Answer:
I) The difference between the option's price and the value it would have if it were expiring immediately
Explanation:
Time value in options trading simply refers to the part of an option's premium (cost or price) which is attributed to the amount of the time remaining until expiration.
An addition of the option's time value and intrinsic value equals the total premium of an option.
Therefore, we can mathematically state that:
Time Value = Option Premuim(Price) - Intrinsic Value.
The Option Premuim is an amount of money known as the price or cost.
In an exchange for the right granted by the option, an option buyer pays for the premium to an option seller.
Generally, it is seen that the more time that remains until the expiration, the greater the time value of the option. This happens as a result of investors willing to pay a higher premium for more time since the longer time taken to execute contract will be profitable due to a favorable move in the underlying asset.
Also, the lesser time remaining on an option will result in lesser willingness of investors to pay because the probability for profitability is slim.
Answer:
I) The difference between the option's price and the value it would have if it were expiring immediately
Explanation:
Time value simply means the option's premium portion that is accountable to the amount of time remaining until the option contract expires.
These is the difference between the option's price and the value it would have if it were expiring immediately.
Time value is the premium amount that the those investing is desire to pay more than the intrinsic value.
Time value can be calculated using below formula;
Time Value = Options Premium - Intrinsic Value.
Call options helps to purchase shares of stock at a stable price until the expiration date.
The intrinsic value and the time value are the two areas of call option. These intrinsic value and time value helps to know when to buy the underlying stock.
However time value of the option increases with with the time remains untill expiration
. Currency options sold through an options exchange contain which of the following? a) a commitment to the owner and are standardized. b) a commitment to the owner and can be tailored to the owner’s desire. c) a right but not a commitment to the owner and can be tailored to the owner’s desire. d) a right but not a commitment to the owner and are standardized.
Answer: a) a commitment to the owner and are standardized.
Explanation:
Futures are generally traded through Exchanges as opposed to Forwards which are not.
Futures are a commitment to the owner to buy or sell an underlying asset and as they are sold at Exchanges, they are standardized to allow for easier trading. The prices that the sellers are to get are certain as the Exchange protects the transaction.
Unlike Forwards that can be tailor made to the specifications of the owner, Futures come as already made and standardized and so are not tailor made. This is to enable as many participants as possible.
This is why option A is correct because Futures contain a commitment to the owner and are standadized as well.
Edward McDowell Co. establishes a $138,000,000 liability at the end of 2020 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2021. Also, at the end of 2020, the company has $69,000,000 of temporary differences due to excess depreciation for tax purposes, $9,660,000 of which will reverse in 2021. The enacted tax rate for all years is 20%, and the company pays taxes of $44,160,000 on $220,800,000 of taxable income in 2020. McDowell expects to have taxable income in 2021.
Determine the deferred taxes to be reported at the end of 2020.
Answer:
The answer is given below;
Explanation:
Site-cleanup costs $138,000,000
This will give rise to deferred tax asset of $138,000,000*20%=$27,600,000
Tax Depreciation excessive for the year=$9,660,000
Excess tax depreciation deducted in current year will give rise to deferred tax liability=$9,660,000*20%=$1,932,000
Current Tax Expense =$44,160,000
Deferred Tax During 2020 are;
Deferred Tax Asset $9,660,000
Deferred Tax Liability $1,932,000
Current Tax Expense $44,160,000
Security Technology Inc. (STI) is a manufacturer of an electronic control system used in the manufacture of certain special-duty auto transmissions used primarily for police and military applications. The part sells for $45 per unit and had sales of 24,800 units in the current year, 2018. STI has no inventory on hand at the beginning of 2018 and is projecting sales of 28,400 units in 2019. STI is planning the same production level for 2019 as in 2018, 26,600 units. The variable manufacturing costs for STI are $16, and the variable selling costs are only $0.70 per unit. The fixed manufacturing costs are $133,000 per year, and the fixed selling costs are $660 per year. Required: 1. Prepare an income statement for each year using full costing. 2. Prepare an income statement for each year using variable costing. 3. Prepare a reconciliation of the difference each year in the operating income resulting from the full and variable costing methods.
Answer:
1. Prepare an income statement for each year using full costing.
2018 2019
Sales 1,116,000 1,278,000
Less Cost of Sales (520,800) (596,400)
Opening Stock 0 37,800
Add Cost of Goods Manufactured 558,600 558,600
Less Closing Stock (37,800) 0
Gross Profit 595,200 681,600
Less Expenses
variable selling costs ($0.70) (17,360) (19,880)
fixed selling costs are ($660) ($660)
Net Income 577,180 661,060
2. Prepare an income statement for each year using variable costing.
2018 2019
Sales 1,116,000 1,278,000
Less Cost of Sales (396,800) (454,400)
Opening Stock 0 28,800
Add Cost of Goods Manufactured 425,600 425,600
Less Closing Stock (28,800) 0
Gross Profit 719,200 823,600
Less Expenses
fixed manufacturing costs (133,000) (133,000)
variable selling costs ($0.70) (17,360) (19,880)
fixed selling costs are ($660) ($660)
Net Income 568,180 670,060
3. Prepare a reconciliation of the difference each year in the operating income resulting from the full and variable costing methods.
2018 2019
Full Costing Operating Income 577,180 661,060
Add Fixed Costs in Opening Inventory 0 9,000
Less Fixed Costs in Closing Inventory (9,000) 0
Variable Costing Operating Income 568,180 670,060
Explanation:
Full Costing Product Cost = Variable Overheads + Fixed Overheads
= $16 + ($133,000/26,600 units)
= $21
1. Prepare an income statement for each year using full costing.
2018 2019
Sales 1,116,000 1,278,000
Less Cost of Sales (520,800) (596,400)
Opening Stock 0 37,800
Add Cost of Goods Manufactured 558,600 558,600
Less Closing Stock (37,800) 0
Gross Profit 595,200 681,600
Less Expenses
variable selling costs ($0.70) (17,360) (19,880)
fixed selling costs are ($660) ($660)
Net Income 577,180 661,060
Variable Costing Product Cost = Variable Overheads
= $16
2. Prepare an income statement for each year using variable costing.
2018 2019
Sales 1,116,000 1,278,000
Less Cost of Sales (396,800) (454,400)
Opening Stock 0 28,800
Add Cost of Goods Manufactured 425,600 425,600
Less Closing Stock (28,800) 0
Gross Profit 719,200 823,600
Less Expenses
fixed manufacturing costs (133,000) (133,000)
variable selling costs ($0.70) (17,360) (19,880)
fixed selling costs are ($660) ($660)
Net Income 568,180 670,060
3. Prepare a reconciliation of the difference each year in the operating income resulting from the full and variable costing methods.
Reconciliation of Full Costing Operating Income to Variable Costing Operating Income.
Hint : Difference lies in the Fixed Cost Component deferred in Closing Inventory under the Absorption Cost
2018 2019
Full Costing Operating Income 577,180 661,060
Add Fixed Costs in Opening Inventory 0 9,000
Less Fixed Costs in Closing Inventory (9,000) 0
Variable Costing Operating Income 568,180 670,060
Income statements for STI would be prepared for two years using full costing (absorption costing) and variable costing. Full costing includes both fixed and variable costs in the inventory valuation, while variable costing includes only variable costs, treating fixed overhead as a period expense. The operating income will differ between the two methods due to the treatment of fixed manufacturing overhead.
Explanation:The student has asked to prepare an income statement for two years using both full costing and variable costing methods and to reconcile differences in operating income between the two methods for Security Technology Inc. (STI), a manufacturer of electronic control systems for special-duty auto transmissions. Given that the part sells for $45 per unit, the annual fixed manufacturing costs amount to $133,000, the variable manufacturing costs are $16 per unit, and the variable selling costs are $0.70 per unit, we would calculate the income statements reflecting these costs and the given production and sales units.
Full costing, also known as absorption costing, includes both fixed and variable costs in the cost of goods sold and thus in the inventory valuation. Variable costing, on the other hand, only includes variable costs in the cost of goods sold; fixed manufacturing overhead is treated as a period expense. The operating income will differ between the two methods due to the treatment of fixed manufacturing overhead.
To complete the student's request, we would calculate the cost of goods sold and operating income under each method for both years, then reconcile any differences due to the accounting treatment of fixed manufacturing overhead.
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Fore Farms reported a pretax operating loss of $137 million for financial reporting purposes in 2021. Contributing to the loss were (a) a penalty of $5 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2021 and (b) an estimated loss of $12 million from accruing a loss contingency. The loss will be tax deductible when paid in 2022. The enacted tax rate is 25%. There were no temporary differences at the beginning of the year and none originating in 2021 other than those described above. Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2021. 2. What is the net operating loss reported in 2021 income statement
Final answer:
To recognize the 2021 income tax benefit from the net operating loss, multiply the $137 million loss by the 25% tax rate to determine the tax benefit, which is $34.25 million, reflected as a Deferred Tax Asset. The net operating loss on the income statement remains $137 million.
Explanation:
To recognize the income tax benefit of the net operating loss in 2021, we first need to determine the tax benefits of the $137 million operating loss, the $5 million EPA penalty, and the $12 million estimated loss contingency.
In this case, the entire $137 million loss is tax-deductible. However, the $12 million estimated loss contingency will be tax deductible when actually paid in 2022, not in 2021. Yet, for financial accounting purposes, we recognize the benefit in the year that the loss is reported. Therefore, the income tax benefit will be based on the full $137 million loss.
The journal entry to recognize the income tax benefit is:
Debit: Income Tax Benefit $34.25 millionCredit: Deferred Tax Asset $34.25 millionTo calculate the benefit, multiply the $137 million by the tax rate of 25% (137 million * 0.25 = $34.25 million).
The net operating loss reported in the 2021 income statement is $137 million since that is the pretax operating loss before considering the tax benefit.
Final answer:
The journal entry to recognize the income tax benefit of the net operating loss for Fore Farms in 2021 debits Income Tax Benefit and credits Deferred Tax Asset for $34.25 million, which is 25% of the $137 million pretax operating loss. The net operating loss reported on the 2021 income statement is $137 million.
Explanation:
To recognize the income tax benefit of the net operating loss for Fore Farms in 2021, we need to consider the penalty and the estimated loss from accruing a loss contingency. Since the tax rate is 25% and the total pretax operating loss is $137 million (including both the penalty and the loss contingency), the journal entry would reflect an income tax benefit at this tax rate on the taxable portions of the operating loss.
The journal entry is as follows:
Debit Income Tax Benefit: $137 million x 25% = $34.25 millionCredit Deferred Tax Asset: $34.25 millionThe net operating loss for the income statement would be the pretax operating loss amount, which is $137 million.
Write a Risk Management Plan (RMP) using the content found in the PMBOK 6e (Section 11.1.3.1). At a minimum, the plan should address all elements of a RMP found in the PMBOK. The plan should include the following figures and tables:
Answer:
The risk management plan describes how risk management activities will be structured and performed. There are 6 elements to be included in the risk management plan
Explanation:
According to the Project Management Institute (PMI, 2017), a risk management plan should consist of the following elements:
•Risk strategy – a risk strategy describes the approach to managing risk. It consists of looking at the project from all perspectives, identifying risks and choosing the best possible solution to the risk.
•Methodology – this defines the specific tools, ideas, and sources of data that will be used to undertake the risk management task
•Roles and Responsibilities – everyone on the team should have a clear understanding of what is expected of them and how they should react should a certain problem arise. Leaders, supporters and the entire team should have a specific task assigned to them.
•Funding – possible sources of financial assistance and calculated estimates of how much would be needed for each specific risk identified, should be established in the plan and potential funders should be contacted
•Timing – defines when and how often the processes will be performed and defines risky activities and how much time would be needed to deal with each risk
•Risk categories – risks should be categorized in terms of their severity and/ or likeliness to occur. A scale of 1 – 5 can be used, where 1 is lease likely to occur and 5 is most likely, or, 1 being least severe and 5 being very severe
It is important to monitor, evaluate and review the plan once it is implemented.
As the contestant with the longest winning streak in the history of Jeopardy, Ken Jennings won more than $2.5 million. Suppose he invested $1.6 million in an ordinary annuity that earned 9.6%, compounded monthly. How much would he receive at the end of each month for the next 20 years
Answer:
Total amount = $10906400
He would receive = $ 45443.33 every month
Explanation:
Ken invested $1.6 million at 9.6% for 20 yes compounded monthly.
n = 20*12= 140
t = 20
P= 1600000
R= 9.6% = 0.096
Amount A is equal to
A = p(1+r/n)^(nt)
A =
1600000(1+(0.096/140))^ (140*20)
A =
1600000(1 + (6.857*10^-4))^(2800)
A= 1600000(1.0006857)^2800
A = 1600000*6.8165
A = 10906400
Every month, he will get
10906400/(12*20)
= 10906400/240
=$ 45443.333
Answer: Therefore, he would recieve $15,018.74 at the end of each month.
Explanation:
$1.6 million investment is the present value (PV)
PV = $1,600,000
INTEREST RATE(r) = 9.6% or 0.096 compounded monthly = (0.096÷12) = 0.008
PERIOD(n) = 20 years = (20×12) = 240 months
Ordinary value of annuity:
Annuity = (rate × PV) ÷ (1 - (1 + r)^-240)
Annuity = (0.008 × $1,600,000) ÷ (1 - (1 + 0.008)^-240)
Annuity = ($12,800) ÷ (1 - (1.008)^-240)
Annuity = $12,800 ÷ 0.8522687768
Annuity = $15,018.74
Therefore, he would recieve $15,018.74 at the end of each month.
FASB No. 52 is a statement issued by the Financial Accounting Standards Board requiring American MNCs to first convert the financial statement accounts of foreign subsidiaries into the country's functional currency and then translate the accounts into the parent firm's currency using the ________ method.
Answer:
all-current-rate method
Explanation:
The all-current-rate method is the method by which most items in the financial statements are translated at the current exchange rate
In current-rate-method,
the income statement is translated at the weighted average exchange rate,
assets and liabilities are translated at the current rate, issued capital stock is translated at the exchange rate.
The balance sheet must be balanced. Cumulative Translation Adjustment (CTA) balances the asset side of the balance sheet with the liabilities and owner’s equity side of the balance sheet.
The petty cash fund had an initial imprest balance of $ 220. It currently has $ 18 in cash, $ 3 in miscellaneous petty cash tickets, and an additional $ 191 in specific petty cash tickets. The debit to Cash Short & Over would be:
Answer:
The debit to Cash Short & Over would be: $ 8
Explanation:
Particulars Debit Credit
Cash $ 18
Miscellaneous $ 3
Additional Tickets $ 191
Cash Over and Short $ 8
Petty Cash Fund $ 220
Sometimes a petty cashier fails to get a receipt for a payment or over pays for the amount due. When this occurs and the fund is later reimbursed the petty cash payments report plus the cash remaining will not total to the fund balance . This mistake causes the fund to be short. This shortage is recorded as an expense in the reimbursing entry with a debit to Cash Short & Over .
Final answer:
The debit to Cash Short & Over would be $8. This is calculated by subtracting the sum of the current cash on hand and petty cash tickets ($212) from the initial imprest balance ($220).
Explanation:
The petty cash fund had an initial imprest balance of $220. The question involves reconciling the petty cash, which includes counting the remaining cash and accounting for the petty cash tickets. The current cash on hand is $18 and there are petty cash tickets totaling $194 ($3 in miscellaneous tickets plus $191 in specific petty cash tickets). The total of cash and tickets should equal the initial imprest balance. To find the debit to Cash Short & Over, we need to calculate the difference between the initial balance and the sum of current cash and tickets.
Calculation:
Initial imprest balance: $220
Current cash on hand: $18
Petty cash tickets: $194 ($3 + $191)
Total cash and tickets: $18 + $194 = $212
Debit to Cash Short and Over = Initial imprest balance - Total cash and tickets
Debit to Cash Short and Over = $220 - $212 = $8
Therefore, the debit to Cash Short & Over would be $8.
The following operating information reports the results of Bramble Company’s production and sale of 12,500 air-conditioned motorcycle helmets last year. Based on early market forecasts, Bramble expects the same results this year. Sales $2,022,000 Variable manufacturing expenses 885,000 Fixed manufacturing expenses 273,000 Variable selling and administrative expenses 120,000 Fixed selling and administrative expenses 226,000 The American Motorcycle Club has offered to purchase 1,900 helmets at a price of $100 each. Bramble has sufficient idle capacity to fill the order, which would not affect the company’s cost structure or regular sales. If Bramble accepts this order, by how much will its income increase or decrease?
Answer:
Effect on income= $37,240 increase
Explanation:
Giving the following information:
Production= 12,500 units
Variable manufacturing expenses 885,000
Variable selling and administrative expenses 120,000
The American Motorcycle Club has offered to purchase 1,900 helmets for $100 each.
Because it is a special offer and there is unused capacity, we will not take into account the fixed costs.
First, we need to calculate the unitary variable costs:
Unitary variable manufacturing expense= 885,000/12,500= $70.8
Unitary selling and administrative expenses= 120,000/12,500= $9.6
Total variable cost= $80.4
Effect on income= 1,900*(100 - 80.4)= $37,240 increase
Harrington makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for June, July, and August were $80,000, $130,000, and $120,000, respectively, what were the firm's budgeted collections for August and the company's budgeted receivables balance on August 31
Answer:
Cash Collection is $122,000
Receivable as on August 31, is $97,000
Explanation:
Total budgeted cash collection in the month of August is $122,000 and total receivables as on August 31 is $97,000.
A schedule for the cash collection is made in MS Excel file, which is attached with this answer, please find it.
In August, the budgeted collections for Harrington were $122,000 and the total budgeted receivables on August 31st were $136,000.
Explanation:To calculate the firm's budgeted collections for August, we need to apply Harrington's collection pattern to the sales made in June, July, and August. 30% of August's sales are collected in the same month which equals $36,000 (0.3 * $120,000). The first month after July sales, 60% is to be collected amounting to $78,000 (0.6 * $130,000). The second month after June 10%, results in $8,000 (0.1 * $80,000). Thus, the total collection for August is $36,000 + $78,000 + $8,000 = $122,000.
For the budgeted receivables on August 31, the remaining amounts to be collected from July and August should be considered. This comprises of 40% from July's sale amounting to $52,000 (0.4 * $130,000), and 70% from August's sales which equals $84,000 (0.7 * $120,000). So, the total budgeted receivables on August 31 is $52,000 + $84,000 = $136,000.
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Sleepgood Company produces and sells pillows. It expects to sell 15,000 pillows in the next year and will have 1,500 pillows in finished goods inventory at the end of the current year. Sleepgood would like to complete operations next year with at least 1,350 completed pillows in inventory. There is no ending work-in-process inventory. The pillows sell for $6 each. How many pillows would be produced in the next year?
Answer:
Pillows to be produced next year =14,850 units
Explanation:
The expected units of a product that a business estimates to manufacture gives its sales budget and inventory is known as the production budget.
The production budget can bed determined by adjusting the sales budget for closing and opening inventories.
Production budget = Sales budget +closing inventory - opening inventory
No that the opening inventory for next year would be the closing inventory for the current year. Therefore, the opening inventory for next year is 1,500 units.
Sales budget for next year - 15,000, closing inventory -1,350
Production budget = 15,000 + 1,350 - 1,500
= 14,850 units
Pillows to be produced next year =14,850 units
During January, Luxury Cruise Lines incurs employee salaries of $1.1 million. Withholdings in January are $84,150 for the employee portion of FICA, $165,000 for federal income tax, $68,750 for state income tax, and $11,000 for the employee portion of health insurance (payable to Blue Cross/Blue Shield). The company incurs an additional $68,200 for federal and state unemployment tax and $33,000 for the employer portion of health insurance. Required: 1., 2. & 3. Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions.)
Answer:
See the explanation below.
Explanation:
Details Dr ($) Cr ($)
Salary expenses 1,100,000
Employee portion of FICA payable 84,150
Federal income tax payable 165,000
Employee's State income tax payable 68,750
Employee portion of health ins. payable 11,000
Net salaries payable 771,100
To record gross salaries, withholding taxes and net salaries
Employer portion of FICA expenses 84.150
Federal and state unemployment tax 68,200
Employer portion of health insurance 33,000
Employer portion of FICA payable 84,150
Fed. and state unemploymt tax payable 68,200
Employer portion of health ins. payable 33,000
To record employer's payroll taxes and other expenses
Employee portion of FICA payable 84,150
Federal income tax payable 165,000
State income tax payable 68,750
Employee portion of health ins. payable 11,000
Net salaries payable 771,100
Employer portion of FICA payable 84,150
Fed. and state unemploymt tax payable 68,200
Employer portion of health ins. payable 33,000
Cash 1,285,350
To record payment of payroll liabilities and other expenses
Mays Corp. reported free cash flows for 2018 of $491 million and investment in operating capital of $321 million. Mays Corp. incurred $146 million in depreciation expense and paid $309 million in taxes on EBIT in 2018. What is Mays Corp.’s 2018 EBIT?
Answer: $975 million
Explanation:
Given the above details, we can solve for Earnings Before Tax and Interest with the following formula,
Operating Cash Flow = EBIT – Taxes on EBIT + Depreciation
Making EBIT the subject would turn it to be,
EBIT = Operating Cash Flow + Taxes on EBIT - Depreciation
We have all of the above except the EBIT and Operating Cash Flow.
Luckily we can solve for the Operating Cash Flow with the details given using,
Operating cash flow = Free Cash Flow + Investment in operating capital
Therefore,
= $491 million + $321 million
= $812 million
Operating cash flow is $812 million
Plugging it into the original formula we have,
EBIT = Operating Cash Flow + Taxes on EBIT - Depreciation
EBIT = $812 million + $309 million - $146 million
EBIT = $975 million
Earnings before Taxes and Interest is $975 million.
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A zero-investment portfolio with a positive alpha could arise if: a. The expected return of the portfolio equals zero. b. The capital market line is tangent to the opportunity set. c. The Law of One Price remains unviolated. d. A risk-free arbitrage opportunity exists.
Answer:
d. A risk-free arbitrage opportunity exists.
Explanation:
A zero-investment portfolio refers to a portfolio of assets which all the investments its contains has a collective net value that is zero which is obtained when there is a simultaneously purchasing securities and selling equivalent securities.
Alpha refers to the active return on an investment. This implies that when a zero-investment portfolio has a positive alpha, its active return is positive. This can only occur when there is a risk-free arbitrage opportunity.
A risk-free arbitrage refers to the opportunity to make some profit with no capital investment.
Therefore, the correct option is d. A risk-free arbitrage opportunity exists.
Final answer:
A zero-investment portfolio with a positive alpha typically results from a risk-free arbitrage opportunity, which aligns with the concept of generating excess returns without additional risk. An analysis of three investments' risks and expected returns indicates the third investment as the safest, the first as the riskiest, and the second as having the highest expected return on average.
Explanation:
A zero-investment portfolio with a positive alpha suggests the existence of an arbitrage opportunity where an investor can generate excess returns without any additional investment or risk. The statement in the question "A risk-free arbitrage opportunity exists" aligns with the concept of generating a positive alpha without additional investment, thereby leading to the creation of a zero-investment portfolio with positive returns. Other statements do not logically support the creation of such a portfolio. Option d is correct .
Investment analysis involves evaluating risk and return to determine the safest and riskiest investments, along with the highest expected average returns. Considering the probabilities and potential returns for three different investments, we find:
The first investment (software company) has an expected return of $200,000The second investment (hardware company) has an expected return of $600,000The third investment (biotech firm) has an expected return of $400,000The biotech firm represents the lowest risk due to its minimal chance of loss. Conversely, the software company carries the highest risk, stemming from its elevated probability of incurring a loss. The hardware company offers the highest expected return on average, considering the balance of probabilities and potential profits.
Throughout history, high-risk investment approaches have sometimes been detrimental to investment portfolios, particularly during times of economic downturn or market volatility, such as the 2008 financial crisis or the dot-com bubble burst.
A customer charges a treadmill at Greg’s Sport Shop using a Greg’s Sport Shop credit card. The price is $2,000 and the financing charge is 1.5% per month if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer’s account. The entry to record the finance charge on Greg’s Sport Shop’s books would: Select one: a. Credit Interest Revenue $30 b. Credit Sales $30 c. Debit Accounts Receivable $2,000 d. Debit Accounts Receivable $1.50 e. None of the above
Answer:
c) Credit interest revenue
Explanation:
Financing Charge = Price X Rate
Financing Charge = $2,000 X 1.5% = $30
The accounts receivable will increase by way of debit of an amount of $30.
Interest revenue will increase by way of credit of an amount of $30.
The correct answer is: a. Credit Interest Revenue $30. The correct entry to record the finance charge on Greg’s Sport Shop’s books involves debiting Accounts Receivable and crediting Interest Revenue for $30.
To determine the correct entry to record the finance charge on Greg’s Sport Shop’s books, we need to calculate the finance charge and then identify the correct accounting entries. The treadmill cost $2,000, and the finance charge is 1.5% per month. Therefore, the finance charge is:
Finance Charge = $2,000 x 0.015 = $30
The correct journal entries involve debiting Accounts Receivable and crediting Interest Revenue to record the finance charge added to the customer's account:
Debit Accounts Receivable $30Credit Interest Revenue $30Thus, the correct choice is: a. Credit Interest Revenue $30
The management of Shatner Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the company’s finished product.
The following information was collected from the accounting records and production data for the year ending December 31, 2017.
1. 8,000 units of CISCO were produced in the Machining Department.
2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.00, direct labor $4.35, indirect labor $0.40, utilities $0.39.
3. Fixed manufacturing costs applicable to the production of CISCO were:
Cost Item Direct Allocated
Depreciation $1,900 $930
Property taxes 560 290
Insurance 950 590
$3,410 $1,810
All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments.
4. The lowest quotation for 8,000 CISCO units from a supplier is $81,590.
5. If CISCO units are purchased, freight and inspection costs would be $0.34 per unit, and receiving costs totaling $1,290 per year would be incurred by the Machining Department.
(a) Prepare an incremental analysis for CISCO. Your analysis should have columns for
1.
Make CISCO,
2.
Buy CISCO, and
3.
Net Income Increase/(Decrease).
(b)
Based on your analysis, what decision should management make?
(c)
Would the decision be different if Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO? Show computations.
(d)
What nonfinancial factors should management consider in making its decision?
Answer:
a)
1. Make Cisco, total cost is $74930
2. Buy Cisco, total cost is $83152
3. Net income decrease is $8222
b. Based on the above, management should continue manufacturing Cisco since the option of purchasing results in a net income decrease of $8222
C. If Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO, the decision will not be different because the additional income does not offset the net decrease in income.
d. Other non financial factors to be considered by management in making its decisions are:
1. The time it takes to manufacture the product.
2. The inventory of materials and work in progress
3. Difference in quality between manufactured and purchased products
4. Delay in delivery
5. Damages due to freight
Explanation:
8000 units of Cisco was produced
Variable costs:
direct materials = $5.00
Direct labor = $4.35
indirect labor = $0.40
utilities = $0.39
Total variable cost = 8000 * (5+4.35+0.4+0.39)
TVC = 8000*9.14 = $73120
Total allocated fixed cost = $1,810
Total cost = TVC + TFC
TC = 73120+1810 = $74930
If on the other hand the units are purchased, we have :
freight and inspection = $0.34 per unit
Receiving costs = $1,290 per year
Therefore total cost = 8000*(0.34) + 1290 = $1562
If the lowest quotation for 8000 units of Cisco is $81,590, therefore the total cost of purchasing the product is 81590+1562 = $83152
(a)
1. Make Cisco, total cost is $74930
2. Buy Cisco, total cost is $83152
3. Net income decrease is $8222
b. Based on the above, management should continue manufacturing Cisco since the option of purchasing results in a net income decrease of $8222
C. If Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO, the decision will not be different because the additional income does not offset the net decrease in income.
d. Other non financial factors to be considered by management in making its decisions are:
1. The time it takes to manufacture the product.
2. The inventory of materials and work in progress
3. Difference in quality between manufactured and purchased products
4. Delay in delivery
5. Damages due to freight
The incremental analysis favors manufacturing CISCO in-house over purchasing, with a cost saving of $1,070. If the company can use the facilities to generate an additional $3,000 net income, buying becomes the more profitable option by $1,930. Nonfinancial factors also play a significant role in the decision-making process.
When making a decision whether to make or buy a component, Shatner Manufacturing Company must conduct an incremental analysis to compare the net costs associated with each option.
To start, calculate the variable costs of making CISCO: Direct materials ($5.00) + direct labor ($4.35) + indirect labor ($0.40) + utilities ($0.39) = $10.14 per unit. For 8,000 units, this amounts to $81,120. Then add direct fixed manufacturing costs ($3,410), but not allocated costs ($1,810), which are sunk in either scenario. Thus, the total cost to Make CISCO is $84,530.
For Buy CISCO, the quoted price from the supplier is $81,590. Additional costs include freight and inspection costs ($0.34/unit x 8,000 units = $2,720) and receiving costs ($1,290). Therefore, the total cost to Buy CISCO is $85,600.
Incremental Analysis:
Based on this analysis, management should make the decision to continue manufacturing CISCO as it is cheaper by $1,070 compared to buying.
If Shatner Company can generate $3,000 of net income by using the facilities for something else, the analysis changes. The opportunity cost of not generating this income must be considered. When subtracted from the saving of making CISCO ($1,070), the net decrease in income would be $3,000 - $1,070 = $1,930. In this case, buying might be the more profitable option.
In addition to financial analyses, management should also consider nonfinancial factors such as the quality of the parts, supplier reliability, and potential long-term strategic benefits of in-house production or sourcing.
Maxtor Technology incurred the following costs during the year related to the creation of a new type of personal computer monitor: Salaries $ 280,000 Depreciation on R&D facilities and equipment 155,000 Utilities and other direct costs incurred for the R&D facilities 72,000 Patent filing and related legal costs 28,000 Payment to another company for performing a portion of the development work 150,000 Costs of adapting the new monitor for the specific needs of a customer 86,000 What amount should Maxtor report as research and development expense in its income statement?
Answer:
$657,000
Explanation:
The computation of the research and development expense reported is shown below:
Salaries $280,000
Depreciation R&D facilities and equipment $155,000
Utilities and other direct costs $72,000
Payment to another company $150,000
Total R & D expense $657,000
All other items which are not taken in the computation part is irrelevant. Hence ignored it
Maxtor should report a total of $685,000 as research and development expenses in its income statement, which includes salaries, depreciation on facilities and equipment, utilities and other direct costs, patent filing and legal costs, and payment to another company for development work.
Explanation:The total amount that Maxtor should report as research and development expense in its income statement is the sum of costs directly related to the research and development activity. These include the salaries of $280,000, depreciation on R&D facilities and equipment of $155,000, utilities and other direct costs incurred for the R&D facilities of $72,000, patent filing and related legal costs of $28,000, and payment to another company for performing a portion of the development work $150,000. Therefore, the total R&D expenditure would be $685,000. The cost of adapting the new monitor for the specific needs of a customer is not a part of R&D expenses, it is a production cost.
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Casey Electronics has a piece of machinery that costs $300,000 and is expected to have a useful life of 6 years or 40,000 hours. Residual value is expected to be $50,000. Using the units-of-production method, what is depreciation expense for the first year assuming it was used 6,000 hours
Solution:
The unit-of-production approach allocates depreciation on the basis of the usage of the commodity.
The first step is to measure depreciation per unit by calculating the sum of less residual value by usable life in units.
For this scenario, we measure ($300,000-$50,000)/40,000 hours
= $6.25 per computer hour as the deprecation cost per device.
That number is compounded by the real use for the year.
In this scenario, 6,000 hours * $6.25 depreciation cost
= $37,500 depreciation bill.
William Beville's computer training school, in Richmond, stocks workbooks with the following characteristics: Demand D 19 comma 900 units/year Ordering cost S $27/order Holding cost H $3/unit/year a) The EOQ for the workbooks is nothing (round your response to the nearest whole number). b) What are the annual holding costs for the workbooks? $ nothing (round your response to the nearest whole number). c) What are the annual ordering costs? $ nothing (round your response to the nearest whole number).
Answer:
a. 598 units
b. $897
c. $898
Explanation:
a. The computation of the economic order quantity is shown below:
[tex]= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}[/tex]
[tex]= \sqrt{\frac{2\times \text{19,900}\times \text{\$27}}{\text{\$3}}}[/tex]
= 598 units
b. The average inventory would equal to
= Economic order quantity ÷ 2
= 598 units ÷ 2
= 299 units
Carrying cost = average inventory × carrying cost per unit
= 299 units × $3
= $897
c. The number of orders would be equal to
= Annual demand ÷ economic order quantity
= $19,900 ÷ 598 units
= 33.28 orders
Ordering cost = Number of orders × ordering cost per order
= 33.28 orders × $27
= $898
Evaluate how organizations can use one-sample hypothesis testing to determine if there are performance issues in the organization. Support your response with a specific example. In replies to peers, provide an additional example that supports the ideas presented.
Answer:
Explanation:
For example: Suppose you want to check the average working hour of employees. You may think that the average duration of an employees is 7.6 hours. You want to check this claim so you collect a sample of 20 employees and note their duration of work. (please check attached file for this, and continue)
NULL HYPOTHESIS H0:u= 7.6 HOURS
ALTERNATIVE HYPOTHESIS Ha: ≠7.6 HOURS
alpha=0.05
t= 7.765-7.6/1.25/sqrt(20)
t= 0.165/1.25/4.47
t= 0.165/0.28
t= 0.589
degrees of freedom= n-1=20-1=19
t critical = 2.09
Since t critical is GREATER than t calculated therefore we fail to reject null hypothesis H0.
From this we can conclude that We don't have enough or sufficient evidence to say that the mean working duration is different than 7.6 hours.
Access Organics, Inc., hired Andy Hernandez to sell organic produce. Later, Hernandez signed an agreement not to compete with Access for two years following the termination of his employment. He did not receive a pay increase or any other new benefits in return for signing the agreement. When Access encountered financial trouble, Hernandez left and began to compete with his former employer. Access filed a lawsuit against Hernandez. Is the noncompete agreement enforceable?
Answer: The Non Compete is NOT Enforceable.
Explanation:
An Agreement not to compete with your previous company is a RESTRICTIVE covenant that was generally introduced to ensure that Upper and Middle Management who were generally privy to Trade Secrets in an Organization do not take that information somewhere else and use it against that old company usually in exchange for better compensation packages.
Hernandez joined Access Organics and regrettably was not given a pay increase or any other special considerations. This is very relevant.
For a Non-compete to hold relevance especially if it is signed AFTER an employee has already being working in an organization, there needs to be SUFFICIENT Considerations that gave the employee better terms such as more job security or better benefits as a result of signing said agreement.
Andy Hernandez received no such benefits in return for signing the agreement and so the Non-compete Agreement lacks said Sufficient Considerations.
The Non-compete is therefore NOT ENFORCEABLE.
It is worthy of note that in the actual case, the Judge ruled in favor of of Andy Hernandez.
If you require further clarification do react or comment.
Answer:
Yes, a valid non-compete is enforceable as a state law once one party violates is provision.
Explanation:
If the non compete did not categorically state that Hernandez will receive a pay increase or any other new benefits in return for signing the agreement and yet he endorsed it, going against the agreement not to compete with Access for two years following the termination of his employment is a clear case of violation.
Penalty for violating a non compete include payment for damages. In this case, Access Organics Inc. could also file lawsuit against Hernandez for both money damages and an injunction.
In Business Brilliant, Louis Schiff writes that most millionaires are ____ ; for example, they believe that "it's important in negotiations to exploit the weaknesses in others" to come out on top.
A.EXTROVETED
B. MACHIAVELLIAN
C. CONSCIENTIOUS
D. AUTHORITARIAN
Answer: Machiavellian
Explanation:
In Business Brilliant, Louis Schiff writes that most millionaires are MACHIAVELLIAN; for example, they believe that "it's important in negotiations to exploit the weaknesses in others" to come out on top. Thus, option B is the correct option.
What are Machiavellian beliefs?According to Machiavelli, it is preferable for a ruler to be universally feared rather than deeply loved since the former maintains power via duty and the latter through dread of retribution. In his role as a political theorist, Machiavelli stressed the "necessity" of using brutal force or deception methodically, even the eradication of whole noble families, to prevent any possibility of a challenge to the prince's rule.
Historians frequently point out that Machiavelli exalts instrumentality in the establishment of states, an attitude exemplified by the proverb "The aims justify the means," which is frequently linked to readings of The Prince. According to Machiavelli, a ruler must utilize fraud and deception. For the effective stability of power and the installation of new regimes, violence may be required.
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Yvonne and Larry plan to begin a business that will grow plants for sale to retail nurseries. They expect to have substantial losses for the first three years of operations while they develop their plants and their sales operations. Both Yvonne and Larry have substantial interest income, and both expect to work full-time in this new business. List three advantages for operating this business as a partnership instead of a C corporation.
Answer:
Partnership refers to a mutual agreement between two or more individuals to carry on a business and share it's profits and losses in a specified ratio as per the clauses in the partnership deed.
A corporation form of business refers to a business characterized by separate legal existence, perpetual existence and common ownership.
Following are the benefits of conducting business via mode of partnership instead of a corporation:
Better freedom and independence in decision making process: Unlike in a corporation, the partners can mutually decide and arrive at a business decision quickly since under a corporation, a business decision requires approval of majority of the members and has to be put at vote.Collective vs Individual taxation. Partnership profits are taxable in the hands of the partners as individual share of profits each partner earns unlike a corporation wherein the corporate body is taxed first and then it's owners and shareholders personally for the income they earn.Partnership losses can be claimed by individuals against their personal income unlike corporate losses which are allowable to a corporation as a whole. Partners can share profits as per their mutually agreed upon profit sharing ratio unlike in case of corporates which take into consideration proportionate capital interests.If the European subsidiary of a U.S. firm has net exposed assets of euro200,000, and the euro increases in value from $1.22/euro to $1.26/euro the U.S. firm has a translation: A. loss of $8,000. B. gain of $8,000. C. loss of euro252,000. D. gain of $252,000.
Answer:
B. Gain $8,000
Explanation:
The calculation of exchange translation is shown below:-
Old exchange rate = Net exposed assets × Value of Euro
= 200,000 × $1.22
= $244,000
New value in euro = Net exposed assets × Increased exchange rate
= 200,000 × $1.26
= $252,000
Translation Profit = New value in euro - Old exchange rate
= $252,000 - $244,000
= $8,000
Staples, the office supply store, owns Quill, which specializes in selling to more than 1 million small and mid-sized U.S. businesses. For example, Quill offers medical supplies to doctors’ offices. Staples has found it pays to departmentalize by _______.
A. Product
B. Function
C. Customer
Final answer:
Staples has found it pays to departmentalize by customer, as exemplified by its subsidiary Quill, which targets small and mid-sized U.S. businesses with specific product offerings like medical supplies for doctors' offices. This approach takes advantage of specialization and addresses the unique needs of different customer segments.
Explanation:
Staples, the office supply store, owns Quill, which specializes in selling to small and mid-sized U.S. businesses, such as providing medical supplies to doctors' offices. When we consider the organization of departments in major grocery stores in the United States, which are sorted into departments like dairy, meats, produce, etc., this is an example of a business that is departmentalized by product. Each product category is specialized to cater to the needs of different consumers and to manage the vast array of items effectively.
In the context of business operations, companies like Staples departmentalize to take advantage of specialization, which allows employees to focus on a part of the production process where they have an advantage, similar to how people have different skills and interests. Whether it be educational choices, regional advantages, or the scale of operation, specialization can lead to greater productivity and effectiveness. In Staples' case, through Quill, it has chosen to departmentalize by customer type, which allows the organization to cater specifically to the needs of small and mid-sized businesses, providing them with tailored products and services.
On August 1, Ling-Harvey Corporation (a U.S.-based importer) placed an order to purchase merchandise from a foreign supplier at a price of 400,000 ringgits. Ling-Harvey will receive and make payment for the merchandise in three months on October 31. On August 1, Ling-Harvey entered into a forward contract to purchase 400,000 ringgits in three months at a forward rate of $0.60. It properly designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate. Relevant exchange rates for the ringgit are as follows: Date Spot Rate Forward Rate (to October 31) August 1 $ 0.60 $ 0.60 September 30 0.63 0.66 October 31 0.68 N/A Ling-Harvey's incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Ling-Harvey must close its books and prepare its third-quarter financial statements on September 30. Prepare journal entries for the forward contract and firm commitment through October 31. Assuming the inventory is sold in the fourth quarter, what is the impact on net income over the two accounting periods
Answer:
Detailed workings are in the explanations.
Explanation:
August 1
On August 1, Ling Harvey entered into a forward contract to purchase 400000 ringgits in 3 months at a forward rate of $0.60.
If Ling Harvey has to pay 400000 ringgits now, total outflow would be $ 240000 (400000*0.60) and in forward contract it has to pay $ 240000 also (400000*0.60), so ling harvey has not incurred any loss
So, there is a firm commitment to pay $ 240000 on October, 31
For entering into a forward contract, there will be no entry.
On September, 30
Forward contract rate has increased to 0.66 from 0.60 (august, 1), so there is a increase in the fair value of the Forward Contract. Earlier its value was $240,000 on Aug,1 but now its value is $ 264,000, so there is a increase in fair value by $24,000
Since this $24000 will be realized on Oct, 31, we will book it today at present value
Present value = $24000*0.9901= $23,762.4
Journal entry would be as follows:
Debit: Forward Contract a/c $23,762.4
Credit: Gain on Forward Contract $23,762.4
Now, the spot rate determines the fair value of Commitment, so there is an increase in fair value of firm commitment by (0.63 - 0.60) * $400,000 =$12,000.
0.63 is the spot rate on September, 30
Since our Firm commitment value increased by $12,000, we need to book it at present value .
Present Value = $12,000*0.9901=$11,881.2
Journal Entry is as follows:
Debit: Loss on Firm Commitment a/c $11,881.2
Credit: Firm Commitment $11,881.2
So its effect on Net income is as follows:
Debit: Gain on Forward Contract a/c $23,762.4
Credit: Loss on Firm Commitment $11,881.2
Credit: Retained Earnings $11,881.2
On October 31
Today spot rate is 0.68, so the value of the forward contract when compared to its value on Aug 1
= (0.68 - 0.60) *$400,000
= $32,000
So there is an increase in Forward Contract Value by $32,000, since we have already booked $23,762.4, we will book the additional value $82,37.6 as follows:
Debit: Forward Contract a/c $8,237.6
Credit: Gain on Forward Contact $8,237.6
So, the Firm Commitment value has also increased from 0.60(Aug 1) to 0.68
Increase in value = (0.68-0.60) *$400,000 = $32,000
As we have already booked a liability of $11,881.2, we will be book the additional increase in value of $20,118.8 as follows
Debit: Loss on Firm Commitment a/c $20,118.8
Credit: Firm Commitment $20,118.8
So, its effect on Net Income is as follows
Debit: Gain on Forward Contract a/c $8,237.6
Debit: Retained Earnings a/c $11,881.2
Credit: Loss on Firm Commitment $20,118.8
So the total effect on Net income is 0, as on Sept 30 retained earnings has been credited by $11881.2 and on Oct 31, it has been debited by $11881.2... This is due to as there was no difference between spot rate & forward rate on August 1
As on 31st October, there is a debit balance of $32,000 in Forward Contract & credit balance of $32000 in Firm commitment.
Entry for Goods received & payment to foreign supplier is as follows
Debit: Inventory (At spot rate on Aug 1) $240,000
Debit: Firm Commitment (offset) $32,000
Credit: Forward contract (offset) $32,000
Credit: Cash (At forward rate on Aug 1) $240,000
The net cash outflow to foreign supplier is $240,000.
Assuming the staffers' personnel files have data on the Big Five, how could that data be used to inform the decisions about combining areas? What would be the profile of someone who could take on a lot more, versus someone who can only take on a little more?
Answer:
The big five characteristics include agreeableness, conscientiousness, extraversion, neuroticism and open to new experience.
Explanation:
The data captured within the big five characteristics can be used to inform the decisions about combining areas of expertise in job specifications.
The profile of someone who could take on a lot more will include all the characteristics in the big five except neuroticism.
Someone that is neurotic expresses anger easily and is prone to depression. This is a self conscious individual that is easily irritated.
Devon and Edmond enter into a contract for the closing of a sale of Devon's recording studio. When Edmond's schedule conflicts, he asks Ferdie to perform his duties at the closing. This transfer of dutiesa. a delegation.b. an assignment.c. prohibited.d. a negotiation.
Answer:
Option A; DELEGATION.
Explanation:
Delegation is an administrative process of getting things done by others by giving them responsibility.
Example is a manager asking a subordinate to take over his duties at a meeting. However, the person who delegated the work remains accountable for the outcome of the delegated work.
Delegation simply means empowering a subordinate to get a work done (i.e. a transfer of authority from a superior to a subordinate).
Since Edmond asks Ferdie to perform his duties at closing because of his own conflicting schedule, therefore, this transfer of duties is called DELEGATION.
Answer:
A
Explanation:
Delegation
Delegation is the act of transfering of authority or responsibility from a superior to a subordinate Indeed, delegation is the downward transfer of authority from a superior to a subordinate. Edmond for some reason was unavoidable absent due to schedule conflicts and delegates the work to Ferdie, to perform his duties at the closing
Becton Labs, Inc., produces various chemical compounds for industrial use. One compound, called Fludex, is prepared using an elaborate distilling process. The company has developed standard costs for one unit of Fludex, as follows:
Standard Quantity Standard Price
or Rate Standard Cost
Direct materials 2.00 ounces $ 30.00 per ounce $ 60.00
Direct labor 0.50 hours $ 14.00 per hour 7.00
Variable manufacturing overhead 0.50 hours $ 3.40 per hour 1.70
$ 68.70
During November, the following activity was recorded relative to production of Fludex:
a. Materials purchased, 10,000 ounces at a cost of $287,000.
b.
There was no beginning inventory of materials; however, at the end of the month, 3,000 ounces of material remained in ending inventory.
c.
The company employs 20 lab technicians to work on the production of Fludex. During November, they worked an average of 130 hours at an average rate of $12.00 per hour.
d.
Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $4,700.
e. During November, 3,400 good units of Fludex were produced .
Required:
1. For direct materials:
a.
Compute the price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)
b. The materials were purchased from a new supplier who is anxious to enter into a long-term purchase contract. Would you recommend that the company sign the contract?
Yes
No
2. For direct labor:
a.
Compute the rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)
b.
In the past, the 20 technicians employed in the production of Fludex consisted of 4 senior technicians and 16 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to save costs. Would you recommend that the new labor mix be continued?
Yes
No
3.
Compute the variable overhead rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)
Becton Labs' direct materials had a favorable price variance and an unfavorable quantity variance. Direct labor showed a favorable rate variance but an unfavorable efficiency variance. Variable manufacturing overhead revealed a favorable rate variance and an unfavorable efficiency variance.
Direct Materials Variances
The price variance for direct materials is calculated by comparing the standard cost to the actual cost paid for the materials. The standard cost for materials would be 2 ounces per unit of Fludex at $30 per ounce, totaling $60. With the company purchasing 10,000 ounces for $287,000, the actual price per ounce is $28.70. The price variance is thus (30 - 28.70) * 10,000 ounces, which equals a $13,000 favorable variance.
The quantity variance is found by taking the standard quantity for the actual production and comparing it to the actual quantity used. To produce 3,400 units, the standard quantity would be 3,400 units * 2 ounces/unit = 6,800 ounces. The actual quantity used is 10,000 ounces purchased minus 3,000 ounces ending inventory, equaling 7,000 ounces. The variance is then (6,800 - 7,000) * $30 per ounce, resulting in a $6,000 unfavorable variance.
To answer whether Becton Labs should enter into a long-term contract with the new supplier, we should consider both the favorable price variance and the potential reasons for the unfavorable quantity variance.
Direct Labor Variances
The rate variance for direct labor is calculated by comparing the standard rate per hour to the actual rate paid. With a standard rate of $14 per hour and an actual rate of $12 per hour, multiplied by the total hours worked (20 technicians * 130 hours), we have an $11,200 favorable rate variance.
The efficiency variance compares the standard hours for actual production to the actual hours worked. Standard hours are 0.5 hours per unit * 3,400 units, totaling 1,700 hours. Actual hours were 2,600 (20 * 130), resulting in a 900-hour difference. Multiplying by the standard rate, we get a $12,600 unfavorable efficiency variance.
Deciding on whether to continue with the new labor mix requires further investigation of the causes and effects of the unfavorable efficiency variance.
Variable Manufacturing Overhead Variances
The variable overhead rate variance is the difference between the standard rate and the actual rate. The standard rate is $3.40 per hour. With $4,700 spent for 2,600 hours, the actual rate is approximately $1.81. Therefore, the variance is a favorable variance.
The variable overhead efficiency variance is computed by comparing the standard hours to the actual hours, similar to direct labor. With 1,700 standard hours and 2,600 actual hours, the difference applied to the standard overhead rate results in an unfavorable efficiency variance.
Two goods, wool socks and shaved ice, have a cross price elasticity of demand equal to 0.4. Given this information, what can you tell about the nature of the relationship between these two goods?
0.4 cross price elasticity of demand means that there is direct effect of change of price of wool socks on the demand of shaved ice but they are not very closely related to each other.
Explanation:
Cross Price elasticity of demand is the concept in Economics which focuses on the effect of change of price of one good leading to the change of the demand of the other good, but in this matter, the other things have to kept the same which is also known as ceteris paribus.
For example when the price of coffee increases, the demand of tea will increase because the people will start preferring to have tea because of the increase in the price of coffee.