Answer:
Letter c is correct. Primacy effect.
Explanation:
The primacy effect is a phenomenon that describes about the preference that humans have over a first choice, that is, individuals generally have a preference for the first data they receive about something, than the next data. This effect is compared to the first impression, which is the initial perceptions we get from meeting someone that are difficult to change even over time.
A good strategy for salespeople is to bring their highest performing product on the first visit, to have a positive effect on customer expectations and encourage sales.
Terra Corporation purchased equipment with a 10-year useful life and zero residual value for $100,000. At the end of the fourth year, the equipment is exchanged for new equipment worth $110,000. Terra gets a trade-in allowance of $70,000 on the exchange, with the remaining $40,000 paid in cash. Which of the following is true of the net effect of this transaction? Assume the straight-line depreciation method is used.Select all that apply:Assets decrease by $10,000Assets increase by $10,000Liabilities increase by $10,000Total stockholders' equity decreases by $10,000Total stockholders' equity increases by $10,000
Answer:
Assets increase by $10,000
Total stockholders' equity increases by $10,000
Explanation:
Since in the question, it is given that, the purchase value of equipment is $100,000 and the exchanged value is $110,000
So, the difference of $10,000 ($110,000 - $100,000) would reflect that the assets would increase by $10,000 and the total stockholders' equity is also increased by $10,000
The exchange value is a combination of $70,000 in trade allowance and $40,000 was paid in cash
Lori approaches Pedro about creating a special wine for her daughter's upcoming wedding. Lori will buy 50 bottles of Pedro's wine, but the order will have fixed costs for special labeling and delivery of $300o. What is the breakeven price Pedro will need to charge to breakeven on this special order?
Answer:
New Break Even volume 74.42 or 74 units
Explanation:
Assuming the following given data:
A . Fixed Cost $893
B . Sale price per bottle $28
C = $ 14 + 2= $16 ----> New Variable cost per bottle
D = B - C -----> New unit contribution margin $12
E = A/D -------> New Break Even volume 74.42 or 74 units
Takelmer Industries has a different WACC for each of three types of projects. Low-risk projects have an 8% WACC, average-risk projects a 10% WACC, and high-risk projects a 12% WACC. Which of the following projects do you recommend that the firm accept?
Project Level of Risk IRR
A Low 9.50%
B Average 8.50%
C Average 7.50%
D Low 9.50%
E High 14.50%
F High 17.50%
G Average 11.50%
a. A, B, C, D, and G
b. B, C, E, F, and G
c. A, D, E, F, and G
d. A, B, C, D, E, F, and G
Answer:
c. A, D, E, F, and G
Explanation:
In capital budgeting, the IRR rule says that you accept a project if its Internal rate of return (IRR) is greater than its cost of capital (WACC). Your evaluation of each project should be based on this rule.
For A, IRR of 9.50% is > 8% WACC of low -risk projects , so the firm should accept it.
For B, IRR of 8.50% is <10% WACC of average -risk projects , so the firm should reject it.
For C, IRR of 7.50% is <10% WACC of average -risk projects , so the firm should also reject it.
For D, IRR of 9.50% is >8% WACC of low -risk projects , so the firm should accept it.
For E, IRR of 14.50% is >12% WACC of high -risk projects , so the firm should accept it.
For F, IRR of 17.50% is >12% WACC of high -risk projects , so the firm should accept it.
For G, IRR of 11.50% is >10% WACC of average -risk projects , so the firm should accept it.
ABC Company currently pays a dividend of $2.15 per share, D0=2.15. It is estimated that the company’s dividend will grow at a rate of 30 percent per year for the next 3 years, then the dividend will grow at a constant rate of 8 percent thereafter. The market rate of return is 11 percent. What would you estimate is the stock’s current price?
Answer:
$133.26
Explanation:
Please see attachment
A major purpose of using an Allowance for Doubtful Accounts is to recognize uncollectible accounts expense in the same accounting period as the related sales which caused the expense. True or False?
Answer:
True
Explanation:
Allowance is made to be ready and prepared for any kind of loss to be incurred, or expense to be beared. Based on relative information and estimate an approximate amount is provided for.
