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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?
Answers
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.
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?
Answers
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%
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.
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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
Your brother has asked you for a loan and has promised to pay you $7,100 at the end of three years. If you normally invest to earn 8.50 percent per year, how much will you be willing to lend to your brother if you view this purely as a financial transaction (i.e., you don’t give your brother a special deal)?
Answers
Answer:
$5,559
Explanation:
$7,100 is the future value of the loan which is paid by my brother. I have to calculate the present value of this value to determine the loan value by discounting at the rate of 8.5%.
Use following formula to calculate the present value of the amount.
Present value = Future value / ( 1 + r )^n
Where
r = rate of interest = 8.5%
n = numbers of years = 3 years
Future value = Loan amount paid back = $7,100
Placing values in the formula
PV = $7,100 / ( 1 + 8.5% )^3
PV = $5,558.65
PV = $5,559
Using the present value calculation with an 8.50% interest rate and a 3-year term, you would be willing to lend your brother approximately $5,585.45 today in exchange for a promise of $7,100 at the end of three years.
To compute how much you would be willing to lend to your brother today, given that he will pay you $7,100 at the end of three years, assuming an 8.50% annual interest rate, you would use the present value formula. The present value (PV) determines how much a future sum of money is worth in today's dollars, given a specific interest rate over a certain period of time.
The formula for the present value is PV = FV / (1 + r)n, where FV is the future value of the money, r is the annual interest rate, and n is the number of years until the amount is received. In this case, FV is $7,100, r is 8.50% or 0.085, and n is 3 years.
Using this formula:
PV = $7,100 / (1 + 0.085)3
PV = $7,100 / (1.085)3
PV = $7,100 / 1.271
PV = $5,585.45 (approximately)
Therefore, you would be willing to lend your brother approximately $5,585.45 today if you view this purely as a financial transaction.
"icrosoft announced a 2 for 1 stock split. Before the split they had 5.4b shares outstanding and par value was $0.0000125. Before the split the balance in the Common Stock account was: $ After the split shares outstanding are (in billions): After the split par value is: After the split the balance in Common Stock is $"
Answers
Answer: Balance before Split - $67,500
After Split No. of shares - 10.8 billion
After Split Par Value - $0.00000625
After Split Balance - $67,500
Explanation:
Microsoft had 5.4b shares outstanding and par value was $0.0000125.
Before the split the balance in the Common Stock account was:
We will multiply the no. Of shares outstanding by the par value.
= 5.4 billion * $0.0000125
= $67,500
After the split shares outstanding are (in billions):
The split was a 2 for 1 split meaning the shares doubled. That would mean,
= 5.4b * 2
= 10.8 billion shares outstanding
After the split par value is:
It was a 2 for 1 split. That would mean that prices had to have halved. Calculating therefore,
= $0.0000125/2
= $0.00000625
After the split the balance in Common Stock is
= 10.8 billion shares * $0.00000625
= $67,500
Balance remained the same showing that total equity remains the same. Only no of shares and price changes.
Answer:
Before the split the balance in the Common Stock account was: $67,500
After the split shares outstanding are (in billions): 10.8
After the split par value is: $0.00000625
After the split the balance in Common Stock is $67,500
Explanation:
Stock split increase the numbers of shares with a specific given ratio but the common equity value remains same that's why the par value of the share decreases with respective ratio.
Before the split the balance in the Common Stock account was:
Common Stock = 5,400,000,000 shares x 0.0000125 = $67,500
After the split shares outstanding are (in billions):
2 for 1 split will double the Outstanding numbers of shares
Outstanding numbers of shares = 5.4b shares x 2/1 = 10.8b shares
After the split par value is:
Total value of stock remains same after the split
Par value = Total value / Outstanding numbers of shares after split
Par value = $67,500 / 10,800,000,000 = $0.00000625
After the split the balance in Common Stock is $"
Balance in the common stock will remain same as $67,500
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.
Answers
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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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.
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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.
On January 6 of the current year Paxton and Jackson form PJ LLC. Their contributions to the LLC are as follows:
Adjusted Basis Fair Market Value
From Paxton:
Cash $680,000 $680,000
Temporary investments $118,000 $120,000
Accounts receivable $0 $540,000
Inventory $840,000 $880,000
From Jackson:
Cash $1,850,000 $1,850,000
Supplies $370,000 $370,0
Required:
1. Within 30 days of formation, PJ collects the receivables and sells the inventory for $60,000 cash. How much income does PJ recognize from these transactions, and what is its character?
