stockholders' wealth during the year.
Manganese Company makes frames. A customer wants to place a special order for 750 frames in green with the company logo painted on the frame, to be priced at $60 each. Normally, Manganese would charge $100 per frame for this type of order. Manganese figures that wood and glass will cost $15 per frame, variable overhead (machining, electricity) is $5 per frame, direct labor is $11.5 per frame, and one setup will be required at $1,500 per setup. The set-up charge costs are 100% labor. Currently, the workers needed to set up for and make the frames are working at Manganese. Their wages will be paid whether or not the special order is accepted. Manganese’s policy is to avoid layoffs to the extent possible. If Manganese accepts the special order, by how much will operating income increase or decrease?
Final answer:
The operating income of Manganese Company will increase by $21,375 if it accepts the special order of 750 frames at $60 each, given that setup costs are sunk and the workers' wages are unaffected by the order.
Explanation:
To determine how much the operating income will increase or decrease if Manganese Company accepts the special order, we need to analyze the relevant costs and revenues associated with the order. The total revenue from the special order would be 750 frames × $60/frame, while total variable costs would be the sum of wood and glass costs, variable overhead, and direct labor, all multiplied by 750 frames. Since the setup cost is a sunk cost because the workers' wages will be paid whether or not the special order is accepted, it should not be included in the calculation.
Calculation
Total Revenue:
750 frames × $60/frame = $45,000
Total Variable Costs:
(Wood and glass $15/frame + Variable overhead $5/frame + Direct labor $11.5/frame) × 750 frames = $23,625
Operating Income Increase:
Total Revenue - Total Variable Costs = $45,000 - $23,625 = $21,375
The operating income will increase by $21,375 if the special order is accepted.
You want to buy a new sports coupe for $89,500, and the finance office at the dealership has quoted you an APR of 7.1 percent for a 60 month loan to buy the car. What will your monthly payments be? What is the effective annual rate on this loan?
Answer: a) $1,775.44
b. 7.34%
Explanation:
a)What we are dealing with here is an annuity.
And to find the monthly payments, we can use the Present Value of an annuity formula because we already have the present value of the Annuity.
Formula is,
PV = PMT ( 1 - (1 + r) ^ -n)/ r
Where PV is the present value
PMT is the payment
r is the APR
n is the number of periods.
Because n is in months, APR must be in months too so,
= 7.1%/12
= 0.59%
Calculating therefore would be,
89,500 = PMT (1 - (1 + 0.59%) ^ - 60)/ 0.59%
89,500 = PMT (50.41)
PMT = 89,500/50.41
PMT = 1775.44138068
PMT = $1,775.44
The monthly payment is $1,775.44
b) Effective annual rate on this loan = (1+APR/12)^12 -1
= (1+7.1%/12)^12 -1
= 7.34%
Effective annual rate on this loan is 7.34%
If you need any clarification do comment.
Final answer:
The monthly payments for the sports coupe loan at 7.1% APR are $1,775.72, with an effective annual rate of 7.35%. Lowering the interest rate to 0.5% reduces the monthly payment to $1,602.31.
Explanation:
Monthly Payments Calculation:
For the $89,500 sports coupe at 7.1% APR with a 60-month loan, the monthly payment is $1,775.72.
Effective Annual Rate Calculation:
The effective annual rate on this loan is 7.35%.
Comparison:
If the interest rate drops to 0.5%, the monthly payment would be $1,602.31.
The monthly payments for the sports coupe loan at 7.1% APR are $1,775.72, with an effective annual rate of 7.35%. Lowering the interest rate to 0.5% reduces the monthly payment to $1,602.31.
June Corp. sells one product and uses a perpetual inventory system. The beginning inventory consisted of 80 units that cost $20 per unit. During the current month, the company purchased 480 units at $20 each. Sales during the month totaled 360 units for $43 each. What is the cost of goods sold using the LIFO method
Answer:
$7200
Explanation:
LIFO means last in, first out. It means the last purchased inventory are the first to be sold.
The cost of goods sold = 360 x $20 = $7200
I hope my answer helps you
Answer:
$7,200
Explanation:
The LIFO method of inventory valuation is one in which the last set of inventory items purchased are the first to be sold. This system may not be prudent where the items of inventory are perishable.
Given that sales during the month totaled 360 units, these must have been part of the items purchased during the month at $20 each. Hence, cost of goods sold
= 360 * $20
= $7,200
Jan. 1 Purchased 5,500 shares of its own stock at $20 cash per share. Jan. 5 Directors declared a $2 per share cash dividend payable on February 28 to the February 5 stockholders of record. Feb. 28 Paid the dividend declared on January 5. July 6 Sold 2,063 of its treasury shares at $24 cash per share. Aug. 22 Sold 3,437 of its treasury shares at $17 cash per share. Sept. 5 Directors declared a $2 per share cash dividend payable on October 28 to the September 25 stockholders of record. Oct. 28 Paid the dividend declared on September 5. Dec. 31 Closed the $388,000 credit balance (from net income) in the Income Summary account to Retained Earnings.
Answer:
Requirement of the question is to prepare journal entries for each of transaction. where it is given that 40,000 common shares were outstanding at Beginning of the year.
Explanation:
You are the supervising engineer in the construction of an offshore oil drilling platform that is fabricated by welding stainless steel pipes in a climate in which the ambient temperature is 86 F. Quality control tests indicate that the weld is brittle, and hence, deemed defective. What is the problem in your professional opinion
Answer: this is to render a heat solution of about 1070 degree Celsius with water to quench, so as to retain the carbides solution in the defective steel for re use.
Explanation:
With the climate condition in the off shore oil drilling platform, it won't rake long for the fabricated steels to collapse and cause the loses of multiple lives and properties.
As an expert I will suggest we deconstruct the steels and use Austenitic stainless steel, because of its corrosion resistance.
We might as well sensitised the steels before use. Because the sensitisation occurs in the region that has seen temperature close to 600 and 900°C.
My possible solution to overcome this defect stated by the quality control and as a result spend less, is that we undergo a HEAT SOLUTION TREATMENT at a 1070°C followed by a water quench to help retain the carbides solution on a rapid cooling in those defective still, and also make it resistance to the climate condition of the area and also commence the project.