When an yearly allowance is made for bad debts losses, the purpose is to meet the loss of bad debts due to current year sales on credit.
As the allowance is made yearly, and that represents the system of providing for losses, and to meet the criteria of matching principle to match revenue with its related costs, this is essential.
Thus, the statement is question is True.
Suppose that JB Cos. has a capital structure of 76 percent equity, 24 percent debt, and that its before-tax cost of debt is 13 percent while its cost of equity is 17 percent. Assume the appropriate weighted-average tax rate is 25 percent. What will be JB❝s WACC? (Round your answer to 2 decimal places.)
Answer:
0.1526 or 15.26%
Explanation:
Capital percent of equity (We) = 76%
Capital percent of debt (Wd) = 24%
Before-tax cost of debt (Cd)= 13%
Cost of equity(Ce)= 17%
Weighted-average tax rate is (Tx) = 25%
The weighted average cost of capital is given by the following expression:
[tex]WACC= (W_e*C_e) + (W_d*C_d*(1-Tx))[/tex]
Note that this expression accounts for the tax rate deduction.
JB's WACC is:
[tex]WACC= (0.76*0.17) + (0.24*0.13*(1-0.25))\\\\WACC=0.1526 \ or\ 15.26\%[/tex]
Further From Center has 10,700 shares of common stock outstanding at a price of $41 per share. It also has 240 shares of preferred stock outstanding at a price of $92 per share. There are 570 bonds outstanding that have a coupon rate of 6 percent paid semiannually. The bonds mature in 22 years, have a face value of $1,000, and sell at 104.5 percent of par. What is the capital structure weight of the preferred stock?
Answer:
capital structure weight is = 0.349
Explanation:
Given data:
Number of share 10,700
per share price is $41
number of share of stock is 240
per share price of preferred stock is $92
number of bonds 570
coupon rate is 6% paid semiannually
mutuarity life of bonds is 22 year
face value of bonds is $1000
selling price 104.5% per par
common stock [tex]= 10,700 \times $41 = 438,700[/tex]
Preferred stock [tex]= 240\times 92 = 222,080[/tex]
Bonds [tex]= 570\times 1000\times 1.045 = 595,650[/tex]
Total amount = 438,700 + 222,080+595,650 = 1,256,430
capital structure weight is [tex]= \frac{438,700}{1,256,430} = 0.349[/tex]
Moon Bakery Company is considering automated baking equipment that costs $500,000 installed and would replace the present hand-made production method. The present equipment has a zero book and salvage value. The new equipment will not increase revenues but will reduce operating costs from a current level of $600,000 to $300,000 per The depreciation of the new equipment will be $73,000 per year. What are the annual incremental net cash flows? Assume a marginal tax rate of 40 percent.
Answer:
$209,200
Explanation:
Please see attachment
Nelson Manufacturing has the following data:
Variable costs are 60% of the unit selling price.
The contribution margin ratio is 40%.
The unit contribution margin is $500.
The fixed costs are $500,000.
Which of the following does not express the break-even point?
a. $500,000 ÷ $500 = X
b. $500,000 ÷ .40 = X
c. $500,000 + .40X = X
d. $500,000 + .60X = X
Answer:
c. $500,000 + .40X = X
Explanation:
Please see attachment
Edward Dorsey is a part-time employee, and during the biweekly pay period he earned $395. In addition, he is being paid a bonus of $300 along with his regular pay. If Dorsey is single and claims two withholding allowances, how much would be deducted from his pay for FIT? (There are two ways to determine his deduction—do not use table for percentage method.)
A) Wage Bracket Table _____________$
B) Percentage Method ______________$
Answer
The answer and procedures of the exercise are attached in the following image.
Explanation
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
Driver Products recently paid its annual dividend of $2, and reported an ROE of 15%. The firm pays out 50% of its earnings as dividends. The stock has a beta of 1.44. The current risk-free rate is 2.5% and the market return is 11%. Assuming that CAPM holds, what is the intrinsic value of this stock?