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ANSWER:
The income is ORDINARY INCOME
The total ordinary income amount is $642,000
EXPLANATION:
Income = adjusted basis - fair market
FROM PAXTON:
Cash:
$680,000 - $680,000 = $0
Temporal investment:
$120,000 - $118,000 = $2,000
Account receivable:
$540,000 - $0 = $540,000
Inventory:
$880,000 - $840,000 = $40,000
TOTAL INCOME FROM PAXTON = $582,000
FROM JACKSON:
Cash:
$1,850,000 - $1,850,000 = $0
Supplies:
$370,000 - $370,000 = $0
TOTAL INCOME FROM JACKSON = $0
PJ has received ORDINARY INCOME from;
Temporal investment = $2,000
Account receivable = $540,000
Inventory = $40,000 + $60,000 = $100,000
TOTAL ORDINARY INCOME = $642,000
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.)
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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
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.
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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
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
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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)
A quality inspector for Alpha-Beta Co. is concerned about the quality of the batch of several thousand blank DVD disks which his company produced this week and is preparing to ship. If the cost of replacing a defective DVD disk once it has been shipped is $2.50, while the cost for 80% inspection prior to shipment is $0.32 each, while the cost of 100% inspection prior to shipment is $0.40 each, at what point is she indifferent between 100% inspection and shipment without inspection?
a. 12.8% defectives
b. 16% defectives
c. 20% defectives
d. 32% defectives
Answers
Answer:
b. 16% defectives
Explanation:
Let the number of units shipped be N
Let the defect rate be y%
Cost of replacing defectives once shipped = (y/100)×N× 2.5 ........equation (1)
Cost of 100% inspection = N × 0.4 .........equation (2)
At the indifference point, both costs, that is the replacement cost and inspection cost are equal. Therefore, we make both equations (1) and (2) equal.
N × 0.4 = (y/100)×N× 2.5
100 × 0.4 = y ×2.5
y = 40/2.5 = 16
She is indifferent at 16% defectives
Presented below are a number of balance sheet items for Coronado, Inc., for the current year, 2017. Goodwill $ 126,590 Accumulated Depreciation-Equipment $ 292,240 Payroll Taxes Payable 179,181 Inventory 241,390 Bonds payable 301,590 Rent payable (short-term) 46,590 Discount on bonds payable 15,240 Income taxes payable 99,952 Cash 361,590 Rent payable (long-term) 481,590 Land 481,590 Common stock, $1 par value 201,590 Notes receivable 447,290 Preferred stock, $10 par value 151,590 Notes payable (to banks) 266,590 Prepaid expenses 89,510 Accounts payable 491,590 Equipment 1,471,590 Retained earnings ? Debt investments (trading) 122,590 Income taxes receivable 99,220 Accumulated Depreciation-Buildings 270,440 Notes payable (long-term) 1,601,590 Buildings 1,641,590 Prepare a classified balance sheet in good form. Common stock authorized was 400,000 shares, and preferred stock authorized was 20,000 shares. Assume that notes receivable and notes payable are short-term, unless stated otherwise. Cost and fair value of debt investments (trading) are the same. (List Current Assets in the order of liquidity. List Property, Plant and Equipment in order of Land, Building and Equipment.)
Answers
Answer:
A classified balance sheet is a class of balance sheet presentation that carefully displays all account balance listings into subcategories and in order of liquidity.
It is easier for a reader of the Account to follow the narrative and draw conclusions quickly, requiring less assumptions or queries from analysts over the qualification of the items.
Explanation
The balance sheet is contained in the attached document to preserve its form.
Final answer:
Provided is a detailed classified balance sheet for Coronado, Inc. for the year 2017, listing assets, liabilities, and equity items. The summary adheres to the specific order of categories as requested, offering a clear depiction of the company's financial status.
Explanation:
Balance Sheet for Coronado, Inc. as of 2017:
Assets:
Cash: $361,590
Notes Receivable: $447,290
Inventory: $241,390
Land: $481,590
Equipment: $1,471,590
Liabilities:
Accounts Payable: $491,590
Notes Payable (to banks): $266,590
Bonds Payable: $301,590
Equity:
Common Stock: $201,590
Preferred Stock: $151,590
Retained Earnings: Calculated
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.)
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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
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
Answers
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.
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.
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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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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.