The brittleness of the weld on the offshore oil drilling platform likely stems from cold cracking, which can occur when hydrogen becomes trapped in the metal structure as it cools during welding. This issue can be mitigated by preheating the weld area or using a lower hydrogen process or filler material.
Explanation:In professional opinion, the problem with the weld being brittle, despite being performed in an ambient temperature of 86 F for an offshore oil drilling platform, likely has to do with a phenomenon known as cold cracking. Cold cracking is a major risk in welding, especially with high carbon and alloyed steels like stainless steel. It occurs when hydrogen, often introduced into the metal during welding, is trapped within the metal structure as it cools, creating pressure that can result in cracking. The brittleness of the weld suggests that this might be what's happening.
To prevent this, the weld area could be preheated before welding to slow the cooling rate and allow the hydrogen to escape before it becomes trapped. You could also use a lower hydrogen process or filler material.
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K-Too Everwear Corporation can manufacture mountain climbing shoes for $13.5 per pair in variable raw material costs and $13.44 per pair in variable labor expense. The shoes sell for $102 per pair. Last year, production was 160,000 pairs. Fixed costs were $900,000.
What were total production costs?
Answer:
Production costs= $4,310,400
Explanation:
Giving the following information:
$13.5 per pair in variable raw material costs and $13.44 per pair in variable labor expense.
The production costs are the sum of direct material, direct labor, and variable overhead.
Production costs= (13.5 + 13.44)*160,000= $4,310,400
Answer:
$4,310,400
Explanation:
Trio Company sells three products, Do, Ra, and Mi, for prices of $8, $7, and $5, respectively. They also offer combinations of the products for reduced overall prices. The following packages are available: (1) a package containing Do and Ra sells for $13.50, (2) a package of Do and Mi sells for $11.50, (3) a package containing Ra and Mi sells for $10.50, and (4) a package of all three products, Do, Ra, and Mi, sells for $17.00.
1. If Trio Company uses the incremental-revenues allocation method and has designated Ra as the primary product, the amount of revenues from a bundled package of all three products to be allocated to Ra would be
a. $7.00.
b. $6.80.
c. $5.95.
d. $4.25.
Answer:
Option A is correct one.
$7.00
Explanation:
Bundle package price (or) Suite price of all the 3 products is 17. This is more than the stand alone price of primary product Ra. Hence as per the rule of Incremental revenue allocation, 100% of stand alone revenue to be allocated to primary product in such case.
When using the incremental-revenues allocation method and designating Ra as the primary product, the amount of revenues from a bundled package of all three products to be allocated to Ra is $7.00.
The correct option is 'a'.
The student's question involves the allocation of revenues from bundled product packages using the incremental-revenues allocation method. Specifically, the student wants to know how much of the revenue from a package of all three products should be allocated to the product designated as the primary product (i.e., Ra).
In this scenario, the individual prices of Do, Ra, and Mi are $8, $7, and $5 respectively, and the package price of all three is $17.00. To determine the amount allocated to Ra, we subtract from the bundle price ($17.00) the sum of the incremental prices for the other two products based on their combination prices with Ra. This is calculated as follows:
Price of Do and Ra combined package: $13.50 (implies Do's incremental price: $13.50 - Ra's price).Price of Ra and Mi combined package: $10.50 (implies Mi's incremental price: $10.50 - Ra's price).After calculating the incremental prices of Do and Mi relative to Ra, sum these incremental amounts and subtract from the total package price to find the allocation to Ra:
Ra's allocation = $17.00 - (Incremental price of Do relative to Ra + Incremental price of Mi relative to Ra).Ra's allocation = $17.00 - (($13.50 - $7.00) + ($10.50 - $7.00)).Ra's allocation = $17.00 - ($6.50 + $3.50).Ra's allocation = $17.00 - $10.00.Ra's allocation = $7.00.The correct answer for the revenue allocated to Ra when applying the incremental-revenues allocation method for a package of Do, Ra, and Mi is $7.00 (option a).
Wildhorse Corporation has collected the following information after its first year of sales. Sales were $1,250,000 on 125,000 units, selling expenses $250,000 (40% variable and 60% fixed), direct materials $496,000, direct labor $34,900, administrative expenses $280,000 (20% variable and 80% fixed), and manufacturing overhead $358,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. Collapse question part (a) Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.) (1) Contribution margin for current year $ Contribution margin for projected year $ (2) Fixed Costs
Answer:
1. Contribution margin for current year = $ 382,500
Contribution margin for projected year = $ 420,750
2. Fixed costs for current year - $ 451,400
Explanation:
Computation of fixed costs
Fixed selling expenses ( 60 % of $ 250,000) $ 150,000
Fixed administrative expenses ( 80 % of $ 280,000) $ 224,000
Fixed manufacturing overhead ( 30 % of $ 358,000) $ 77,400
Total Fixed costs $ 451,400
Computation of variable costs and contribution margin for current year
Direct Materials cost for current year $ 496,000
Direct Labor costs for current year $ 34,900
Variable selling expenses ( 40 % of $ 250,000) $ 100,000
Variable administrative expenses ( 20 % of $ 280,000) $ 56,000
Variable manufacturing overhead ( 70 % of $ 358,000) $ 180,600
Total Variable costs for current year $ 867,500
Contribution margin for current year =
Sales Revenue - Variable costs
$ 1,250,000 - $ 867,500 = $ 382,500
Computation of variable costs and contribution margin for projected year
Direct Material cost for projected year( $ 496,000 * 110 %)= $ 545,600
Direct Labor costs for projected year ( $ 34,900 * 110 %) = $ 38,390
Variable selling expenses ( 110 % of $ 100,000) $ 110,000
Variable administrative expenses ( 110 % of $ 56,000) $ 61,600
Variable manufacturing overhead ( 110 % of $ 180,600) $ 198,660
Total Variable costs for current year $ 954,250
Contribution margin for current year =
Sales Revenue - Variable costs
$ 1,375,000 ($ 1,250,000* 110 %) - $ 954,250 = $ 420,750
Answer:
Contribution Margin for current year $312,500
Total Fixed Costs 481,400
Contribution Margin for projected year $373,450
Fixed Costs for the projected year will remain same 481,400
Explanation:
Wildhorse Corporation
Sales $1,250,000
Direct materials $496,000,
Direct labor $34,900,
Manufacturing overhead
Variable (70% ) of $358,000= 250,600
Manufacturing Margin 468,500
Administrative expenses
Variable (20% )of $280,000= 56,000
Selling expenses
Variable (40% )of $250,000= 100,00
Total Variable Costs 910,500
Contribution Margin for current year $312,500
Total Fixed Costs 481,400
Selling expenses
Fixed 60% of ,$250,000= 150,00
Administrative expenses
Fixed 80% of $280,000= 224,000
Manufacturing overhead
Fixed 30% of $358,000 = 107,400
Wildhorse Corporation
Sales $1, 375,000
Costs / no of units = ( $1,250,000/125,000= $10 per unit )
( 125000+12500= 137,500 units * units price = $ 10 = 13750,000)
Total Variable Costs 910,500 for 125,000 units
Unit Variable Costs =910,500/ 125,000 units =$ 7.284
Total variable costs for 137,500 units = $ 1001550
Contribution Margin for projected year $373,450
We calculate the total variable costs and get the unit variable costs by dividing with the number of units given. Now we multiply it with additional 10 % increase in the units to get the Contribution Margin for projected year .
Fixed Costs for the projected year will remain same 481,400
Selling expenses
Fixed 60% of ,$250,000= 150,00
Administrative expenses
Fixed 80% of $280,000= 224,000
Manufacturing overhead
Fixed 30% of $358,000 = 107,400
The bathtub theory of operations management is being promoted as the next breakthrough for global competitiveness. The factory is a bathtub with 60 gallons of capacity. The drain is the outlet to the market and can output 5.5 gallons per hour when wide open. The faucet is the raw material input and can let material in at a rate of seven gallons per hour. Now, to test your comprehension of the intricacies of operations (assume the bathtub is empty to begin with): a-1. What is the maximum rate (gallons per hour) at which the market can be served if all valves are set to maximum? (Round your answer to 1 decimal place.) a-2. If the faucet is running at maximum and the drain is wide open, in how many hours will the bathtub completely fill and start to overflow? (Round your answer to 1 decimal place.) b. Suppose that instead of a faucet, a eight-gallon container is used for filling the bathtub (assume a full container is next to the tub to begin with); it takes two hours to refill the container and return it to the bathtub. What is the average output rate (gallons per hour)? (Round your answer to 1 decimal place.)
Answer:
Explanation
question solve below
The maximum rate the market can be served is determined by the maximum output which is 5.5 gallons per hour. If the faucet and drain are working at maximum capacity, the bathtub will start to overflow after 40 hours. When filling with an eight-gallon container that takes two hours to refill, the average output rate is 4 gallons per hour.
Explanation:The operations management scenario involving the 'bathtub theory' can be understood in terms of rate of input (faucet), storage capacity (bathtub) and rate of output (drain).
For question a-1, the maximum rate at which the market can be served is equivalent to the rate at which the drain (outlet to the market) can operate. Given that the drain can output a maximum of 5.5 gallons per hour, the maximum rate at which the market can be served is 5.5 gallons per hour.
For question a-2, with the drain wide open (5.5 gallons per hour) and the faucet running at maximum (7 gallons per hour), the bathtub will start to fill because the input rate is greater than the output rate. The difference between the input and output rate is 7 - 5.5 = 1.5 gallons per hour. Therefore, the tub will start to overflow after 60 (total capacity) divided by 1.5 (rate of increase) equals 40 hours.
For question b, if we use an eight-gallon container for filling and it takes two hours to refill and return it to the bathtub, the average output rate is 8 gallons per 2 hours, or 4 gallons per hour.
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The Wilmoths plan to purchase a house but want to determine the after-tax cost of financing its purchase. Given their projected taxable income, the Wilmoths are in the 24% Federal income tax bracket and the 8% state income tax bracket (i.e., an aggregate marginal tax bracket of 32%). The total cash outlay during the first year of ownership will be $23,400 ($1,200 principal payments, $22,200 qualified residence interest payments).As a result, the annual after-tax cost of financing the purchase of the home will be $_____________.
Answer:
The annual after-tax cost of financing the purchase of the home will be $ 16,296.
Explanation:
To calcuate the annual after-tax cost of financing the purchase of the home we have to use the following formula:
annual after-tax cost of financing the purchase= Installment -tax saving
Acording to the data Tax Saving = 32 % x of Interest amount , hence, tax saving= 32% x $22,200
=$7,104
So, annual after-tax cost of financing the purchase= $23,400- $7,104
= $ 16,296
Farmer and Taylor formed a partnership with capital contributions of $250,000 and $300,000, respectively. Their partnership agreement calls for Farmer to receive a $90,000 per year salary. The remaining income or loss is to be divided equally. Assuming net loss for the current year is $25,000, the journal entry to allocate the net loss is:
a. Debit Income Summary, $31,000; Debit Farmer, Capital, $35,500; Credit Taylor, Capital, $66,500.
b. Debit Income Summary, $31,000; Credit Farmer, Capital, $15,500; Credit Taylor, Capital, $15,500.
c. Debit Taylor, Capital, $66,500; Credit Income Summary, $31,000; Credit Farmer, Capital, $35,500.
d. Debit Income Summary, $31,000; DebitTaylor, Capital, $35,500; Credit Taylor, Capital, $66,500.
e. Debit Income Summary, $31,000; Credit Taylor, Capital, $15,500; Credit Farmer, Capital, $15,500.
Answer:
Taylor's capital $57,500
To Income summary $25,000
To Farmer's capital $32,500
(Being the allocation of the net loss is recorded)
Explanation:
Before passing the journal entry we need to do the calculations which is shown below:
Since the net loss for the current year is $25,000
And, the amount receiver per year is $90,000
So , the total amount is
= $25,000 + $90,000
= $115,000
Now it is equally dividend i.e $57,500 each
So, the farmer amount credited by
= $90,000 - $57,500
= $32,500
And, the taylor account debited by $57,500
So, the journal entry is
Taylor's capital $57,500
To Income summary $25,000
To Farmer's capital $32,500
(Being the allocation of the net loss is recorded)
This is the answer but the same is not provided in the given options
Sunland Company issues $1.90 million, 10-year, 8% bonds at 98, with interest payable each January 1. Your answer is correct. Prepare the journal entry to record the sale of these bonds on January 1, 2019. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1 SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT Your answer is partially correct. Try again. Assuming instead that the above bonds sold for 102, prepare the journal entry to record the sale of these bonds on January 1, 2019. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1 Click if you would like to Show Work for this question: Open Show Work SHOW LIST OF ACCOUNTS LINK TO TEXT
Answer:
1. Jan 1
Dr Cash $1,862,000
Dr Discount on bonds $38,000
Cr Bonds payable $1,900,000
2.
Dr cash $1,938,000
Cr bonds payable $1,900,000
Cr Premium bonds $38,000
Explanation:
Sunland Company
1. Jan 1
Dr cash
Dr Cash $1,862,000
Dr Discount on bonds $38,000
Cr Bonds payable $1,900,000
Cash ($1,900,000 x 0.98) = $1,862,000
2.Assuming instead that the above bonds sold for 102
Dr cash $1,938,000
Cr bonds payable $1,900,000
Cr Premium bonds $38,000
Cash ($1,900,000 x 1.02) = $1,938,000
Final answer:
With an increase in market interest rates to 9%, you would expect to pay less than the bond's $10,000 face value. To calculate the price, discount the bond's remaining cash flows at the new rate, yielding a value of approximately $9,724.77 that you might be willing to pay for it.
Explanation:
The scenario presents a situation where a local water company issued a $10,000 ten-year bond at an interest rate of 6%. When contemplating the purchase of this bond one year before its maturity, the current market interest rate has risen to 9%. This rise in interest rates implies that the market value of the bond will decrease below its face value because investors can obtain a higher return elsewhere. Therefore, you would expect to pay less than the $10,000 face value for the bond.
To calculate the price you would be willing to pay for this bond, you would discount the remaining cash flows (one year of interest plus the principal at maturity) back at the current market rate of 9%. The bond would pay $600 in interest (6% of $10,000), and the repayment of the $10,000 principal at the end of the year. The calculation is as follows:
Present value of interest payment: $600 / (1 + 0.09) = $550.46Present value of principal repayment: $10,000 / (1 + 0.09) = $9,174.31Adding these together gives you a value you might be willing to pay for the bond:
$550.46 + $9,174.31 = $9,724.77
Marston Manufacturing Company is considering a project that requires an investment in new equipment of $3,600,000, with an additional $180,000 in shipping and installation costs. Marston estimates that its accounts receivable and inventories need to increase by $720,000 to support the new project, some of which is financed by a $288,000 increase in spontaneous liabilities (accounts payable and accruals).
The total cost of Martson's new equipment is ___________
Answer:
These are the missing multiple choices:
a. $3,780,000, b. $4,212,000, c. $720,000
The correct option is A,$3,780,000
Explanation:
The total cost of Martson's new equipment comprises of the invoice price of the equipment of $3,600,000 plus the cost of installation and shipping costs of $180,000.
The rationale for the shipping and installation is that costs of asset should include costs incurred in bringing the asset to its present location and condition such as installation and shipping costs.
The costs of the assets is $3,780,000($3,600,000+$180,000)
Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware issued $35,000,000 of five-year, 12% bonds at a market (effective) interest rate of 10%, with interest payable semiannually. Compute the following, presenting figures used in your computations: a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibit 5 and Exhibit 7. Round to the nearest dollar. $ b. The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar. $ c. The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar. $ d. The amount of the bond interest expense for the first year. Round to the nearest dollar.
Final answer:
The process for calculating cash proceeds, premium amortization, and bond interest expense involves understanding the relationship between the bond's coupon rate and the market interest rate, as well as applying the effective interest method for premium amortization. Without specific details and present value tables, numerical answers cannot be provided, but the conceptual methodology has been outlined.
Explanation:
The question involves calculating several financial metrics related to the issuance of a bond by Ware Co. not provided in the details but related to the context given. Typically, when a company issues bonds, the cash proceeds from the sale of these bonds depend on the relationship between the interest rate specified on the bond (coupon rate) and the prevailing market interest rate (also known as the effective or yield rate). If the market interest rate is lower than the coupon rate, the bonds are usually sold at a premium, and vice versa.
Without the specific tables of present values (Exhibit 5 and Exhibit 7) and exact formulas provided, general steps to calculate these amounts include:
Cash proceeds from the sale of bonds can be calculated by determining the present value of the future cash flows (interest payments and principal repayment) discounted at the market rate of interest at the time of issuance.
Premium amortization for the first semiannual period using the effective interest method involves calculating the interest expense based on the market rate of interest and comparing this to the actual interest paid based on the coupon rate. The difference adjusts the carrying amount of the bond.
For subsequent periods, the same method applies; however, the carrying amount of the bond changes as the premium is amortized over time.
The bond interest expense for the first year is calculated by applying the market rate of interest to the carrying amount of the bond at the beginning of each period.
Without exact figures and the present value tables, providing specific numerical answers is not feasible. However, these steps outline the conceptual approach.
Bonaime, Inc., has 7.4 million shares of common stock outstanding. The current share price is $62.40, and the book value per share is $5.40. The company also has two bond issues outstanding. The first bond issue has a face value of $71.4 million, a coupon rate of 7.4 percent, and sells for 91 percent of par. The second issue has a face value of $36.4 million, a coupon rate of 7.9 percent, and sells for 90 percent of par. The first issue matures in 18 years, the second in 10 years. The most recent dividend was $3.55 and the dividend growth rate is 5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 40 percent.
Answer:
The missing requirement is found below:
What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Cost of equity % is 10.97%
What is the company’s aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Aftertax cost of debt % is 5.24%
What is the company’s equity weight? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
Equity weight is 0.83
What is the company’s weight of debt? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
Debt weight is 0.17
What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC % is 10.00%
Explanation:
share price =Do*(1+g)/r-g
g is the dividend growth rate of 5 %
Do is the dividend just paid $3.55
share price is $62.40
r is the cost of equity that is unknown
r=Do*(1+g)/share price+g
r=3.55*(1+5%)/62.40+5%
r=(3.7275 /62.40)+5%
r=10.97%
First debt:
=rate(nper,pmt,-pv,fv)
nper is the number of coupon interest the bond would pay 18*2=36
pmt is the semi-annual coupon interest=$1000*7.4%/2=$37
pv is the current price of the bond which is 91%*$1000=$910
fv is the face value of $1000
=rate(36,37,-910,1000)
rate=4.19% (semi-annually)
rate=8.38%(annually)
Second debt:
=rate(nper,pmt,-pv,fv)
nper is the number of coupon interest the bond would pay 10*2=20
pmt is the semi-annual coupon interest=$1000*7.9%/2=$39.5
pv is the current price of the bond which is 90%*$1000=$900
fv is the face value of $1000
=rate(20,39.5,-900,1000)
rate=4.73% (semi-annually)
rate=9.46%(annually)
Weights:
Debt 1 91%*$71,400,000 i.e $64,974,000.00
Debt 2 90%*$36,400,000 i,e $32,760,000.00
Total debt $ 97,734,000.00
Equity 7,400,000*62.4= $461,760,000.00
Total capital $559,494,000.00
debt weight $ 97,734,000.00/$559,494,000.00 =0.17
equity weight $461,760,000.00/ $559,494,000.00 =0.83
Cost of debt=8.38%*$64,974,000.00/$ 97,734,000.00 =5.57%
=9.46* $32,760,000.00/$ 97,734,000.00 =3.17%
cost of debt=8.74%
After tax cost of debt =pretax tax cost *(1-t)
t is tax rate at 40% 0r 0.40
after tax cost of debt=8.74%*(1-0.40)=5.24%
WACC=Ke*equity weight+Kd(after tax)*debt weight
WACC=(10.97%*0.83)+(5.24%*0.17)=10.00%
Karim Corp. requires a minimum $8,000 cash balance. Loans taken to meet this requirement cost 1% interest per month (paid monthly). Any excess cash is used to repay loans at month-end. The cash balance on July 1 is $8,400, and the company has no outstanding loans. Forecasted cash receipts (other than for loans received) and forecasted cash payments (other than for loan or interest payments) follow. July August September Cash receipts $ 20,000 $ 26,000 $ 40,000 Cash payments 28,000 30,000 22,000 Prepare a cash budget for July, August, and September. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Round your final answers to the nearest whole dollar.)
Answer and Explanation:
The preparation of cash budget for July, August and September is shown below:-
July August September
Beginning cash balance $8,400 $8,000 $8,000
Add:
Cash receipts $20,000 $26,000 $40,000
Total cash available $28,400 $34000 $48000
Less:-
Cash payments $28,000 $30,000 $22,000
Less:-
Interest on bank loan 0 $76 $117
Preliminary cash balance $400 $3,924 $25,883
Additional loan(loan repayment) $7,600 $4,076 -$11,676
Ending cash balance $8,000 $8,000 $14,207
Loan balance
Loan balance -Beginning of month 0 $7,600 $11,676
Additional loan(loan repayment) $7,600 $4,076 -$11,676
loan balance-end of month $7,600 $11,676 0
Working note
Interest = $7600 × 1% = $76
Interest = $11,676 × 1% = $117
Therefore for making cash budget we simply added all the receipts and less all the payments.
A monthly cash budget for Karim Corp is prepared by tracking the beginning balance, forecasted receipts, forecasted payments, any necessary loans, and interest, and then calculating the ending balance. For July and August, loans are necessary to maintain the $8,000 minimum balance. In September, a surplus allows repayment of the loans.
Explanation:For the cash budget, let's go month by month July begins with a cash balance of $8,400. Adding the forecasted receipts of $20,000 and subtracting the forecasted payments of $28,000 leaves us with an ending balance of $400. However, Karim Corp requires a minimum balance of $8,000, so you will have to take out a loan for $7,600 to meet this requirement. The loan costs 1% interest per month or $76 for July.
Moving on to August, we begin with our balance of $8,000 (the loaned amount). We add receipts of $26,000 and subtract payments of $30,000, leaving a balance of $4,000. Again, we need to maintain a balance of $8,000, so we need another loan. This time the loan is for $4,000, and the interest cost is $40. Adding this to the July interest gives a total interest cost of $116.
In September, we start with our balance of $8,000, add receipts of $40,000 and subtract payments of $22,000. This gives us an ending balance of $26,000. With this surplus, we can pay off the total loan amount of $11,600 (loans of $7,600 and $4,000 plus the total interest of $116). This leaves us with a final September balance of $14,234.
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5 years ago you purchased a small apartment complex for $1 million. You borrowed $700,000 at 7% for 25 years with monthly payments. The original depreciable basis was $750,000 and you have used 27 1/2 years of straight line depreciation over the 5 year holding period. Assume no CAPX have been made since the property was acquired. If you sell the property today for $1,270,000 in a fully taxable sale. What will be the taxes due on sale
Final answer:
The taxes due on sale of the property are based on the capital gain and accumulated depreciation recapture. The capitalized gain is calculated to be $406,365, which would be subject to capital gains tax, and the depreciation recapture at a standard rate for real estate would be 25% of $136,365.
Explanation:
To calculate the taxes due on sale of the property, we must first determine the gain on sale and the depreciable basis after accounting for the amortization. The property was purchased for $1 million and sold for $1.27 million, resulting in a gross gain of $270,000. Over the 5 year holding period using straight-line depreciation, the depreciable basis of $750,000 is reduced by the depreciation taken ($750,000 divided by 27.5 years equals approximately $27,273 per year, multiplied by 5 years equals roughly $136,365 in total depreciation).
This means the adjusted basis of the property at the time of sale is $1,000,000 (purchase price) minus $136,365 (accumulated depreciation), which equals $863,635. Subtracting this from the sale price of $1,270,000, we get a capital gain of $406,365. This gain would be subject to capital gains tax, and the accumulated depreciation recaptured at a 25% rate for real estate. Without specific tax rates for the individual's income, we cannot calculate the exact tax amount, but we have the necessary information to do so with those rates.
In a response to public outcry over the Internal Revenue Service’s (IRS) extent and abuse of power, the Federal government has decided to disband the IRS in favor of creating a new administrative agency to oversee taxation. As a business owner, what steps might you be able to take to ensure there are control’s and limits to the agency’s power? How does this compare with the controls available to branches of the government?
Answer:
Check the explanation
Explanation:
As business or company owner there’s a good need to have legal and litigation team comprising of solicitors general, Auditors, and forensic risk manager who can help out in any needs relating to IRS notices and undue Harassment by official legally and prive their warrants to be false.
One must invest in strong compliance teams and establish stringent framework to comply with and pursue ethical audit requirements to avoid any ambiguity or IRS agencies investigation.
However various branches of government can raid businesses with strong evidence or information about any unscrupulous activities and can ask for investigation and further joint inquiries.
If business owner doesn't agree to any allegation he may seek help from legal team regarding charge sheet issued and avail various counseling benefits to avoid loss of brand image and punitive damages.
As a business owner, engaging with the rulemaking process, advocating for transparency, and using legal action are good ways to enforce controls and limits on a new administrative agency. These methods are mirrored by the checks and balances found within the branches of government.
Explanation:As a business owner, there are a variety of strategies that can be employed to ensure there are controls and limits to the new administrative agency's power. The first step would be to engage with the rulemaking process for the new agency by submitting comments, testifying at public hearings, or participating in public meetings. This can help influence the agency’s rules and policies, and can also allow you to contribute to setting the decision-making boundaries for the agency. In addition, you could use legal action as a way to challenge decisions made by the new agency, and also advocate for transparency within the agency, as this helps to maintain checks and balances.
These methods can be compared to the controls that are available to branches of government. For example, the executive, legislative, and judicial branches all have checks and balances on each other. The executive branch can veto legislation, the legislative branch can override vetoes and impeachment officials, and the judicial branch can declare acts unconstitutional.
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Written Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 6% preferred stock with a stated value of $5. The preferred stock is cumulative and participating. Dividends have been paid in every year except the past two years and the current year. Assuming that $270,000 will be distributed, how much will the common stockholders receive
Answer:
the common stockholders receive $162,000
Explanation:
Preference Shareholders have preference interest over the dividends of Written Inc. This means the preference share holders will be paid their dividends before the common shareholders receive theirs
Note : The preferred stock is cumulative meaning that any dividends in arrears would have to be paid first before payment of dividends relating to current year dividends are declared and issued
Preference Dividends Arrears
Past Two years = (120,000 shares×$5×6%)×2
=$72,000
Current Year = 120,000 shares×$5×6%
=$36,000
Total = $72,000+$36,000 = $108,000
Dividends Paid to Common stockholders
Total Distributed Dividend $270,000
Less Distributed to Preference shareholders($108,000)
Paid to Common stockholders $162,000
The type and frequency of security awareness training is contingent on the type of user. For instance, all users might be required to attend refresher training courses on an annual basis, whereas a vendor should be required to attend outside training only as outlined in the vendor-company contract.
a. True
b. False
The statement is true; The type and frequency of security awareness training depend on the type of user, with all users attending annual refresher courses and vendors attending training as outlined in their contracts.
The type and frequency of security awareness training indeed depend on the type of user. Different roles within an organization have varying levels of access and responsibilities, and thus, their training needs differ. For example, all users might need annual refresher training to stay updated on security topics, while vendors might only need to participate in training as specified in their contracts.
Security awareness training should cover important subjects such as:
Recent developments in security fieldsSocial engineering techniquesAnti-vulnerability best practicesRecognizing danger signs of phishing and other threatsCareful consideration must ensure that all employees, including maintenance and contract employees, receive current and updated training. Changes in processes must be communicated effectively to the affected employees, and their understanding evaluated to determine the need for further training.
Ultimately, recognizing the inherent vulnerabilities of human behavior is crucial, and being forewarned helps in being forearmed against security threats.
In 2009, based on concepts similar to those used to estimate U.S. employment figures, the Japanese adult non- institutionalized population was 110.272 million, the labor force was 65.36 million, and the number of people employed was 62.242 million. According to these numbers, the Japanese labor-force participation rate and unemployment rate were about
A 56.4% and 2.8%.
B 56.4% and 4.8%.
C 59.3% and 2.8%.
D 59.3% and 4.8%.
Answer:
Option (D) is correct.
Explanation:
Given that,
Japanese adult non- institutionalized population = 110.272 million
Labor force = 65.36 million
Number of people employed = 62.242 million
Labor force participation rate is calculated as the percent of adult population involved in the labor force.
Labor force participation rate:
= (Labor force ÷ adult non- institutionalized population) × 100
= (65.36 ÷ 110.272) × 100
= 0.5927 × 100
= 59.27% or 59.3%
Unemployment rate is calculated as the percent of people unemployed among the labor force.
Number of people unemployed:
= Total labor force - Number of employed
= 65.36 - 62.242
= 3.118 million
Unemployment rate:
= (Number of people unemployed ÷ Labor force) × 100
= (3.118 ÷ 65.36) × 100
= 0.0477 × 100
= 4.77% or 4.8%
Use the Washington Post article Why We've Been Hugely Underestimating the Overfishing of the Oceans to answer the question. Which statement would best explain Daniel Pauly's prediction in the last paragraph of the article regarding the change in catch size in the future? Demand for fish is decreasing, so lower prices are driving suppliers from the market. Fish are a public good and best provided by the government instead of a market. The supply of fish is increasing at a decreasing rate, which is leading to more sustainable fishing practices. Fish are a common resource and susceptible to the phenomenon known as tragedy of the commons.
Answer & Explanation:
Fish is a common resource not a public good because it is subject to rivalry in consumption.Tragedy of commons results when property right aren't assigned for the common resource.
Daniel Pauly's prediction is that fish is a common resource susceptible to the tragedy of the commons, where people overfish to maximize profits.
What does this lead to?This leads to the depletion of the resource, which Pauly predicts will happen in the future.
However, other statements are not as accurate. Demand for fish is not decreasing, and the supply is increasing at a decreasing rate, but this does not lead to sustainable fishing practices. Pauly's prediction implies that catch size will continue to decline due to the tragedy of the commons, a serious issue that must be addressed to ensure ocean sustainability.
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The Welding Department of Sunland Company has the following production and manufacturing cost data for February 2020. All materials are added at the beginning of the process. Manufacturing Costs Production Data Beginning work in process Beginning work in process 14,800 units, 1/10 complete Materials $18,500 Units transferred out 55,400 Conversion costs 14,760 $33,260 Units started 51,400 Materials 239,680 Ending work in process 10,800 units, 1/5 complete Labor 67,000 Overhead 62,140 Prepare a production cost report for the Welding Department for the month of February.
Answer:
Explanation:
The file attached shows all the necessary explanation. I hope it helps. Thank you
During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $189,000. The company produced 21,000 units, and sold 15,500 units, leaving 5,500 units in inventory at year-end. Income calculated under variable costing is determined to be $325,000. How much income is reported under absorption costing?
Answer:
Net operating income= 374,500
Explanation:
Giving the following information:
Direct materials= $5
Direct labor= $3 per unit
Variable overhead= $4 per unit
Fixed overhead= $189,000.
The company produced 21,000 units, and sold 15,500 units
Under the absorption costing method, the unitary product cost is calculated using the direct material, direct labor, and total unitary overhead.
First, we need to calculate the unitary fixed overhead:
Unitary fixed overhead= 189,000/21,000= $9
Now, we can calculate the unitary product cost
unitary product cost= 5+3+4+9= $21
We need to determine the sales, therefore, we will reverse engineer the variable costing income statement:
Net operating income= 325,000
Fixed costs= 189,000
Variable costs= (5+3+4)*15,500= 186,000
=total sales= $700,000
Finally, we determine the net operating income under absorption costing:
Sales= 700,000
Cost of goods sold= (21*15,500)= (325,500)
Net operating income= 374,500
Answer:
$374,500
Explanation:
Variable costing consider all variable costs as production cost and Absorption costing consider all the cost incurred in production either variable or fixed as production cost.
Cost of Product
Direct materials, $5 per unit
Direct labor, $3 per unit
Variable overhead, $4 per unit
Fixed overhead per unit $9 per unit
Total Product cost $21 per unit
Variable cost per unit
Direct materials, $5 per unit
Direct labor, $3 per unit
Variable overhead, $4 per unit
Total Product cost $12 per unit
Variable costing
Net Income = Sales - variable - Fixed Costs
$325,000 = Sales - (15,500 x $12 ) - $189,000
$325,000 = Sales - $186,000 - $189,000
$325,000 = Sales - $375,000
Sales = $325,000 + $375,000
Sales = $700,000
Fixed overhead per unit = $189,000 / 21,000 = $9 per unit
Under absorption costing
Sales = $700,000
Cost of Sales = (15,500 x $21 ) = $325,500
Net Income = $700,000 - $325,500 = $374,500
A company that produces a single product had a net operating income of $90,000 using variable costing and a net operating income of $125,750 using absorption costing. Total fixed manufacturing overhead was $58,650 and production was 11,500 units both this year and last year. Last year was the first year of operations. Between the beginning and the end of the year, the inventory level: (Do not round intermediate computation and round your final answer to nearest whole number.)
a. decreased by 7,010 units
b. increased by 7,010 units
c. increased by 35,750 units
d. decreased by 35,750 units
Answer:
a. Decreased by 7010 units
Explanation:
Variable costing net operating income$ 90,000
Add manufacturing overhead costs
deferred in inventory under absorption
costing ($125,750-$90,000) $35,750
Deduct fixed manufacturing overhead costs released from inventory under absorption costingAbsorption costing net operating income $125,750
Fixed manufacturing overhead per unit = $58,650 ÷ 11,500 units = $5.1 per unit
Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in endinginventory − Fixed manufacturing overhead in beginning inventory$35,750= ($5.1 per unit × Units in ending inventory) − ($5.1 per unit × Units in beginning inventory)$35,750 = $5.1 per unit × (Units in ending inventory − Units in beginning inventory)(Units in ending inventory − Units in beginning inventory)
= $35,750÷ $5.1 per unit = 7,010 units
Answer:
Option B, increased by 7,010 units is the correct answer
Explanation:
The profits under absorption costing of $125,750 is higher than the one recorded under variable costing of $90,000,this implies that more inventory items have been charged with fixed cost included in the closing value of inventory.
The fixed manufacturing overhead per unit=$58,650/11,500
=$5.1
Invariably, each item of closing inventory under absorption costing has $5.1 of fixed cost included in it.
The difference between both methods' profit figures $35,750 ($125,750-$90,000)
number of increase in closing inventory=difference in profit figures/fixed cost per unit
number of increase in closing inventory=$35,750/$5.1
=7,010
A purely competitive wheat farmer can sell any wheat he grows for $25 per bushel. His five acres of land show diminishing returns because some are better suited for wheat production than others. The first acre can produce 1,000 bushels of wheat, the second acre 900, the third 800, and so on.
How many bushels will each of the farmer’s five acres produce?
Answer:
4,000 bushels of wheat
Explanation:
Given that,
Selling price per bushel of wheat = $25
His land follows diminishing returns as some are better suited for wheat production than others.
First acre of land produce = 1,000
Second acre of land produce = 900
Third acre of land produce = 800
As the land is following diminishing returns and it can be seen from the above information that there is a reduction of 100 bushel of wheat as we are moving from one acre of land to other acre of land.
Similarly,
Fourth acre of land yield = 700
Fifth acre of land produce = 600
Therefore, the total bushels of wheat produce by each of the farmer’s five acres is calculated as follows:
= First acre of land produce + Second acre of land produce + Third acre of land produce + Fourth acre of land produce + Fifth acre of land produce
= 1,000 + 900 + 800 + 700 + 600
= 4,000 bushels of wheat
Activity Inputs and Outputs The following are inputs and outputs to the cooking process of a restaurant: Identify whether each is an input or output to the cooking process. 1.Number of times ingredients are missing 2. Number of customer complaints 3. Number of hours kitchen equipment is down for repairs 4. Number of server order mistakes 5. Percent of meals prepared on time 6. Number of unexpected cook absences
Answer:
1. Number of times ingredients are missing
INPUT
2. Number of customer complaints. OUTPUT
3. Number of hours kitchen equipment is down for repairs. INPUT
4. Number of server order mistakes. INPUT
5. Percent of meals prepared on time. OUTPUT
6. Number of unexpected cook absences. INPUT
Explanation:
The following are inputs and outputs to the cooking process of a restaurant:
1. Number of times ingredients are missing
INPUT
2. Number of customer complaints. OUTPUT
3. Number of hours kitchen equipment is down for repairs. INPUT
4. Number of server order mistakes. INPUT
5. Percent of meals prepared on time. OUTPUT
6. Number of unexpected cook absences. INPUT
Finer Company uses a sales journal, a purchases journal, a cash receipts journal, a cash disbursements journal, and a general journal. The following transactions occur in the month of May.May. 2 Sold merchandise costing $400 to B. Facer for $600 cash, invoice no. 5703.5 Purchased $2,450 of merchandise on credit from Marchant Corp.7 Sold merchandise costing $1,080 to J. Dryer for $1,566, terms 2/10, n/30, invoice no. 5704.8 Borrowed $8,000 cash by signing a note payable to the bank.12 Sold merchandise costing $270 to R. Lamb for $432, terms n/30, invoice no. 5705.16 Received $1,535 cash from J. Dryer to pay for the purchase of May 7.19 Sold used store equipment for $900 cash to Golf, Inc.25 Sold merchandise costing $450 to T. Taylor for $707, terms n/30, invoice no. 5706.Journalize the May transactions that should be recorded in the sales journal assuming the perpetual inventory system is used.
Final answer:
To journalize Finer Company's May sales transactions in the sales journal, only those involving sale of merchandise are included, specifically sales made on May 2, 7, 12, and 25, with total sales amounts recorded regardless of the cost of goods sold.
Explanation:
Journalizing Sales Transactions
To journalize the transactions for Finer Company that should be recorded in the sales journal for the month of May, we'll focus on transactions involving the sale of merchandise which are relevant to the perpetual inventory system. We will ignore non-merchandise transactions such as borrowing cash or selling equipment. Here are the appropriate entries:
May 2: Sold merchandise for $600 cash.
May 7: Sold merchandise on account for $1,566, terms 2/10, n/30.
May 12: Sold merchandise on account for $432, terms n/30.
May 25: Sold merchandise on account for $707, terms n/30.
For the sales on credit, the amounts to be recorded are the total sales amounts, not the cost of the goods sold. Therefore, the following entries are to be made in the sales journal:
Date: 05/02, Account Debited: Cash, Invoice No.: 5703, Amount: $600
Date: 05/07, Account Debited: Accounts Receivable - J. Dryer, Invoice No.: 5704, Amount: $1,566
Date: 05/12, Account Debited: Accounts Receivable - R. Lamb, Invoice No.: 5705, Amount: $432
Date: 05/25, Account Debited: Accounts Receivable - T. Taylor, Invoice No.: 5706, Amount: $707
Note that the transaction from May 16 where J. Dryer pays for a purchase does not belong in the sales journal since it is a cash receipt, not a sale.
Flash EminusCard Manufacturing manufactures software parts for the computer software systems that produce eminuscards. The Flash II part is currently manufactured in the Computer Department. The Data Department also produces the part and the plant has excess capacity to produce the Flash II part. The current market price of the Flash II part is $ 500. The managerial accountant reported the following manufacturing costs and variable expense data: Flash EminusCard Manufacturing Manufacturing Costs and Variable Expense Report Flash Component Direct materials $ 860 Direct labor $ 80 Variable manufacturing overhead $ 150 Fixed manufacturing overhead (current production level) $ 155 Variable selling expenses (only incurred on sales to outside consumers) $ 132 If the highest acceptable transfer price is $ 500 in the market, what is the lowest acceptable inminushouse price the Data Department should receive to produce the part inminushouse at the Computer Department?
Answer:
$1,090
Explanation:
The lowest acceptable price for Data Department is the minimum transfer transfer price.
The minimum transfer price is defined as a price that is acceptable to the transferring division and out of a range of acceptable prices, it is that would be the best for the company.
Mini Transfer price = Variable unit costs - internal savings + opportunity cost
Note : the plant has excess capacity to produce the Flash II part, therefore there is no opportunity cost
Mini Transfer price = $ 860+ $ 80 + $ 150
= $1,090
Therefore the lowest acceptable house price the Data Department should receive to produce the part in house at the Computer Department is $1,090
Final answer:
The lowest acceptable inminushouse price the Data Department should receive to produce the Flash II part inminushouse at the Computer Department is $1222, which covers the variable costs of production.
Explanation:
To determine the lowest acceptable inminushouse price the Data Department should receive to produce the Flash II part inminushouse at the Computer Department, we need to consider the variable costs involved in the production. The variable manufacturing costs for the Flash II part include direct materials, direct labor, variable manufacturing overhead, and variable selling expenses. Adding these costs together, we get $860 (direct materials) + $80 (direct labor) + $150 (variable manufacturing overhead) + $132 (variable selling expenses) = $1222.
Therefore, the lowest acceptable inminushouse price the Data Department should receive is $1222, which covers the variable costs of production. This ensures that the Data Department covers its expenses when producing the Flash II part inminushouse at the Computer Department.
Over and Under, Inc. manufactures weaving looms.
Before the period began, the company prepared the following manufacturing overhead budget for an expected activity level of 15,000 direct labor hours (DL hrs):
Variable Manufacturing Overhead Costs $322,500
Fixed Manufacturing Overhead Costs $205,000
By the end of the period, the company noted that 3,000 fewer direct labor hours were logged than expected. The total actual manufacturing overhead costs incurred during the period was $545,000, of which, $325,000 was fixed.
1. Which of the following statements is correct for the above data?
A. The company’s flexible budget variance for total manufacturing overhead costs during the period equals $64,500.
B. The master budget variance related to fixed manufacturing overhead costs for the period equals $17,500.
C. The flexible budget variance for variable manufacturing overhead costs is favorable because fewer DL hrs were logged during production than expected.
D. The total volume variance can be calculated by multiplying$21.50 by the difference between the expected DL hrs and the actual DL hrs.
E. The volume variance for fixed manufacturing overhead costs is negative.
Answer:
The answer is C.
The flexible budget variance for variable manufacturing overhead costs is favorable because fewer DL hrs were logged during production than expected.
Explanation:
The flexible budget variance for manufacturing overhead =
(Actual DL hrs * OAR) - Actual Overhead
= ( 12,000* $21.50 ) - ( $545,000 - $325,000)
= $258,000 - $220,000
= $38,500 Fav.