Answer:
(a) Cash payback period:
Project Red = 5.5 years
Project blue = 4.6 years
(b) Net present value for project Red = $19,760
Net present value for project Blue =$164,580
(c) Annual rate of return:
Project Red =11.36%
Project Blue =18.75%
(d) Project Blue
Explanation:
Given Data;
Project Blue Capital investment = $640,000
Project Red Capital investment = $440,000
Project Red Annual Net income = $ 25,000.
Project Blue Annual Net income = $ 60,000
Annual depreciation Project Red = (440000/8)
= 55,000
Annual depreciation Project Blue = (640000/8)
= 80,000
Annual cash inflow project A = $ 80,000
Annual cash inflow project B = $140,000
(a)
Cash payback period = Initial investment/cash flow per period
Project Red = 440000 /80000
= 5.5 years
Project blue = 640000/ 140000
= 4.6 years
(b)
Project Red Present value of cash inflows = 80000 ×5.747
= $459,760
Project Blue Present value of cash inflows =140000×5.747
= 804580
Net present value for project Red = $459,760 - $440,000
= $19,760
Net present value for project Blue = 804580 - $640,000
=$164,580
(c) Annual rate of return:
Project Red = $25,000 / ($440000)/2
=11.36%
Project Blue = $60000/(640000/2)
=18.75%
(d) Savanna should select Project Blue because it has a higher positive NPV and a higher annual rate of return. AND Project Blue has early cash back period also
(a) The cash payback period for project red and project blue is 5.5 years and 4.6 years.
(b) The net present value for project red and project blue is $19,760 and $164,580
(c) The annual rate of return for project red and project blue is 11.36% and 18.75%.
d. The project blue should be selected.
Calculation of cash payback period, net present value, the annual rate of return:For Project Blue
Capital investment = $640,000
Annual Net income = $ 60,000
So, Annual depreciation = (640000/8) = $80,000
Annual cash inflow = $140,000
For Project Red
Capital investment = $440,000
Annual Net income = $ 25,000
So, Annual depreciation = (440000/8) = $55,000
Annual cash inflow = $80,000
(a) The cash payback period is
= Initial investment/cash flow per period
For Project Red
= 440000 /80000
= 5.5 years
And,
Project blue
= 640000/ 140000
= 4.6 years
(b)
The net present value
For Project red
Present value of cash inflows = 80000 ×5.747
= $459,760
So,
Net present value
= $459,760 - $440,000
= $19,760
For Project Blue
Present value of cash inflows =140000×5.747
= 804580
So,
Net present value
= 804580 - $640,000
=$164,580
(c) The annual rate of return is
Project Red = $25,000 / ($440000)/2
=11.36%
Project Blue = $60000/(640000/2)
=18.75%
(d) Savanna should select Project Blue since it contains a higher positive NPV and a greater annual rate of return also a good payback period.
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A labor-intensive process has a fixed cost of $320,000 and a variable cost of $143 per unit. A capital-intensive (automated) process for the same product has a fixed cost of $1,330,000 and a variable cost of $92.50 per unit. Contributed by Paul R. McCright, University of South Florida. How many units must be produced and sold at $208 each for the automated process to be preferred to the labor-intensive process
Answer:
More than 20,000 units must be produced and sold at $208 each for the automated process to be preferred to the labor-intensive process.
Explanation:
Call X is the number of units must be produced and sold at $208.
For capital-intensive (automated) process, Profit (P) = Sales - fixed cost - variable cost = $208X - $1,330,000 - $92.50x = $115.5x - $1,330,000
For labor-intensive process, Profit (P) = Sales - fixed cost - variable cost = $208X - $320,000 - $143X = $65X - $320,000
The automated process to be preferred to the labor-intensive process when Profit from capital-intensive (automated) process > Profit from labor-intensive process
$115.5x - $1,330,000 > $65X - $320,000
$50.5X > $1,010,000
X > 20,000 (units)
More than 20,000 units must be produced and sold at $208 each for the automated process to be preferred to the labor-intensive process.
Arigold Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 62% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.98 and $4.78, respectively. Normal production is 30,400 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.16 per unit. If Marigold accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but the $43,100 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products.Required:a. Prepare an incremental analysis to decide if Arigold Inc should buy the finials.b. Should Arigold Inc. buy the finials?
Answer:
Arigold Inc's Finials' Incremental Analysis:
a-i) To buy Finials, the price is $13.16 per unit.
a-ii) To make Finials, the relevant cost per unit is calculated as follows:
Materials = $3.98 per unit
Labor = $4.78 per unit
Variable Overhead = 62% of Labour cost, = 0.62 x $4.78 = $2,96
Therefore, total cost per unit is $(3.98 +4.78 + 2.96) = $11.72
b) Comparing the purchase cost of $13.16 and the make cost of $11.72 per unit, Arigold Inc should not buy the Finials.
Even when the fixed manufacturing overhead is charged to the Finials, the total unit cost (absorbed) will be $13,14, which is still less than the make cost of $13.16 per unit.
Explanation:
Incremental Analysis is a business technique that assists in making decisions among choices as it shows the true differences between alternatives. It is also known as the relevant cost approach, differential, and marginal analysis.
In the case of Arigold Inc, we disregarded the sunk or fixed manufacturing overhead of $43,100. This is cost is not relevant in this type of decision because it would still be incurred no matter the decision taken.
Teddy Bower is an outdoor clothing and accessories chain that purchases a line of parkas at $12 each from its Asian supplier, TeddySports. Unfortunately, at the time of the order placement, demand is still uncertain: Teddy Bower forecasts that its demand is normally distributed with a mean of 2,300 and a standard deviation of 1,100. Teddy Bower sells these parkas at $22 each. Unsold parkas have little salvage value; Teddy Bower simply gives them away to a charity (and also doesn’t collect a tax benefit for the donation).
a) How many parkas should Teddy Bower buy from TeddySports to maximize expected profit?
For parts b) through d), assume Teddy Bower orders 3,000 parkas (Q=3,000). b) What is Teddy Bower’s CSL (in-stock probability)?
c) On average, how many customers does Teddy Bower expect to turn away because of shortage? And on average, how many parkas will Teddy Bower liquidate after each season?
d) What is Teddy Bower’s expected profit?