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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)
Delivery Service purchased a commercial umbrella policy with a $10 million liability limit and a $100,000 self-insured retention. The umbrella insurer required Delivery Service to carry a $1 million per-occurrence limit on its general liability policy and a $1 million peroccurrence limit on its business auto policy. A Delivery Service driver was intoxicated while driving a company van and killed another motorist. The court ruled that Delivery Service must pay damages in the amount of $5 million. How much, if any, of this amount will the umbrella insurer pay? Explain your answer
Answers
Answer:
Business umbrella approach gives inclusion to the firm against those misfortunes that may bankrupt the firm. The arrangement covers a definitive misfortune in abundance of held breaking point happens because of real injury, property harm, promoting and individual injury. A definitive misfortune is the lawful risk to which back up plan is committed to pay. As far as possible is the accessible furthest reaches of the fundamental protection. According to the umbrella arrangement, the protected needs to keep up some base measure of obligation before the case is paid by the umbrella strategy. In the event that the guaranteed is secured under some other strategy, at that point first that sum is paid and remaining sum is paid by umbrella approach in the wake of fulfilling oneself safeguarded maintenance.
The complete loss to the organization is $5 million, at that point $1 million will be paid by general obligation strategy and $1 million will be paid by business auto approach. Out of the remaining $3 million, self-safeguarded limit is $100,000 which demonstrates that $2.9 million ($3 million less 5100,000) will be paid by umbrella arrangement.
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?
Answers
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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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?
Answers
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.
Consider a monopolist facing a linear demand curve. Assume the marginal cost of production is constant. This would be true whether the industry is served by a monopolist or by a number of competitive firms. Suppose you know that the monopoly is inefficient because it produces 200 fewer units than what would be produced if the market is competitive. The monopoly quantity must be:_________
Answers
Answer:
200 units
Explanation:
Perfect Competition are many firms selling similar products at same prices. So, constant prices imply that their marginal revenue = average revenue = price.
Monopoly is single seller of products. Their MR curve is below their AR curve. And, it is also twice steeper than AR (demand) curve, because it has double slope then that.
So, perfect competition is at equilibrium where MC = (MR = AR = P). However monopoly's optimum output is where MR = MC, & the optimal price is found by corresponding point at higher AR (demand) curve.
Given that MC curve is constant : Monopoly's output will be half perfect competition output, as per above explanation. So, if monopoly is producing 200 less than perfect competitive output. Being it half the perfect competition output, it could be producing output = 200 currently.
The monopoly quantity produced must be 200 units less than the quantity that would be produced in a perfectly competitive market, which means Qm = Qc - 200.
The question pertains to a monopolist facing a linear demand curve and operating with constant marginal costs, in comparison to a theoretical competitive market outcome. In a perfectly competitive market, firms produce where price equals marginal cost (P = MC), which is also the point where marginal cost equals marginal revenue (MC = MR). Since it is given that the monopoly produces 200 units less than what would be produced in a competitive market, the quantity produced by the monopolist (Qm) is less than the efficient quantity (Qc) which would be produced competitively. Thus, if the competitive market would produce Qc units, and the monopoly produces 200 fewer units, then the monopoly quantity must be Qc - 200.
sing the preceding information, answer the following questions: (Note: Round your answers to the nearest millionth dollar.) • What is the net cash inflow that Mooney expects in the fourth quarter (Q4)? • If Mooney is beginning this year with a cash balance of $39 million and expects to maintain a minimum target cash balance of at least $16 million, what will be its likely cash balance at the end of the year (after Q4)? • What is the maximum investable funds that the firm expects to have in the next year? • What is the largest cash deficit that the firm expects to suffer in the next year? True or False: If a firm changes its credit policy and allows customers to pay in 90 days instead of 60 days, and everything else remains the same, the net cash flow in the next quarter is likely to decrease. True False
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Answer:
$20 million is expected to have cash balance at the end of the year.
$39 million is the maximum possible investment funds that company is expected to invest.
Yes it is true net cash flow is likely to decrease in the next quarter if the company allows customer to pay in 90 days instead of 60 days.
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?
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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%
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.
Answers
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
Profit = -5 x2^1 + 38X1 - 5X2^2 +44 X2 +520
where x1 and x2 represent number of units of production of basic and advanced iPods, respectively.
Production time required for the basic iPod is 6 hours per unit, and production time required for the advanced iPod is 8 hours per unit. Currently, 50 hours are available. The cost of hours is already factored into the profit function. Formulate an optimization problem that can be used to find the optimal production quantity of basic and advanced iPods. Implement
Answers
Answer:
Explanation:
Attached is the solution
Y = C + I + G C = 120 + 0.5(Y – T) I = 100 – 10r G = 50 T = 40 L(r,Y) = Y – 20r M = 600 P = 2 a. Using the information above, derive the equation for the IS curve. b. Using the information above, derive the equation for the LM curve. c. What are the equilibrium levels of income and interest rate
Answers
Answer:
a. Y = 500 - 20r
b. Y = 300 + 20r
c. r = 5; Y = 400
Explanation:
a. Using the information above, derive the equation for the IS curve.