Answer:
$29.70
Explanation:
Retention ratio = 1 - payout ratio
= ( 1 -0.5 )
= 0.5
Growth rate, g = ROE × Retention ratio
= 0.15 × 0.5
= 0.075
= 7.5%
Required return = Risk - free rate + [ Beta × (Market rate- risk-free rate) ]
= 2.5% + 1.44 × (11% - 2.5%)
= 14.74%
Intrinsic value = [tex]\frac{\textup{D1}}{\textup{(Required return-Growth rate) }}[/tex]
=[tex]\frac{\textup{2}\times(1+0.075)}{\textup{(0.1474-0.075) }}[/tex]
= 29.69 ≈ $29.70
The intrinsic value of the stock is calculated using the Capital Asset Pricing Model (CAPM) to get the cost of equity, and then applying the dividend discount model (DDM) using the calculated growth rate. The growth rate is determined based on the company's Retention Ratio and Return On Equity (ROE). Thereby, the intrinsic value of the stock in question is determined to be approximately $28.57.
Explanation:To calculate the intrinsic value of a stock, we need to first understand the cost of equity which can be calculated using the Capital Asset Pricing Model (CAPM). CAPM is given by the equation: K_e = R_f + β *(R_m - R_f), where K_e is cost of equity, R_f is the risk-free rate, β is the beta, and R_m is the market return. Inserting given values, we find K_e = 0.025 + 1.44*(0.11 - 0.025) = 0.1478 or 14.78%.
A dividend discount model (DDM) can be applied to calculate the intrinsic value of the stock. We know that the firm pays out 50% of its earnings as dividends, which means the retention ratio is also 50%, or 0.5. Since ROE is 15% and the retention ratio is 50%, the firm's growth rate (g) would be 0.15 * 0.5 = 7.5%. DDM formula is P0 = D0*(1+g) / (K_e - g), inserting values, we get P0 = 2*(1+0.075) / (0.1478 - 0.075) = $28.569, which is the intrinsic value of this stock.
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Fiscal policy is: Select one:
a. less effective in dealing with real shocks than aggregate demand shocks.
b. not effective in dealing with either real shocks or aggregate demand shocks
c. equally effective in dealing with real shocks as with aggregate demand shocks.
d. more effective in dealing with real shocks than aggregate demand shocks.
Answer:
d. more effective in dealing with real shocks than aggregate demand shocks.
Explanation:
Fiscal policy are more effective in dealing with real policy shocks than the monetary policy. The correct answer is d. more effective in dealing with real shocks than aggregate demand shocks.
Final answer:
Fiscal policy is particularly designed to manage aggregate demand, making it more effective in responding to aggregate demand shocks than real shocks. It involves the use of government spending and taxation to influence economic conditions, although its effectiveness can vary based on several factors.
Explanation:
Fiscal policy is a critical tool for managing an economy's aggregate demand, particularly in response to recessionary and inflationary gaps. The effectiveness of fiscal policy, especially through expansionary and contractionary measures, is illustrated in its capacity to adjust aggregate demand to stabilize the economy. In dealing with aggregate demand shocks, fiscal policy involves adjusting government spending and taxation to either stimulate the economy during recessions or cool it down during inflationary periods.
However, fiscal policy faces challenges such as crowding out, interest rate effects, and timing issues, making it a subject of debate among economists. Despite these challenges, fiscal policy remains a vital instrument in the government's toolkit for economic management, although its effectiveness can vary depending on the nature of economic shocks and the conditions of the economy.
Given this context, the correct answer to the question is a. less effective in dealing with real shocks than aggregate demand shocks. This is because fiscal policy is directly aimed at influencing aggregate demand through government spending and taxation adjustments, making it more responsive to demand shocks than to real shocks, which may relate to supply-side factors such as technology or resource availability.
GMM co. plans to issue annual coupon bonds with 7.5% coupon rate to the public, maturing in 10 years. The face value of the bond is $1,000. You, as the CFO, want to decide how to set the price for the bond.
You notice that 2 years ago, your company issued a 15-year annual coupon bond with 8% coupon rate.
The current market price for the outstanding old bond is $950.
What is the fair price for the new 10-year annual coupon bond?
a. 1000
b. 924.70
c. 1024.70
d. 934.70
e. 1034.70
Answer:
What is the fair price for the new 10-year annual coupon bond?b. 924.70
Explanation:
First it's needed to calculate the YTM of the current bonds, issued 2 years ago, if we applied the Present Value formula to the Principal and Coupons we get the YTM to the current bonds.
With a market price of $950, we can find the YTM of these bonds today, when there are 13 years left until the expiration date, the YTM is 8,66%.
If we apply this 8,66% rate to the new bond issue, we can obtain the price that could be accepted for the market.
Bond Value
Principal Present Value = F / (1 + r)^t
Coupon Present Value = C x [1 - 1/(1 +r)^t] / r
YTM of the Bond that was issued 2 years ago.
The price of this bond it's $340 + $610 = $950
Present Value of Bonds $340 = $1,000/(1+0,0866)^13
Present Value of Coupons $610 = $80 (Coupon) x 7,63
7,63 = [1 - 1/(1+0,0866)^13 ]/ 0,0866
The bond price to be issued:
The price of this bond it's $436 + $489 = $924,70
Present Value of Bonds $436 = $1,000/(1+0,0866)^10
Present Value of Coupons $489 = $75 (Coupon) x 6,52
6,52 = [1 - 1/(1+0,0866)^10 ]/ 0,0866
After documenting the client's prescribed internal control, the auditors will often perform a walk-through of each transaction cycle.
An objective of a walk-through is to:A. Verify that the controls have been implemented (placed in operation).B. Replace tests of controls.C. Evaluate the major strengths and weaknesses in the client's internal control.D. Identify weaknesses to be communicated to management in the management letter.
Answer:
A. Verify that the controls have been implemented (placed in operation).
Explanation:
The companies should have a fair policy of internal controls. It should basically have a policy which regulates and monitors all the transactions of each individual. It shall certainly be developed so that the work of one individual is monitored by the other automatically.
When the documentation is done, of such policies and controls by the auditor, he shall satisfy himself by counter checking that the procedures and practices laid are implemented properly.
So that there are no loop holes, and the management shall be held responsible for any procedure documented and not followed practically.
The main objective of a walk-through during an audit is to verify that the internal controls have been implemented and are in operation. It helps auditors confirm that procedures are not just documented but also effective in practice, fulfilling a key aspect of quality audits.
Explanation:The objective of performing a walk-through of each transaction cycle after documenting the client's prescribed internal control is primarily A. Verify that the controls have been implemented (placed in operation). This process involves auditors tracing transactions through the accounting system to understand and observe the application of the client's internal control procedures. During a walk-through, auditors assert that the controls are not only formally documented but are being actually followed in day-to-day operations.
It's essential for auditors to observe the control environment in action to ensure that the documented controls align with practical application. This is distinct from the duties of replacing tests of controls or evaluating all strengths and weaknesses in the client’s systems. While they may identify weaknesses, the primary goal is to verify implementation. Furthermore, during a quality audit, it is key to confirm that the organization's quality system is adequately documented and the established procedures are generating effective and consistent results.
A well-executed walk-through reassures that the quality standards, documented in policies and procedures, are not only in place but are also being adhered to and effective in practice. It also ensures the organization is well-prepared for external audits, including those by regulatory agencies such as the FDA in the case of certain industries.
Preferred stock can be callable.Preferred stock generally has a stated liquidation value of $1,000 per share.Dividend payments to preferred shareholders are tax-deductible expenses for the issuing firm.Preferred dividends are generally variable in amount.Preferred shareholders receive preferential treatment over bondholders in a liquidation.
Answer:
Preferred stock can be callable
Explanation:
The preferred stock can be purchase by the firm thus, callable.
Preferred stock generally has a stated liquidation value of $1,000 per share
FALSE: There is no fixed value for the preferred stock
Dividend payments to preferred shareholders are tax-deductible expenses for the issuing firm
FALSE: the dividends aren't deductible
Preferred dividends are generally variable in amount
FALSE: preferred stock has a fixed percentage return that can be accumulative.
Preferred shareholders receive preferential treatment over bondholders in a liquidation.
FALSE: they don't
The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state’s newest millionaire. By choosing the six winning numbers on last week’s state lottery, Mr. Ormsby has won the week’s grand prize totaling $1.12 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $56,000 each.Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.Required:1. If Mr. Ormsby can invest money at a 8% rate of return, what is the present value of his winnings? (Use the appropriate table to determine the discount factor(s).)
The Executive Director of Operations has assigned Joe Tanney the role of Team Leader for a high priority project. The task is to generate a proposal for streamlining the antiquated blueprint generation process. Each office is at different stages of computerization, with different teams preferring different technologies for particular tasks. This makes everything more complex – from collaboration to revisions to cost and time management, and is having a serious impact on the company’s bottom line. The team includes Rosa Denson, Cheng Jing, and Simon Mahoney. The type of conflict exhibited by members of Joe’s team is known as ______ conflict. a.multicultural b. functional c. dysfunctional d. gender e. intergroup
Answer: Dysfunctional conflict
Explanation:
This is a team conflicts that have negative consequences on the firm.
The conflict is not multicultural because their cultures doe have an impact on the conflict results, it's equally not functional because it's not bringing in a positive results, Both gender and intergroup do not also have an effect on the conflict.
The conflict within Joe Tanney's team, which arises from differing technology preferences and their impact on work processes, represents functional conflict. This type of conflict is associated with constructive disagreements that can lead to improved team performance and organizational efficiency when managed appropriately.
Explanation:The type of conflict exhibited by members of Joe's team is known as functional conflict. Functional conflict is a healthy, constructive disagreement that occurs among a group of people such as a work team. It stems from differing ideas and opinions regarding task-related issues and can often result in improvements to processes or problem-solving outcomes. Given that Joe Tanney's team is tasked with streamlining an antiquated process and the conflict arises from different preferences for technologies and their effects on collaboration, cost, and time management, it fits within the definition of functional conflict. This type of conflict, as opposed to being destructive, can enhance the effectiveness of the team when managed properly and lead to a more efficient organizational process.
umpkin Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Lumpkin’s policy is to maintain an ending inventory balance equal to 10 percent of the following month’s cost of goods sold. April’s budgeted cost of goods sold is $40,000. Required Complete the inventory purchases budget by filling in the missing amounts.
Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement.
Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.
Answer
The answer and procedures of the exercise are attached in the following image.
Explanation
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
Without additional data, it's not possible to calculate Lumpkin Company's cost of goods sold for Q1. However, given the company's policy and the provided cost of goods sold for April, their ending inventory at the end of Q1 would be $4,000.
Explanation:To find the amount of cost of goods sold that the Lumpkin Company will report on its first quarter pro forma income statement, we would need the company's sales forecast and direct cost of the goods for the first quarter. However, as you only provided April's budgeted cost of goods sold ($40,000), we can't calculate the first quarter cost of goods sold without additional information.
Regarding the ending inventory, Lumpkin's policy is to maintain an ending inventory balance equal to 10 percent of the following month's cost of goods sold. Again, to compute the ending inventory for the end of Q1, we would need the company's projected cost of goods sold for April (the month following Q1) which you've mentioned as $40,000. Thus, using this, Lumpkin's ending inventory for Q1 would be $40,000 * 10% = $4,000.
Remember, the above solution is based on the information available and any additional data may affect the result.
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Economists normally assume that the goal of a firm is to:
(i) sell as much of its product as possible.
(ii) set the price of the product as high as possible.
(iii) maximize profit.
Answer:
(iii) maximize profit.
Explanation:
(i) Selling as much as possible is not always a viable business model, regardless of how much it sells, a firm might not perform well if it is selling its products at a low profit margin or even at a loss.
(ii) Setting an extremely high price for a product may decrease demand and open up opportunities for competitors to enter the market selling at a lower price; an optimal equilibrium price is preferable to the highest possible price.
(iii) According to economists, this should be the main goal of a firm. Be it by reducing costs or increasing revenue, maximizing profits should be the aim of a business.
Given the following information and assuming straight-line depreciation to zero, what is the payback period for this project? The project requires an initial investment of $900,000; has a life of 6 years; produces cost savings of $190,000 per year; has a tax rate of 35 percent; and a discount rate of 9 percent. The fixed assets will be sold for $50,000 at the end of year 6.A) 2.54 yearsB) 3.67 yearsC) 3.93 yearsD) 5.10 yearsE) The project never pays back.
Answer:
E) The project never pays back.
Explanation:
Please see attachment.
On June 1, Forrest Inc. issues 3,000 shares of no-par common stock at a cash price of $7 per share. Journalize the issuance of the shares. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit June 1 enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount
Answer:
Explanation:
The journal entry is shown below:
Cash A/c Dr $21,000 (3,000 shares × $7)
To Common stock A/c $21,000
(Being the issuance of the shares are recorded)
For recording this transaction, we debited the cash account and credited the common stock account so that the correct posting can be done for $21,000 by considering the number of share and price per share
Millie Co. completed its first year of operations on December 31, 2017, with pre-tax financial income of $400,000. Millie accrued a contingent liability of $900,000 for financial reporting purposes; however, the $900,000 will be paid and therefore is deductible for tax purposes in 2018. Millie also has gross profit of $800,000 from certain sales recognized currently for financial reporting purposes but that will be taxable as installment sales in 2018 and 2019 when the cash is received ($400,000 each year). Millie’s pre-tax financial income includes $38,000 interest earned on its holdings of the bonds of the State of Montana. The tax rate is 35% for all years. Required: Determine Millie’s taxable income and taxes due for 2017. Determine the changes in Millie’s deferred tax amounts for 2017. Calculate tax expense for Millie for 2017.
Millie's taxable income for 2017 is $138,000 leading to taxes due of $48,300. The changes in deferred tax amounts result in a deferred tax asset of $140,000. The total tax expense for 2017 is $188,300.
Explanation:To determine Millie's taxable income for 2017, we start with the pre-tax financial income of $400,000. We then subtract the contingent liability of $900,000, recognized for financial reporting purposes, but deductible for tax purposes. Likewise, we need to subtract the $400,000 of the gross profit, which is taxable as an installment sale in 2018. Conversely, the $38,000 interest earned on the State of Montana bonds are not taxable and, thus, added back to our total. Therefore, Millie's taxable income for 2017 is $138,000.
To calculate the taxes due, we simply multiply by the tax rate of 35%, giving a result of $48,300.
The changes in deferred tax amounts are the tax effects of differences between financial income and taxable income. For Millie, this is the tax effect of the $400,000 gross profit, yielding a deferred tax asset of $140,000 ($400,000 * 35%).
Finally, the tax expense for Millie for 2017 is the sum of current tax expense ($48,300) and deferred tax expense (increase in deferred tax assets of $140,000), hence, $188,300.
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Suppose you invested $100 in the Ishares High Yield Fund (HYG) a month ago. It paid a
dividend of $2 today and then you sold it for $100. What was your dividend yield and capital
gains yield on the investment?
A) 2%, 2%
B) 0%, 2%
C) 3%, 2%
D) 2%, 0%
Answer:
D) 2%, 0%
Explanation:
Dividend yield is the percentage of the share price that was paid as dividends:
[tex]DY = \frac{dividends}{share \ price}\\DY=\frac{2}{100}=2\%[/tex]
Capital gains yield is the percentage increase in the share price after a period. Since, in this case, the initial and final share price are both $100 there was no capital gains yield, CGY = 0%.
Therefore, the answer is D) 2%, 0%
Loring Company had the following data for the month:Variable costs per unit:Direct Materials $4Direct Labor 3.20Variable Overhead 1Variable selling expense 0.40Fixed Overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to this months unit product cost. A total of 2100 units were sold during the moth at price of $14. Selling & Administrative expense for the month, all fixed totaled $3,600.1. What is operating income under variable costing?2. What is the unit product cost under absorption costing?3.What is operating income under absorption costing?
Answer:
(1) $3,740
(2) $10.20
(3) $3,540
Explanation:
(1) Contribution Margin:
= Revenue - Variable expense
= (2,100 × $14) - (Direct material + Direct labor + variable overhead + variable selling expense)
= $29,400 - ($8,400 + $6,720 + $2,100 + $840)
= $29,400 - $18,060
= $11,340
Total fixed expense = Fixed overhead + Fixed Selling & Administrative expense
= $4,000 + $3,600
= $7,600
Operating income under variable costing:
= Contribution Margin - Total fixed expense
= $11,340 - $7,600
= $3,740
(2) Unit product cost under absorption costing:
= Direct material + Direct labor + Variable overhead + Fixed overhead
= $4 + $3.20 + $1 + (4,000 ÷ 2,000)
= $4 + $3.20 + $1 + $2
= $10.20
(3) Gross margin = Revenue - cost of goods sold
= $29,400 - (2,100 × $10.20)
= $29,400 - $21,420
= $7,980
Total selling and Administrative expense:
= Variable selling + Fixed selling
= $840 + $3,600
= $4,440
Operating income under absorption costing:
= Gross margin - Total selling and Administrative expense
= $7,980 - $4,440
= $3,540
Final answer:
Operating income and unit product cost calculations vary between variable and absorption costing. Variable costing includes only variable costs, while absorption costing also includes fixed production costs in unit product costs.
Explanation:
Understanding the calculation of operating income under different costing methods, specifically variable costing and absorption costing, is essential for analyzing a company's financial performance. Under variable costing, only variable production costs are considered in the cost of goods sold, while fixed overhead is treated as a period expense. On the other hand, under absorption costing, both variable and fixed production costs are included in the cost of goods sold, affecting unit product cost and operating income differently.
Given the Loring Company's situation, we can calculate the operating income under variable costing by subtracting all variable costs (including variable selling expense) and fixed costs from total sales. For absorption costing, we must first determine the unit product cost by adding fixed overhead per unit to the variable costs. Then, we calculate operating income by subtracting cost of goods sold (which includes fixed overhead) and fixed selling and administrative expenses from total sales.
On January 1, Duane Company purchases land at a cost of $125,000. Duane incurs costs of $2,000 for the closing fees and surveys. Duane also spent $7,500 on clearing costs to prepare the land for use. What is the cost of land to be recorded by Duane?
Answer:
Total cost of land = $134,500
Explanation:
To determine the cost to be recorded, we have to analyze each cost.
Since the company performs closing fees and surveys during purchasing time, it is capital expenditure. Therefore, it will be added to the initial cost.
Clearing cost to prepare the land also occurs during the land purchase time. Therefore, it is also a capital expense. So, it is also added to the initial cost.
Therefore, the total cost to purchase the land = Purchasing price + Closing fees and surveys + Clearing costs.
= $(125,000 + 2,000 + 7,500)
= $134,500
Lake Corporation is considering the elimination of one of its segments. The segment incurs the following fixed costs. If the segment is eliminated, the building it uses will be sold. Advertising expense $ 140,000 Supervisory salaries 300,000 Allocation of companywide facility-level costs 130,000 Original cost of building 220,000 Book value of building 100,000 Market value of building 160,000 Maintenance costs on equipment 112,000 Real estate taxes on building 12,000 Required Determine the amount of avoidable cost associated with the segment.
The avoidable cost associated with the segment is $694,000. This includes the advertising expense, supervisory salaries, allocation of companywide facility-level costs, maintenance costs on equipment and real estate taxes on the building.
Explanation:In order to calculate the avoidable cost associated with the segment Lake Corporation is considering to eliminate, we need to add up the cost items that will be avoided if the segment is closed. These include:
Advertising Expense ($140,000) Supervisory Salaries ($300,000) Allocation of Companywide Facility-Level Costs ($130,000) Maintenance Costs on Equipment ($112,000) Real Estate Taxes on Building ($12,000)
The total avoidable cost comes to $694,000. It's important to note that the original cost and book value of the building is not considered as an avoidable cost. However, the market value of the building is relevant if the building will be sold. This is very similar to decision making processes, where variable costs, fixed costs, and total costs are taken into consideration.
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Which of the following is NOT a diversifiable risk?
A) the risk that oil prices rise, increasing production costs
B) the risk that the CEO is killed in a plane crash
C) the risk of a key employee being hired away by a competitor
D) the risk of a product liability lawsuit
Answer:
A) the risk that oil prices rise, increasing production costs
Explanation:
A diversifiable risk also known as unsystemic risk is risk that is specific only to a company. It can be mitigated against by diversifying a portfolio.
The risk that the CEO is killed in a plane crash , the risk of a key employee being hired away by a competitor and the risk of a product liability lawsuit are all specific to the company and are all diversifiable risks.
The risk that oil prices rise, increasing production costs is non diversificable risk.
Non diversificable risk is risk that can affect the whole industry or economy. Non diversificable risk cannot be avoided by diversifying the portfolio.
The risk that oil prices rise, increasing production costs isn't company specific, it would affect the whole industry or economy.
A Bloomberg researcher is seeking a representative sample (of size N = 50) of Fortune magazine's list of the 500 largest industrial corporations. She randomly decides to begin at company number 4 and then select every 10th company until 50 have been selected. The researcher is using what type of sampling plan?
a. Convenience sampling
b. Stratified sampling
c. Judgment sampling
d. Simple random sampling
e. Systematic sampling
Answer:
b. Stratified sampling
Explanation:
Stratified sampling is a method of sampling that divides the total population into tiers, or strata, and then randomly selects individuals from each tier. Since members of the same tier have similar characteristics, this method is useful to better represent the totality of the population. In this situation, the researcher selects a company from each 10-companies tier within the 500 largest industrial corporations; therefore, stratified sampling was used.
ABC Company’s budgeted sales for June, July, and August are 14,800, 18,800, and 16,800 units, respectively. ABC requires 30% of the next month’s budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 4,440 units.
Required: Calculate the number of units to be produced in June and July.
Final answer:
To calculate the number of units to be produced in June and July, consider the budgeted sales and desired finished goods inventory. In June, 20,440 units need to be produced and in July, 23,840 units need to be produced.
Explanation:
To calculate the number of units to be produced in June and July, we need to consider ABC Company's budgeted sales and desired finished goods inventory. In June, the budgeted sales are 14,800 units. ABC requires 30% of the next month's budgeted sales as finished goods inventory. So, the desired finished goods inventory for July would be 30% of 18,800 units, which is 5,640 units. Therefore, the number of units to be produced in June would be the sum of June sales (14,800 units) and desired finished goods inventory for July (5,640 units), which is 20,440 units.
In July, the budgeted sales are 18,800 units. Following the same logic, the desired finished goods inventory for August would be 30% of 16,800 units, which is 5,040 units. Therefore, the number of units to be produced in July would be the sum of July sales (18,800 units) and desired finished goods inventory for August (5,040 units), which is 23,840 units.
Final answer:
The number of units to be produced in June is 16,000, and for July is 18,200, based on the company's policy of maintaining 30% of the next month's sales as ending inventory.
Explanation:
To calculate the number of units to be produced in June and July, we start by identifying the ending inventory requirements for each month, which is 30% of the next month's budgeted unit sales according to ABC Company's inventory policy. For June, the ending inventory should be 30% of July's sales (18,800 units), resulting in 5,640 units required for the ending inventory of June. Using the budgeted ending finished goods inventory for May, which is 4,440 units, the total needs for June (sales plus ending inventory) would be 14,800 units (planned sales) + 5,640 units (ending inventory) = 20,440 units. Subtracting the beginning inventory for June (which is May's ending inventory), we get 20,440 units - 4,440 units = 16,000 units that need to be produced in June.
For July, the process is similar. The ending inventory should be 30% of August's sales (16,800 units), which is 5,040 units. July's total needs would be 18,800 units (planned sales) + 5,040 units (ending inventory) = 23,840 units. The beginning inventory for July is June's ending inventory, which is 5,640 units. Thus, the number of units to be produced in July is 23,840 units - 5,640 units = 18,200 units.
Larimore Company prepares bank reconciliations that adjust to the correct balance of cash, based on the following: Outstanding checks $ 177 Note collected for Larimore by bank 550 Bank service charges 27 Check written for $98 incorrectly recorded in books at $89; check cleared the bank for $98 9 NSF check 82 Unadjusted book balance 3,299 Deposits in transit 192Determine the adjusted cash balance.
Answer:-
$3,731
Explanation:
The computation of the adjusted cash balance is shown below:
= Unadjusted book balance + Note collected for Larimore by bank - Bank service charges - correctly amount recorded - NSF checks
= $3,299 + $550 - $27 - $9 - $82
= $3,731
The correctly amount would be
= $98 - $89
= $9
All other transactions are related to the bank balance. So, we do not consider it