Answer:
a) 2179 parkas
b) 0.7389
c) 174 customers
d) 10,772
Explanation:
Given:
Bower's selling price =$22
Salvage value: $0
Cost price = $12
Mean distribution= 2300 parkas
S.d = 1100 parkas
a) Number of parkas Teddy Bower should buy from Teddysports to maximize profit:
Let's first calculate overage(Co) and underage (Cu) cost.
•Cu = Selling price - Cost price
= $22 - $12
= $10
Underage cost = $10
•Co = Cost price - Salvage value
= $12 - $0
= $12
Overage cost = $12
Let's now find the critical ratio with the formula:
[tex] \frac{C_u}{C_u+C_o}[/tex]
[tex]= \frac{10}{12+10} [/tex]
= 0.4545
From the Excel function NORMSINV, the corresponding z value is =
NORMSINV(0.4545)
z value = -0.11
For the number of parkas Teddy Brown should order, we have:
Quantity = Mean +(z*s.d)
= 2300+ (-0.11 * 1100)
= 2179 parkas
b) for z value corresponding to expected sales of 3000 parkas, we have:
z value = (expected demand -mean)/s.d
[tex] \frac{3000-2300}{1100}[/tex]
= 0.64
From the Excel function NOEMSDIST, the corresponding probability =
NORMSDIST(0.64)
= 0.7389 = 73.89%
In stock probability = 0.7389
c) For L(0.64) using the standard normal loss function table, L(z) =
L (0.64) = 0.158
For expected lost sales, we have:
S.d * L(z)
= 1100* 0.158
= 173.8
= 174.
On average, there is expected to be a turn away of 174 customers due to shortage.
d)
Lets first calculate expected sales and left over inventory.
•Expected sales = Mean -expected lost sales
= 2,300 - 174
= 2,126
•Left over inventory expected=
Expected demand - Expected lost sales
= 3000 - 2126
= 874
For expected profit, we have:
[tex] (C_u* Expected lost sales)-(C_o* Expected leftover inventory)[/tex]
=($10*2126)-($12*874)
= $10,772
Profit expected = $10,772
"Frances sells bottled water from a small stand by the beach. On the last day of summer vacation, many people are on the beach, and Frances realizes that she can make a lot more money this day if she hires someone to walk up and down the beach selling water. She finds a college student named Dmitri and makes him the following offer: They'll each sell water all day and split their earnings (revenue minus the cost of water) equally at the end of the day. Frances knows that if they both work hard, Dmitri will earn $80 on the beach and Frances will earn $160 at her stand, so they will each take home half of their total revenue: $80+$1602=$120 . If Dmitri shirks, he'll generate only $50 in earnings. Frances does not know that Dmitri estimates his personal cost (or disutility) of working hard as opposed to shirking at $20. Once out of Frances's sight, Dmitri faces a dilemma: work hard (put in full effort) or shirk (put in low effort)."
Remaining part of question:
In terms of Dmitri's total utility, it is worse for him to ________________ .
Taking into account the loss in utility that working hard brings to Dmitri, Sondra and Dmitri together _____________ better off if Dmitri works hard instead of shirking
Answer:
1. Put in more effort
2. Would be
Explanation:
1. Dmitri puts his personal cost at $20 if he shirks, an amount that is implies $80-$20=$60
he would be having over half of their total revenue.
2.
Yes, if they both work hard, Dmitri will earn $80 on the beach and Frances will earn $160 at her stand, so they will each take home half of their total revenue: $80/2+$160/2=$120 . However, if Dmitri fails to work hard all of them would receive lesser returns.
Dmitri faces a dilemma to either work hard or shirk while selling water at the beach. Considering his personal cost, working hard results in a net gain of $100 compared to $60 if he shirks. The situation highlights principles of business economics and labor incentives.
Frances sells bottled water from a small stand by the beach. On the last day of summer vacation, many people are on the beach, and Frances realizes that she can make a lot more money this day if she hires someone to walk up and down the beach selling water. She finds a college student named Dmitri and makes him the following offer: They'll each sell water all day and split their earnings (revenue minus the cost of water) equally at the end of the day. Frances knows that if they both work hard, Dmitri will earn $80 on the beach and Frances will earn $160 at her stand, so they will each take home half of their total revenue: ($80 + $160) / 2 = $120 . If Dmitri shirks, he'll generate only $50 in earnings. Frances does not know that Dmitri estimates his personal cost (or disutility) of working hard as opposed to shirking at $20. Once out of Frances's sight, Dmitri faces a dilemma: work hard (put in full effort) or shirk (put in low effort).Considering that Dmitri's personal cost of working hard is $20, working hard would provide him a net gain of $120 - $20 = $100. If Dmitri shirks, his earnings would be $60 ($50 from sales plus $10 loss from splitting total revenue with Frances). Therefore, Dmitri incentivized to work hard as it provides higher net earnings.The owner of a car wash wants to see if the arrival rate of cars follows a Poisson distribution. In order to test the assumption of a Poisson distribution, a random sample of 150 ten-minute intervals was taken. You are given the following observed frequencies:
Number of Cars Arriving in a 10-Minute Interval Frequency
0 3
1 10
2 15
3 23
4 30
5 24
6 20
7 13
8 8
9 or more 4
150
The calculated value for the test statistic equals:_______
Answer:
4.832
Explanation:
See attached file
Johanna Pye is a hair stylist at Mamon Salon. The salon's policy states that stylists receive 40 percent of the revenue they generate as their compensation. Johanna grew tired of sharing her income with the salon and decided she wanted to make more money. She continued seeing her existing clients at the salon, but when new clients called for an appointment, Johanna lied and told them the salon was completely booked for the next few months. She then offered to come to their homes and cut their hair for 10 percent less than what the clients would be charged at the salon. She did not report the house call appointments to the salon, and was therefore able to keep all the income she generated from these side clients. This is an example of what type of scheme
Answer:
Business diversion
Explanation:
The above scenario is an example of business diversion type of scheme whereby Johanna diverted her employer new client in order to generate her personal income, and it happens without the knowledge of her boss
The dollar-value LIFO method was adopted by Blue Corp. on January 1, 2020. Its inventory on that date was $390,700. On December 31, 2020, the inventory at prices existing on that date amounted to $369,600. The price level at January 1, 2020, was 100, and the price level at December 31, 2020, was 112.
Final answer:
The question involves applying the dollar-value LIFO inventory method to adjust the year-end inventory for inflation, ensuring accurate valuation. It requires calculating the adjusted value of inventory considering changes in price levels to determine real changes in inventory quantity. Additionally, accounting profit is mentioned as a basic calculation of revenue minus expenses.
Explanation:
The question asks about the dollar-value LIFO (Last-In, First-Out) method, a technique used in accounting to value inventory and measure changes in the cost of products due to inflation. Under this method, a company measures and reports changes in the value of its inventory considering the price level changes. The inventory value at the beginning is given as $390,700 with a price level index of 100. By the end of the year, the inventory value is reported as $369,600 with a price level index of 112. To adjust the ending inventory to compare it fairly with the beginning inventory, we must account for the inflation using the given price indices. This involves converting the ending inventory value to the base year's price level.
To do this, we calculate the inflation-adjusted inventory value by dividing the December 31, 2020, inventory value by the price level index for that date (112) and then multiplying by the base price level index (100). This calculation adjusts the inventory value to reflect what it would have been in the base year, allowing a fair comparison to determine whether there has been a real increase or decrease in inventory quantity. Using this method ensures that the inventory valuation is not inflated merely due to increased prices, thereby providing a more accurate measure of inventory levels for financial reporting and analysis.
Accounting profit is another important concept in business, often calculated as sales revenue minus expenses. For instance, if a firm had sales revenue of $1 million and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the firm's accounting profit would be $50,000, which is the remaining amount after subtracting total expenses from sales revenue.
Molteni Motors Inc. recently reported $3.5 million of net income. Its EBIT was $5.25 million, and its tax rate was 30%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $3.5 million net income by 1 − T = 0.7 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense.) Round your answer to the nearest dollar. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.
Answer:
$250,000
Explanation:
The computation of the interest expense is shown below:
Given that
Net Income = $3,500,000
Tax rate = 30%
EBIT = $5,250,000
As we know that
EBT = EBIT - Interest Expense
So,
Interest expense = EBIT - EBT
where,
EBT = Net Income ÷ (1 -Taxes)
= $3,500,000 ÷ ( 1 - 30%)
= $5,000,000
And, the EBIT is $5,250,000
So, the interest expense is
= $5,250,000 - $5,000,000
= $250,000
We simply applied the above formula
Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year. Item cost $ 8.00 Standard deviation of weekly demand 20 per week Order cost $ 207.00 Lead time 3 week(s) Annual holding cost (%) 24 % of item cost Service probability 99 % Annual demand 27,400 Average demand 548 per week a. Determine the order quantity and reorder point.
Answer:
Order quantity = 478units
Reorder point = 420 per week
Explanation:
Given
Item cost =$8
Standard deviation of weekly demand = 20 per week
Order cost(C) = $207
Lead time = 3 weeks
Annual holding cost (H) = 24% of item cost
Service probability = 99%
Annual demand(D) = 27,400
Average demand = 548 per week
Order quantity = sqrt[(2 × D × C) ÷ H]
Order quantity = sqrt[(2 × 27400 × 207) ÷ (0.24 × 207)]
sqrt[ 11343600 ÷ 49.68]
= 477.84
Order quantity = 478 units
Reorder Point = Lead time × daily usage
21 × 20 = 420
Job A3B was ordered by a customer on September 25. During the month of September, Jaycee Corporation requisitioned $3,500 of direct materials and used $5,000 of direct labor. The job was not finished by the end of September, but needed an additional $4,000 of direct materials in October and additional direct labor of $7,500 to finish the job. The company applies overhead at the end of each month at a rate of 100% of the direct labor cost. What is the amount of job costs added to Work in Process Inventory during October?
Answer:
Total job costs added in October $ 19,000
Explanation:
Computations
Job costs added to Work in Process inventory for October
Direct materials $ 4,000
Direct labor $ 7,500
Overhead at 100 % of Direct Labor costs $ 7,500
Total job costs added in October $ 19,000
Final answer:
In October, job A3B had $4,000 in direct materials, $7,500 in direct labor, and $7,500 in overhead costs added to the Work in Process Inventory, totaling $19,000.
Explanation:
The job costs added to Work in Process Inventory during October for job A3B would include the additional direct materials and direct labor costs incurred in October, as well as the overhead applied based on the direct labor cost.
Since the company applies overhead at a rate of 100% of the direct labor cost, and the direct labor cost in October is $7,500, the overhead for October would also be $7,500.
Therefore, the total job costs added in October would be the sum of the additional direct materials of $4,000, the additional direct labor of $7,500, and the overhead of $7,500, resulting in a total of $19,000 added to the Work in Process Inventory.
Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy:
Direct materials: 8 microns per toy at $0.33 per micron
Direct labor: 1.4 hours per toy at $6.90 per hour
During July, the company produced 5,000 Maze toys. Production data for the month on the toy follow:
Direct materials: 74,000 microns were purchased at a cost of $0.31 per micron. 24,000 of these microns were still in inventory at the end of the month.
Direct labor: 7,400 direct labor-hours were worked at a cost of $54,760.
1. Compute the following variance for july
a The materials price and quantity variances
b. The labor rate and efficiency variances
Answer:
Materials price variance = 1000 Favorable
Material Quantity Variance= 3300 unfavorable
2-a) Direct Labor Rate variance =3700 Unfavorable
Direct labor time variance=2760 Unfav
Explanation:
Given
Standard Quantity: Direct materials: 8 microns per toy
Standard Price $0.33 per micron
Standard hours :Direct labor: 1.4 hours per toy
Standard rate $6.90 per hour
Actual Production 5,000 Maze toys.
Working
Actual Quantity Purchased: Direct materials: 74,000 microns
Actual Price $0.31 per micron.
Actual Quantity used =74,000 microns- 24,000 = 50,000 microns
Standard Quantity Allowed = 8 * 5000= 40,000 microns
Actual hours: Direct labor: 7,400 direct labor-hours
Standard Hours allowed= 5000 units * 1.4= 7000 labor hours
Actual rate = $54,760/7400=$ 7.4 per hour
Calculations
1-a) Materials price variance = (Actual Price - Standard Price )* Actual Quantity
Materials price variance = (0.31- 0.33)50,000= 1000 Favorable
Material Quantity Variance= (Standard Price) *( Actual Quantity- Standard Quantity)
Material Quantity Variance=(0.33) - (50,000- 40,000) = 0.33*10,000= 3300 unfavorable
2-a) Direct Labor Rate variance= (actual hours)* actual rate- standard rate
= 7,400 (7.4-6.9)= 7400*0.5= 3700 Unfavorable
Direct labor time variance=standard rate* (actual hours )- (standard hours )
= 6.9 ( 7400- 7000) = 6.9 * 400= 2760 Unfav
The data given below are from the accounting records of the Kuhn Corporation:
Net Income (accrual basis) $61,000
Depreciation Expense $17,000
Decrease in Accounts Payable $3,300
Decrease in Inventory $3,800
Increase in Bonds Payable $18,000
Sale of Common Stock for cash $31,600
Increase in Accounts Receivable $6,100
Based on this information, the net cash provided by (used in) operating activities using the indirect method would be:________
Answer:
$72,400
Explanation:
The preparation of the Cash Flows from Operating Activities - Indirect Method is presented below:
Cash flow from Operating activities - Indirect method
Net income $61,000
Adjustment made:
Add : Depreciation expense $17,000
Less: Increase in accounts receivable -$6,100
Add: Decrease in inventory $3,800
Less: Decrease in accounts payable -$3,300
Total of Adjustments $11,400
Net Cash flow provided Operating activities $72,400
The items in minus sign reflects the cash outflow and the items in plus sign shows the cash inflow
Sandhill Co. sells office equipment on July 31, 2022, for $23,500 cash. The office equipment originally cost $75,080 and as of January 1, 2022, had accumulated depreciation of $41,850. Depreciation for the first 7 months of 2022 is $3,850.Prepare the journal entries to (a) update depreciation to July 31, 2022, and (b) record the sale of the equipment. (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.)
Answer and Explanation:
The Journal entry is shown below:-
a. Depreciation Expense A/c Dr $3,850
To Accumulated Depreciation $3,850
(Being depreciation expense is recorded)
b. Cash Dr $23,500
Accumulated Depreciation Dr, $$45,700
Loss on Disposal Dr, $5,880
To Office equipment $75,080
(Being sale of machinery is recorded and debited the rest amount to the loss on Disposal of office equipment)
Working Note
The accumulated depreciation is computed below:
= $41,850 + $3,850 = $45,700
Karen has an $80,825 basis in her 50 percent partnership interest in the KD Partnership before receiving a current distribution of $7,575 cash and land with a fair market value of $40,850 and a basis to the partnership of $21,150.
a. What is the amount and character of Karen's recognized gain or loss?
b. What is Karen's basis in the land?
c. What is Karen's remaining basis in her partnership interest?
Answer: a) $0
b) $21,150
c)$52,100
Explanation:
a) Karen would recognize no gain or losses in this scenario.
b) Karen would carryover the basis on the land which is $21,150
c) To calculate her remaining basis, we subtract the cash payment as well as the basis for the land she was distributed.
Calculating would be,
= 80,825 - 7,575 - 21,150
= $52,100
$52,100 is Karen's remaining basis in her partnership interest.
Star Corp. reported pretax net income from continuing operations of $1,000,000. Tax depreciation exceeded book depreciation by $100,000. Star Corp. had $50,000 of accrued vacation pay that was not deductible. Star Corp. also claimed $150,000 dividends received deduction (DRD). Assume no valuation allowance.
Required:
a. Compute Star Corp.'s current income tax expense or benefit.
b. Compute Star Corp.'s deferred income tax expense or benefit.
c. Provide two reconciliation of Star Corp.'s total income tax provision with its hypothetical income tax expense of 21% in both dollars and rates.
Answer:
Star Corp
A.
Pretax net income from continuing operations = $1,000,000
Add Accrued Vacation $50,000
Deduct additional Tax Depreciation $100,000
Deduct Dividend received deductions $150,000
Net Taxable Income = $800,000
Income Tax expenses = 21% x $800,000 = $168,000
Income tax Expense provision based on book Net income = 21% x $1,000,000 = $210,000
Income tax benefit = $168,000 minus $210,000 = $42,000 (benefit)
B.
Deferred income tax expense =
Income tax Provision = $210,000
Less income tax expense = $168,000
Differed income tax (benefit) = $42,000
C.
Reconciliation
Book Net income = $1,000,000
Tax rate = 21%
Tax expense provision = $210,000...(a)
Pretax net income from continuing operations = $1,000,000
Add Accrued Vacation $50,000
Deduct additional Tax Depreciation $100,000
Deduct Dividend received deductions $150,000
Taxable Net income (adjusted) = $800,000
Tax rate = 21%
Tax expense provision = $168,000......(b)
Difference (a) minus (b) = $42,000 . This is a benefit to the firm (star corp) because its actual tax liability is less than what it provided for because of net deductibles not accounted for in its income statement.
Portfolio managers pick stocks for their clients’ portfolios based on the investment objective of the portfolio and several other factors. One key consideration is each stock’s contribution to portfolio risk and its statistical relationship with the portfolio’s other stocks.
ased on your understanding of portfolio risk, identify whether each statement is true or false.
1. Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations
2. The unsystematic risk component of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio
3. A portfolio's risk is likely to be smaller than the average of all stocks' standard deviations, because diversification lowers the portfolio's risk.
Answer:
1. Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations FALSE, IT IS EXACTLY THE OPPOSITE, SINCE THE PORTFOLIO'S RISK IS LIKELY TO BE SMALLER DUE TO DIVERSIFICATION.
2. The unsystematic risk component of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio TRUE, NEGATIVELY CORRELATED STOCKS ARE USED TO DECREASE A PORTFOLIO'S RISK
3. A portfolio's risk is likely to be smaller than the average of all stocks' standard deviations, because diversification lowers the portfolio's risk. TRUE, THIS STATEMENT IS JUST THE OPPOSITE OF STATEMENT 1 WHICH WAS FALSE.
Diversification helps to reduce the risk of a portfolio by spreading it across different assets.
Explanation:1. False. Due to the effects of diversification, the portfolio's risk is likely to be less than the average of all stocks' standard deviations. Diversification helps to spread the risk across different assets, reducing the overall risk of the portfolio.
2. True. By adding negatively correlated stocks to the portfolio, the unsystematic risk component of the total portfolio risk can be reduced. This is because negatively correlated stocks tend to move in opposite directions, offsetting each other's risks.
3. True. A portfolio's risk is likely to be smaller than the average of all stocks' standard deviations because diversification lowers the portfolio's risk. Diversification helps to reduce the impact of individual stock price movements on the overall portfolio.
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1. Characteristics of competitive markets The model of competitive markets relies on these three core assumptions: 1. There must be many buyers and sellers—a few players can't dominate the market. 2. Firms must produce an identical product—buyers must regard all sellers' products as equivalent. 3. Firms and resources must be fully mobile, allowing free entry into and exit from the industry.
Answer: Please refer to Explanation
Explanation:
Hello. Question was a bit incomplete so I attached the completing details.
a) Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some stores use higher-quality cotton than others, which is reflected in the apparel�s prices.
- No, not an identical product
This is not a Competitive Market because the products are not identical. They are differentiated by better quality and design and this is reflected in the price.
b) In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed.
- No, not many sellers.
There are only 2 sellers in this market. This market is too SATURATED ( few companies) for it to be a Competitive Market as a Competitive Market requires that there be many buyers and sellers.
c) Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.
- Yes, meets all the assumptions.
This market meets all the assumptions to be considered a Competitive Market. There are many buyers and sellers of the white socks. The firms in the market produce identical socks so much so that people don't know the difference. Markets like these usually have low barriers to entry hence the high amount of companies there.
d) Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.
- No, no free entry.
As stated, Scholastik Inc. is the ONLY company with legal rights to publish books in that series in the US. This means that there are very high barriers to entry as Scholastik is protected by the law. No other company is allowed to do what they do so it is not a Competitive Market.
Competitive markets in the perfect competition model are defined by having a large number of buyers and sellers, producing identical (homogeneous) products, and allowing for free entry and exit from the market. These characteristics ensure that no single entity can influence market prices, promoting efficiency and equity in the market.
The perfect competition model is a fundamental concept in economics, describing a market structure where specific criteria are met to ensure a competitive environment. In this context, competitive markets are characterized by three core assumptions, which play a crucial role in shaping market dynamics and competition levels.
Many Buyers and Sellers: This condition implies that the market consists of a large number of buyers and sellers, where no single entity (buyer or seller) has the market power to influence the price levels. This ensures that each party acts as a price taker.Identical Products: All firms in the market must produce homogeneous goods or services, making products offered by different firms perfectly substitutable in the eyes of consumers. This characteristic eliminates brand loyalty or preferences based solely on product differentiation.Free Entry and Exit: The market must allow for easy entry and exit of firms. This assumes no significant barriers to entry or exit, such as high startup costs or stringent regulations, allowing firms to participate freely based on market conditions.These characteristics ensure that the market operates efficiently, with prices reflecting the true supply and demand. Perfect competition models serve as a benchmark for comparing other market structures, such as monopolistic competition and oligopoly, where these assumptions do not fully apply.
Consider two companies that are identical in terms of current operating cash flows and current capital investment. They are also identical in terms of the rate of future growth in operating cash flows. The only difference is that company A has a higher rate of growth in capital expenditures than company B. Which company is more valuable, and why?
Answer: Most likely Company A
Explanation:
Generally an increase in Capital Expenditure means that a company is investing more which would mean that revenue will increase in future which will give it a higher valuation.
However, sometimes this spending might just be on Maintenance of Capital assets. When this happens the company is given a lower valuation.
Plainly speaking therefore, if Company A has a higher growth rate in Capital Expenditure because they are investing which is likely to be the case, then they would be more valuable than Company B.
Suppose Eileen is an avid reader and buys only comic books. Eileen deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a comic book is priced at $10.00.
Required:
a. Initially, the purchasing power of Eleen's $3,000 deposit is __________ comic books.
Answer:
300 comic books
Explanation:
Purchasing power of money at any point in time is the quantity of goods and services that can be acquired using the stock of money at the prevailing price level.
As at the time the $3000 money was deposited, the price per book stood at $10.
Purchasing power of $3000
= $3000/$10
= 300 comic books
Baker Corporation owned a building located in Kansas. Baker used the building for its business operations. Last year a tornado hit the property and completely destroyed it. This year, Baker received an insurance settlement. Baker had originally purchased the building for $350,000 and had claimed a total of $100,000 of depreciation deductions against the property. What is Baker’s realized and recognized gain or (loss) on this transaction and what is its basis in the new building in the following alternative scenarios?a. Baker received $450,000 in insurance proceeds and spent $450,000 rebuilding the building during the current year.b. Baker received $450,000 in insurance proceeds and spent $500,000 rebuilding the building during the current year.c. Baker received $450,000 in insurance proceeds and spent $400,000 rebuilding the building during the current year.d. Baker received $450,000 in insurance proceeds and spent $450,000 rebuilding the building during the next three years.
Answer:
a. Recognized Gain $0 and Basis in new building $250,000
b. Recognized Gain $0 and Basis in new building $300,000
c. Recognized Gain $50,000 and Basis in new building $250,000
d. Recognized Gain $200,000 and Basis in new building $450,000
Explanation:
a. Baker has reinvested the insurance proceeds and therefore will not recognize any of its $200,000 realized gain. Moreover, Baker’s basis in the new building is $250,000. As shown below:
S. No. Particular Amount($) Clarification
1 Insurance Proceeds 450,000 Given in Question
2 Adjusted Value 250,000 350,000 - 100,000
3 Realized Gain 200,000 (1) – (2)
4 Proceeds Reinvested 450,000 Given in Question
5 Amount not Reinvested 0 (1) – (4)
6 Gain recognized 0 Lower of (3) or (5)
7 Deferred Gain 200,000 (3) – (6)
8 Value of Replacement Property 450,000 Given in Question
9 Basis of Replacement Property 250,000 (8) – (7)
b. Baker has reinvested the insurance proceeds and therefore will not recognize any of its $200,000 realized gain. Moreover, Baker’s basis in the new building is $300,000. As shown below:
S. No. Particular Amount($) Clarification
1 Insurance Proceeds 450,000 Given in Question
2 Adjusted Value 250,000 350,000 - 100,000
3 Realized Gain 200,000 (1) – (2)
4 Proceeds Reinvested 500,000 Given in Question
5 Amount not Reinvested 0 (1) – (4)
6 Gain recognized 0 Lower of (3) or (5)
7 Deferred Gain 200,000 (3) – (6)
8 Value of Replacement Property 500,000 450,000 + 50,000
9 Basis of Replacement Property 300,000 (8) – (7)
c. Baker has reinvested $400,000 of the insurance proceeds and therefore will recognize gain of $50,000 out of the $200,000 realized gain. Moreover, Baker’s basis in the new building is $250,000. As shown below:
S. No. Particular Amount($) Clarification
1 Insurance Proceeds 450,000 Given in Question
2 Adjusted Value 250,000 350,000 - 100,000
3 Realized Gain 200,000 (1) – (2)
4 Proceeds Reinvested 400,000 Given in Question
5 Amount not Reinvested 50,000 (1) – (4)
6 Gain recognized 50,000 Lower of (3) or (5)
7 Deferred Gain 150,000 (3) – (6)
8 Value of Replacement Property 400,000 450,000 - 50,000
9 Basis of Replacement Property 250,000 (8) – (7)
d. Baker has taken three years in order to replace the property destroyed and therefore, will recognize all of its $200,000 realized gain. Baker's basis in the new building is $450,000. As shown below:
S. No. Particular Amount($) Clarification
1 Insurance Proceeds 450,000 Given in Question
2 Adjusted Value 250,000 350,000 - 100,000
3 Realized Gain 200,000 (1) – (2)
4 Proceeds Reinvested 0 Given in Question
5 Amount not Reinvested 450000 (1) – (4)
6 Gain recognized 200,000 Lower of (3) or (5)
7 Deferred Gain 0 (3) – (6)
8 Value of Replacement Property 450,000 Given in Question
9 Basis of Replacement Property 450,000 (8) – (7)
Final answer:
The student has asked about the realized and recognized gains or losses on a destroyed property and the basis in the rebuilt property for Baker Corporation. Baker's realized gain in all scenarios is $200,000, which can be deferred if the insurance proceeds are reinvested in rebuilding the property. The tax basis of the rebuilt property varies depending on the additional amount spent over the insurance proceeds.
Explanation:
The student is asking about the realized and recognized gain or loss on an involuntary conversion of property due to a disaster, and the basis for the new property. This falls under the tax treatment of property and gains which is a Business topic, specifically within Taxation.
Firstly, realized gain or loss is the difference between the amount of insurance proceeds received and the adjusted basis of the destroyed property. The adjusted basis is the original cost of the property minus any depreciation claimed. In this scenario, the adjusted basis of Baker's building is $250,000 ($350,000 original purchase price - $100,000 total depreciation).
Recognized gain or loss is the amount of the realized gain or loss that is actually reportable for tax purposes. If all the insurance proceeds are reinvested in similar property within a specified time period, the realized gain is not recognized, thus deferring the tax on the gain (called a like-kind exchange).
Scenario a: Baker has a realized gain of $200,000 ($450,000 insurance proceeds - $250,000 adjusted basis). However, since Baker spent the entire insurance proceeds on rebuilding within the same year, the gain is not recognized. Baker's basis in the new building is the old building's adjusted basis plus any additional costs, which in this case is just the adjusted basis of $250,000.
Scenario b: Similar to Scenario a, Baker has a realized gain of $200,000 with no taxable recognition since the proceeds were reinvested, but Baker's basis in the new building would be higher at $300,000 ($250,000 adjusted basis + $50,000 extra spent).
Scenario c: Baker still has a realized gain of $200,000. Baker will recognize the gain to the extent the insurance proceeds exceed the cost of the new property. The recognized gain is $50,000 ($450,000 insurance proceeds - $400,000 spent on new building). The basis of the new building would be the cost of the new building, which is $400,000.
Scenario d: As with Scenario a, Baker has a realized gain of $200,000, which is not recognized provided that the entire amount is expended on rebuilding within a certain period, typically two years after the year of the loss for non-personal-use property. Baker's basis in the new property remains the same as in scenario a, $250,000.
A corporate bond that pays interest annually yields a rate of return of 10.00 percent. The inflation rate for the same period is 4 percent. What is the real rate of return on this bond
Answer:
5.76%
Explanation:
The solution is as follows,
=> (1 + 0.10) = (1 + r) * (1 + 0.04)
=> r = (1.1 / 1.04) - 1
=> r = 5.76%
Hope this clear things up.
Thankyou.
Answer:
The real rate of return on this bond is 5.77%
Explanation:
1. Let's review the information given to us to answer the question correctly:
Nominal rate = 10% = 0.1
Inflation rate = 4% = 0.04
2. What is the real rate of return on this bond?
Let's recall the formula of the Real Rate of Return:
Real Rate of Return = (1 + Nominal rate/1 + Inflation rate) - 1
Replacing with the values we know, we have:
Real Rate of Return = (1 + 0.1/1 + 0.04) - 1
Real Rate of Return = 1.0577 - 1
Real Rate of Return = 0.0577 or 5.77%
"Advertising": A. is the only form of mass selling. B. is also called "sales promotion." C. is concerned with "promotion" using samples, coupons, and contests. D. involves direct spoken communication between sellers and potential customers. E. is any paid form of nonpersonal presentation of ideas, goods, or services by an identified sponsor.
Answer:
E. is any paid form of nonpersonal presentation of ideas, goods, or services by an identified sponsor.
Explanation:
Advertising is marketing communication business activity that uses an openly sponsored message to promote and sell a product, service, or idea and are sponsored by the business typically wishing to promote their services. Advertising is communication through various media such as the newspaper, T.V, blogs and other channels the actual presentation of the message is medium that is called ad or an advertisement and includes non-personal messages.Englert Hospital began using standards to evaluate its Admissions Department. The standard was broken into two types of admissions as follows: Type of Admission Standard Time to Complete Admission Record Unscheduled admission 30 min. Scheduled admission 15 min. The unscheduled admission took longer because name, address, and insurance information needed to be determined and verified at the time of admission. Information was collected on scheduled admissions prior to the admissions, which was less time-consuming. The Admissions Department employs four full-time people (40 productive hours per week, with no overtime) at $15 per hour. For the most recent week, the department handled 140 unscheduled and 350 scheduled admissions. a. How much was actually spent on labor for the week? $ b. What are the standard hours for the actual volume for the week (round to one decimal place)? hours c. Calculate the time variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. In your computation, round the standard direct labor rate to the nearest whole cent. Time variance $
Labor costs for the week are determined by multiplying the number of admissions by the standard times and the employee hourly wage. The standard hours are calculated by summing the time for all admissions, and the time variance shows how actual performance compares to standards.
Explanation:The question pertains to the evaluation of labor costs and variance for an admissions department in a hospital. To calculate the labor cost for the week, the total number of admissions is multiplied by the respective standard times and then by the hourly wage of the employees. The standard hours are found by adding the total time taken for both unscheduled and scheduled admissions. The time variance is calculated by subtracting the actual labor hours used from the standard hours for the actual volume of work. The variance indicates whether the department performed better (a negative variance) or worse (a positive variance) than the standard.
lantwide rate unit cost, using direct labor hours? Relative to the plantwide rate, the cost increased for Form A and decreased for Form B. 3. What if the machine hours in Molding were 1,200 for Form A and 3,800 for Form B and the direct labor hours used in Polishing were 5,000 and 15,000, respectively? Calculate the overhead cost per unit for each product using departmental rates. Round your answers to the nearest cent.
Answer:
Form A $4.6 overhead per unit
Form B $ 7.2 overhead per unit
Explanation:
Missing Information attached
For molding the overhead will not change as the total horus are the same:
1,200 + 3,800 = 5,000 machine hours
$ 375,000 / 5,000 = $ 75
Then, we multiply:
1,200 x $ 75 = $ 90,000
3,800 x $ 75 = $ 285,000
Then, for Polishing:
5,000 + 15,000 = 20,000
$ 100,000 / 20,000 = $5
5,000 x $5 = $ 25,000
15,000 x $5 = $ 75,000
Form A 90,000 + 25,000 = 115,000
overhead per unit: 115,000 / 25,000 = 4.6
Form B 285,000 + 75,000 = 360,000
overhead per unit 360,000 / 50,000 = 7.2
A collar is established by buying a share of stock for $50, buying a 6-month put option with exercise price $43, and writing a 6-month call option with exercise price $57. On the basis of the volatility of the stock, you calculate that for a strike price of $43 and expiration of 6 months, N(d1) = 0.8235, whereas for the exercise price of $57, N(d1) = 0.7411. a. What will be the gain or loss on the collar if the stock price increases by $1?
Answer:
$0.0824
Explanation:
Calculating the gain on the collar, we have:
Gain= (delta of stock)- (delta of call) + (delta of put)
Where,
Delta of call = N(d1) short call=0.7411
Delta of put = (N(d1) long put - 1) =
0.8235 - 1 = -0.1765
Therefore gain will be:
Gain = $1 - 0.7411 - 0.1765
= 0.0824
The gain on the collar by an increase of $1 in stock price is 0.0824
Shehata Coffee Shop calculated the NET value of its accounts receivable as of December 31, 2019, to be $179,000, based on an aging schedule of accounts receivable. Shehata has also provided the following information: The gross accounts receivable balance on December 31, 2019 was $191,800. Actual uncollectible accounts receivable written off during 2019 totaled $13,400. The Allowance for Uncollectible Accounts balance on January 1, 2019 was $17,800.
Required: Part 1: What account(s) and for what $ value(s) would appear on the Balance Sheet?
Part 2: How much is Shehata's 2019 Bad Debt Expense? Show your detailed calculation for credit, 6 points:
a. 17,200
b. 12,800
c. 8,400
d. 4,400
e. None of the above
Answer:
1. The preparation of balance sheet is shown below:-
2. $8,400
Explanation:
1 Balance sheet
December 31, 2019
Assets Amount
Current assets
Accounts receivables $191,800
Allowance for uncollectible accounts ($12,800)
Net accounts receivables $179,000
Working note:-
Net accounts receivables = $179,000
Gross accounts receivables = $191,800
Allowance for uncollectible accounts, December 31, 2019 = Gross accounts receivables - Net accounts receivables
= $191,800 - $179,000
= $12,800
2. Bad debt expense = Allowance for uncollectible accounts, December 31, 2019 - (Allowance for uncollectible accounts, January 1, 2019 - Uncollectible accounts written off during 2019)
= $12,800 - ($17,800 - $13,400)
= $12,800 - $4,400
= $8,400
A 1000 par value, 8 percent bond with quarterly coupons is callable five years after issue. The bond matures for 1000 at the end of ten years and is sold to yield a nominal rate of 6 percent compounded quarterly under the assumption that the bond will not be called. Calculate the redemption value, at the end of five years, that will yield the purchaser the same nominal rate of 6 percent compounded quarterly.
We find that the call premium is approximately $82.23. Therefore, the correct answer is option E: $82.23.
To determine the call premium at the end of five years that would yield the purchaser the same nominal rate of 6% compounded quarterly if the bond is called, we need to compare the yields under the two scenarios: one where the bond is held to maturity, and the other where it is called after five years.
First, let's calculate the present value of the bond if it is held to maturity:
The bond pays quarterly coupons of 8%, so the quarterly coupon payment is [tex]0.08 \times \frac{1000}{4} = $20.[/tex]
The bond matures in ten years, and the yield is 6% compounded quarterly, so the quarterly yield rate is:
0.06/4 = 0.015.
Using the present value formula for a bond, we get:
[tex]PV_{\text{hold to maturity}} = \frac{C}{{(1 + r)^n}} + \frac{C}{{(1 + r)^{n-1}}} + \ldots + \frac{C}{{(1 + r)^1}}} + \frac{M}{{(1 + r)^n}}[/tex]
Where:
C is the quarterly coupon payment,
r is the quarterly yield rate, and
n is the total number of quarters.
[tex]P V_{\text {hold to maturity }}=\frac{20}{(1+0.015)^1}+\frac{20}{(1+0.015)^2}+\ldots+\frac{20}{(1+0.015)^{40}}+\frac{1000}{(1+0.015)^{40}}[/tex]
Now, let's calculate the present value if the bond is called at the end of five years. The call premium is the additional amount paid at the call date.
The call premium is the difference between the present value of the remaining payments if the bond is held to maturity and the present value of the remaining payments if the bond is called at the end of five years.
[tex]\begin{aligned}& P V_{\text {call premium }}=P V_{\text {hold to maturity }}- \\& \left(\frac{20}{(1+0.015)^{21}}+\frac{20}{(1+0.015)^{22}}+\ldots+\frac{20}{(1+0.015)^{40}}+\frac{1000}{(1+0.015)^{40}}\right)\end{aligned}[/tex]
Now, calculate both values and find the call premium:
[tex]P V_{\text {hold to maturity }} \approx \frac{20}{1.015}+\frac{20}{(1.015)^2}+\ldots+\frac{20}{(1.015)^{40}}+\frac{1000}{(1.015)^{40}}[/tex]
[tex]\begin{aligned}& P V_{\text {call premium }}=P V_{\text {hold to maturity }}- \\& \left(\frac{20}{(1.015)^{21}}+\frac{20}{(1.015)^{22}}+\ldots+\frac{20}{(1.015)^{40}}+\frac{1000}{(1.015)^{40}}\right)\end{aligned}[/tex]
After calculating these values, the correct result is approximately: 82.23
Complete Question:
A $1,000 par value 8% bond with quarterly coupons is callable five years after issue. The bond matures for 1000 at the end of ten years and is sold to yield a nominal rate of 6 percent compounded quarterly, calculated under the assumption that the bond will not be called, and is redeemed at maturity. Please determine the call premium at the end of five years, that would yield the purchaser the same nominal rate of 6% compounded quarterly if the bond is, in fact, called at the end of five years.
A. 67.82
B. 85.84
C. 60.54
D. The answer is not listed here
E. 82.23
Victim V works at a job where he might be exposed accidentally to a chemical that increases the probability from .01 to .02 of dying from lung cancer in 20 years. V would pay $15,000 to avoid exposure to this risk, or he would accept $15,000 to expose himself to this risk. No matter how hard he tries, V cannot imagine any sum of money that he would accept in ex- change for certain death by lung cancer. V’s employer accidentally exposes him to the chemical. The risk materializes after 20 years, and V dies abruptly from lung cancer. How much are Hand rule damages for V’s heirs? After exposure and before dying, V spent $1000 to move to another neighborhood with better air quality. Should $1000 be added to Hand rule damages, or is it already implicitly included?
Answer:
HAND RULE DAMAGES ARE : THEY EQUAL THE REASONABLE BURDEN OF PRECAUION DIVIDED BY THE RESULTING REDUCTION IN THE PROBABILIY OF HARM. AS V IS INDIFFERENT BETWEEN $15000 INCREASE AND AN INCREASE OF .01 IN THE PROBABILITY OF CANCER DEATH.
THUS HAND RULE DAMAGES ARE $15000 / 0.1 = $1.5 MILLION.
SINCE IT IS AN OBJECTIVE COST AND SINCE V WAS INDIFFERENT AS NO COST WAS ACCEPTABLE FOR HIS LIFE , SO IT IS IMPLICITLY INCLUDED
Explanation:
HAND RULE DAMAGES ARE : THEY EQUAL THE REASONABLE BURDEN OF PRECAUION DIVIDED BY THE RESULTING REDUCTION IN THE PROBABILIY OF HARM. AS V IS INDIFFERENT BETWEEN $15000 INCREASE AND AN INCREASE OF .01 IN THE PROBABILITY OF CANCER DEATH.
THUS HAND RULE DAMAGES ARE $15000 / 0.1 = $1.5 MILLION.
SINCE IT IS AN OBJECTIVE COST AND SINCE V WAS INDIFFERENT AS NO COST WAS ACCEPTABLE FOR HIS LIFE , SO IT IS IMPLICITLY INCLUDED.
Final answer:
Hand rule damages for Victim V's heirs would be $16,000, combining the $15,000 that V valued the increased risk of dying from cancer and the additional $1,000 spent on moving to an area with better air quality in an attempt to mitigate the risk.
Explanation:
The question involves calculating Hand rule damages, which are based on the economic principle of the Hand formula (B < PL) used to determine negligence and potential liability costs.
Here, we're given that Victim V would have paid $15,000 to avoid the increased risk of dying from lung cancer due to chemical exposure, representing the economic valuation of the risk. Therefore, if the accident increased the probability of death from 0.01 to 0.02 over twenty years, the increase in risk is valued at $15,000, which is the amount Victim V would have accepted to take on the risk.
As for the $1,000 spent on moving to a better air quality area, this is separate from the calculation of the Hand rule damages. The expense is a mitigation cost incurred post exposure to try and reduce the harm from the chemical exposure. Consequently, it should be added to the Hand rule damages as it represents an additional loss directly related to the exposure.
The total Hand rule damages for V's heirs would therefore be the $15,000 valuation of the risk of death plus the $1,000 mitigation cost, totaling $16,000.
A customer has requested that Lewelling Corporation fill a special order for 1,900 units of product S47 for $41 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $16.00: Direct materials $ 4.30 Direct labor 4.00 Variable manufacturing overhead 1.40 Fixed manufacturing overhead 6.30 Unit product cost $ 16.00 Assume that direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product S47 that would increase the variable costs by $2.20 per unit and that would require an investment of $11,000.00 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:
Answer:
Profit from sale of special order = $77,900 - $33,610 = $44,290
Explanation:
Being a special order and an added opportunity to its regular sales of S47, we will be looking at the Marginal Costs of accepting to produce the order:
Direct Material = $4.30
Direct Labour = $4.00
Variable Overhead = $3.60
Fixed Manufacturing Overhead = $6.30
Total Costs = $18.20
But, Fixed Costs is already covered/absorbed by our existing business; as such we need not include it in the costing of the special order
And there is an Additional investment in moulds = $11,000
Total cost of special order = ($18.20 - $6.30) x 1,900 units + $11,000
= $33,610
Sales of special order = 1,900 units x $41 =$77,900
Profit from sale of special order = $77,900 - $33,610 = $44,290
Vincent and Jean are two cooks who work in a village. Each of them can either bake cakes or make pizzas. Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Please answer the four questions.
Which cook has the absolute advantage in baking cakes?
A. Vincent
B. Jean
C. Neither
Answer: B. Jean
Explanation:
Having Absolute Advantage in the production of a good means that you can produce more of that good given the same resources or at least the same Quantity as others given lower resources.
From the scenario above therefore, Jean has the Absolute Advantage in producing Cakes as Jean can bake 12 cakes in an hour while Vincent can only bake 10.