Y = C + I + G
Substituting for all the values, we have:
Y = 120 + 0.5(Y – 40) + 100 - 10r + 50
Y = 120 + 0.5Y - 20 + 100 - 10r + 50
Y - 0.5Y = 120 - 20 + 100 + 50 - 10r
(1 - 0.5)Y = 250 - 10r
0.5Y = 250 - 10r
Divide through by 0.5, we have:
Y = 500 - 20r <--------- IS curve Equation ............. (1)
b. Using the information above, derive the equation for the LM curve
M/P = L(r,Y)
Substitution for the values, we have:
600/2 = Y - 20r
300 = Y - 20r
Y = 300 + 20r <--------- LM curve Equation ............... (2)
c. What are the equilibrium levels of income and interest rate
Substitute Y in (2) into equation (1), we have:
300 + 20r = 500 - 20r
20r + 20r = 500 - 300
40r = 200
r = 200/40
r = 5 <--------- equilibrium level of interest rate .............. (3)
Substitute for r in equation (2), we have:
Y = 300 + 20(5) = 300 + 100
Y = 400 <--------- equilibrium level of income ................... (4)
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.
Answers
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.
In 2004, Stephanie entered into a contract with Laura for the design and installation of custom crafted window treatments. The window treatments were constructed of chemically infused wormwood and came with an express guarantee to keep a minimum of 99 percent of sunlight out of the home for ten years. Before entering into the contract, Laura told Stephanie that she had just recently developed the treated wormwood and had yet to form a corporation, however, her new company would be called "Wormwood Windows, Inc." Laura signed the contract "Laura, for Wormwood Windows, Inc.," and Stephanie paid the agreed upon price of $50,000 with a check made out to the corporation. Two months later the corporation filings were approved by the state, and Laura deposited the $50,000 into her business account. In 2009, Stephanie noticed that the wormwood window treatments began to crack internally and outside light began to seep through the treatments into her home. Stephanie contacted Laura about the problem and demanded that Laura make good on her guarantee. Laura insists that there is no guarantee because the contract was entered into before the formation of the corporation. What should Stephanie say to Laura about the liability of both Wormwood and Laura
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Laura may be liable under the doctrine of pre-incorporation contracts, and Wormwood Windows, Inc. could also be liable if it adopted the contract after formation.
Explanation:Stephanie can assert that Laura may be personally liable for the performance of the contract despite the subsequent formation of Wormwood Windows, Inc. Under the legal doctrine known as pre-incorporation contracts, individuals who enter into contracts on behalf of corporations that have not yet been formed are personally liable for those contracts. Since Laura signed the contract 'for Wormwood Windows, Inc.' before the corporation was legally formed, Stephanie can argue that Laura acted as a promoter for the non-existent corporation and is therefore personally liable for the contract's obligations, including the express guarantee. Additionally, Stephanie could also assert that the corporation may be liable if it implicitly or explicitly adopted the contract after it was formed, especially since Laura deposited the full contract amount into the corporation's account, which can be seen as an affirmation of the contract by the corporation.
Final answer:
Stephanie's contract with Laura for custom window treatments, which included an express guarantee, can hold Laura personally liable as a promoter for Wormwood Windows, Inc. Laura's deposit of Stephanie's check post-incorporation suggests that the corporation adopted the contract, thus potentially honoring the guarantee.
Explanation:
In the scenario presented, Stephanie has a legal case against Laura for the breach of the express guarantee, despite the fact that the contract was signed before the incorporation of Wormwood Windows, Inc. Since Laura signed the contract 'for Wormwood Windows, Inc.' and later completed the incorporation and accepted payment under the corporation's name, she may have acted as a promoter for the corporation.
Laura cannot simply avoid responsibility by asserting that the corporation did not exist at the time of the contract. Promoters of a corporation are personally liable for contracts they enter into on behalf of the corporation before it is legally formed unless there is an agreement to the contrary or the corporation adopts the contract after incorporation, which seems to have occurred when Laura deposited the check into the business account post-incorporation. Therefore, Stephanie could argue that the corporation should honor the contract's guarantee, and if it does not, Laura could be personally liable for any breach.
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.
Answers
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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A channel of distribution: A. is any series of firms or individuals who participate in the flow of goods and services from producer to consumer or final user. B. is only needed when products must be stored. C. must include one or more intermediaries. D. is only needed when products are sold indirectly. E. None of these alternatives is a good answer.
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Answer:
A. is any series of firms or individuals who participate in the flow of goods and services from producer to consumer or final user.
Explanation: