Answer:
D. The quantity of a good demanded is equal to the quantity supplied.
Explanation:
Deman will not change, but supply decrease. Demand will decrease.
Interest rates and decisions
Suppose that a firm is facing an upward-sloping yield curve and needs to borrow money to invest in production. Does this mean that the firm should consider borrowing only at short-term rates?
a. No, the firm needs to take the volatility of short-term rates into account.
b. No, an upward-sloping yield curve means that the firm will get a lower interest rate if it uses long-term financing
c. Yes, using short-term financing will give the firm the lowest possible interest rate over the life of the project.
Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market.
Scenario Impact on Yield Cost of Borrowing Money
from Bond Markets
ABC Real Estate is a commercial real estate firm that primarily uses short-term financing, while its competitors primarily use long-term financing. Interest rates have recently increased dramatically. Decrease More expensive Ziffy Corp.’s credit rating was downgraded from AAA to A. Bellgotts Inc. has increased its market share from 15% to 37% over the last year while maintaining a profit margin greater than the industry average. Previously, Ferro Co. had only used short-term debt financing. The company now finances its current assets such as inventories and receivables with short-term debt, and it finances its fixed assets such as buildings and equipment with long-term debt.
Answer:
a. No, the firm needs to take the volatility of short-term rates into account.
Explanation:
Short term interest rates are more volatile than the long term interest rates. If the company chooses to finance its operations solely from short term financing than it will need to incorporate the affect of volatility in the short term interest rates to identify the net returns. The volatility should be calculated with the risk factor and required rate of return of the funds.
Faux Stamp company contemplating the acceptance of a special order has the following cost behavior, based on production of 10,000 units. The company is currently operating at 70% of its manufacturing capacity. A customer wants to purchase 2,000 units at a special unit price of $25. The normal price per unit is $50. Direct materials are $4 per unit, direct labor is $10 per unit, variable overhead is $8 per unit, and fixed overhead is $60,000 total. Perform an incremental analysis to determine the effect on net income if the special order is accepted, and decide whether management should accept the special order. What is the impact on net income if you accept the order?
Answer:
Management should accept the order because it increases net income by $6,000.
Explanation:
Giving the following information:
Number of units= 2,000
Unit selling price= $25
Direct material= $4
Direct labor= $10
Variable overhead= $8
Because it is a special order and there is unused capacity, we won't take into account the fixed costs.
To calculate the effect on income, we need to use the following formula:
Effect on income= number of units*unitary contribution margin
Effect on income= 2,000*(25 - 4 - 10 - 8)
Effect on income= $6,000 increase
Management should accept the order because it increases net income by $6,000.
Essence of Skunk Fragrances, Ltd., sells 5,750 units of its perfume collection each year at a price per unit of $445. All sales are on credit with terms of 1/10, net 40. The discount is taken by 35 percent of the customers.
Required:
What is the amount of the company's accounts receivable?
Answer:
The amount of the company's accounts receivable is $2,558,750.
Explanation:
Accounts Receivables are amounts owed to the company. They are measured at amounts that the company expects to be entitled to after a sale.
The sale journal is :
Debit : Accounts Receivables (5,750 units x $445) $2,558,750
Credit : Sales Revenue (5,750 units x $445) $2,558,750
nswer the question on the basis of the following cost data. Output Average Fixed Cost Average Variable Cost 1 $50.00 $100.00 2 25.00 80.00 3 16.67 66.67 4 12.50 65.00 5 10.00 68.00 6 8.37 73.33 7 7.14 80.00 8 6.25 87.50 If the firm closed down in the short run and produced zero units of output, its total cost would be Multiple Choice $0. $50. $150. $100.
Answer:
The correct answer is $50.
Explanation:
When the company produces zero units, the only costs that it would incur will be the fixed costs. We need to determine the total fixed costs:
Total fixed costs= Unitary fixed costs*number of units
Total fixed costs= 50*1= $50
Total fixed costs= 25*2= $50
Total fixed cost= 16.67*3= $50
Total fixed cost= 12.50*4= $50
And so on...
On a unitary basis, the fixed costs decrease with production. On a total basis, it remains constant.
Production= 0
Fixed cost= $50
A $64,000 machine with a 6-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $82,000, with a 10-year class life. The new machine will not increase sales, but will decrease operating costs by $9,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the incremental annual cash flow associated with the project
Answer:
$6,779
Explanation:
Calculation to determine the incremental annual cash flow associated with the project
First step is to calculate the depreciation
Depreciation=[($64,000/6 years)-($82,000/10 years)
Depreciation=$10,667-$8,200
Depreciation=$2,467
Now let calculate the Incremental annual cash flow
Incremental annual cash flow ={($9,000-$2,467)
-[($9,000-$2,467)*34%]+$2,467}
Incremental annual cash flow =[($6,533-$2,221)+$2,467]
Incremental annual cash flow =$4,312+$2,467
Incremental annual cash flow=$6,779
Therefore the incremental annual cash flow associated with the project is $6,779
The _____ the distance between the time of the event and the time the client knows about the events, the greater _____. greater; the probability of achieving the project goals greater; the likelihood of satisfying the client lesser; the client's doubt in the project team's ability to do the task lesser; the frustration of the client greater; the client's frustration and mistrust
Answer:
greater; the client's frustration and mistrust.
Explanation:
Project management can be defined as the process of designing, planning, developing, leading and execution of a project plan or activities using a set of skills, tools, knowledge, techniques and experience to achieve the set goals and objectives of creating a unique product or service.
The fundamentals of Project Management includes;
1. Project initiation
2. Project planning
3. Project execution
4. Monitoring and controlling of the project
5. Adapting and closure of project.
It is very important and essential that project managers in various organizations, businesses and professions adopt the aforementioned fundamentals in order to successfully achieve their aim, objectives and goals set for a project.
Generally, projects are considered to be temporary because they usually have a start-time and an end-time to complete, execute or implement the project plan.
The greater the distance between the time of the event and the time the client knows about the events, the greater the client's frustration and mistrust. Thus, project managers are advised to reduce a client's frustration and enhance trust by reducing the distance between the time of the event and the time the client knows about the events i.e timely dissemination of informations to the client.
Break-even sales and sales to realize operating incomeFor the current year ended March 31, Cosgrove Company expects fixed costs of $465,000, a unit variable cost of $62, and a unit selling price of $92.a. Compute the anticipated break-even sales (units).fill in the blank 1 unitsb. Compute the sales (units) required to realize operating income of $108,000.fill in the blank 2 units
Answer:
Break even point in units=15,500 units
Units to achieve target profit=19,100 units
Explanation:
Break-even point is the level of activity at which a firm must operate such that its total revenue will equal its total costs. At this point, the company makes no profit or loss because the total contribution exactly equals the total fixed costs
Break-even point (in units) is calculated using this formula:
Break even point in units = Total general fixed cost/ (selling price - Variable cost)
Break even point in units= $465,000/(92-62)=15,500 units
Units to achieve target profit = (Total general fixed cost for the period + target profit)/ contribution per unit
Units to achieve target profit of 108,000 = ($465,000+ 108,000)/ (92-62)=19,100 units
Break even point in units=15,500 units
Units to achieve target profit=19,100 units
Mccabe Corporation uses the weighted-average method in its process costing. The following data pertain to its Assembly Department for September. Percent Complete Units Materials Conversion Work in process, September 1 1,200 55 % 10 % Units started into production during September 8,600 Units completed during September and transferred to the next department 7,700 Work in process, September 30 2,100 75 % 25 % Required: Compute the equivalent units of production for both materials and conversion costs for the Assembly Department for September using the weighted-average method.
Answer and Explanation:
The computation of the equivalent units of production for both materials and conversion costs is given below:
For material
= Units completed + ending work in process × completion percentage
= 7,700 + 2,100 × 0.75
= 9,275 units
And, for conversion cost
= Units completed + ending work in process × completion percentage
= 7,700 + 2,100 × 0.25
= 8,225 units
What do Media Salespeople do?
A. They sell space at sport events.
B. They sell advertising space to different companies.
C. They sell-media related products online.
D. They sell websites to media companies.
Answer:
correct answer is B-they sell advertisement space to different companies
Explanation:
Producer surplus is best defined as _________________. Select the correct answer below: the profit of producers when they make more goods than are demanded the profit of producers when there are too many producers for a certain demand in a market the profit that producers make above the cost of production the intangible profits producers make in addition to the goods they sell
Answer:
the profit that producers make above the cost of production.
Explanation:
Producer surplus is best defined as the profit that producers make above the cost of production.
Basically, it is the total amount of money that a particular producer of goods and services benefits (gains) from selling at the market price.
In Economics, there are primarily two (2) factors which affect the availability and the price at which goods and services are sold or provided, these are demand and supply.
The law of demand states that, the higher the demand for goods and services, the higher the price it would be sold all things being equal. On the other hand, law of supply states that the higher the price of goods and services, the lower the supply.
School band members need to raise money for new uniforms. Some members want to sell energy drinks at a football game, but others want to organize a car wash in the school parking lot. Based on the concept of scarcity, which thoughts must drive their decision making process?
Answer:
the answer is D. Are there enough volunteers to work a car wash?
Explanation:
just took quiz
Answer:
D. Are there enough volunteers to work a car wash?
Explanation:
Kier Company issued $700,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 4-year term to maturity. The bonds have a 6.50% stated rate of interest and interest is payable in cash on December 31 each year. Based on this information alone, what are the amounts of interest expense and cash flows from operating activities, respectively, that will be reported in the financial statements for the year ending December 31, Year 1
Answer: Interest expense = $45500
Cash outflow = $45500
Explanation:
Based on the information that were given in the question, the amounts of interest expense and cash flows from operating activities, that will be reported in the financial statements for the year ending December 31, Year 1 will be calculated thus:
Interest expense = $700,000 × 6.50%
= $700,000 × 0.065
= $45500
The interest expense of $45500 will be reported on December 31, Year 1 in the income statement and will also be reported in the cash outflow as well. Therefore,
Interest expense = $45500
Cash outflow = $45500
if your credit card is $10,275 and you pay the full balance before the bill is due, how much will you pay in interest
Answer:
you do not pay interest on any money that does not carry over till the next month. if your balance is zero theres no interest
Explanation:
you only pay on a balance the % per dollar to the card . so if the card charges 10% on 100$ if your balance is 100$ you will owe 110$ on your next billing cycle
Blossom Company has the following inventory data: July 1 Beginning inventory 35 units at $22 $770 7 Purchases 124 units at $24 2976 22 Purchases 18 units at $26 468 $4214 A physical count of merchandise inventory on July 30 reveals that there are 57 units on hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is
Answer:
Ending invenory= $1,298
Explanation:
Giving the following information:
July 1 Beginning inventory 35 units at $22 $770
July 7 Purchases 124 units at $24 $2,976
July 22 Purchases 18 units at $26 $468
A physical count of merchandise inventory on July 30 reveals that there are 57 units on hand.
To calculate the ending inventory using the LIFO (last-in, first-out) method, we need to use the cost of the firsts units incorporated into inventory:
Ending inventory= 35*22 + 22*24
Ending invenory= $1,298
4. Suppose the spot Yuan/dollar exchange rate is 6.79. Sue, a Chinese national, has 10,000 Yuan that she wants to invest in a U.S. asset that promises an annual interest of 7 percent. If the expected exchange rate (Yuan/dollar) after a year is 7.2, how much will Sue earn in Yuan
Answer:
Spot exchange rate (Yaun / Dollar) = 6.79 > Therefore, exchanging Yuan for Dollar: 10,000 Yuan.
Explanation:
Yuan/Dollar existing exchange rate is 6.79 Sue has 10,000 Yuan which is converted to 10,000 / 6.79
Q 22.14: The Eccleston Company has the following budgeted sales: January $40,000, February $60,000, and March $50,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% of the amount is collected in the month of sale, and 50% in the next month. The total expected cash receipts during March are
Answer:
Total cash collection March= $53,000
Explanation:
Giving the following information:
Sales:
February $60,000
March $50,000.
Sales in cash= 40%
Sales on account= 60% (50% of the amount is collected in the month of sale, and 50% in the next month)
We need to calculate the cash collection for March:
Cash collection March:
Sales on Cash March= (50,000*0.4)= 20,000
Sales on account March= (50,000*0.6)*0.5= 15,000
Sales on account February= (60,000*0.6)*0.5= 18,000
Total cash collection March= $53,000
What do we call the principle that costs of production will increase by the inefficient reallocation of specialized resources for the production of additional goods for which there sources are not well suited?
A the law of natural economics
B the law of market regulation
C the law of macro-economic control
D the law of increasing opportunity costs
Answer:
the law of market regulation
Explanation:
i did this in my business class
The following information is taken from the 2020 general ledger of Swisher Company. Rent Rent expense $48,000 Prepaid rent, January 1 5,900 Prepaid rent, December 31 9,000 Salaries Salaries and wages expense $54,000 Salaries and wages payable, January 1 10,000 Salaries and wages payable, December 31 8,000 Sales Sales revenue $175,000 Accounts receivable, January 1 16,000 Accounts receivable, December 31 7,000 In each case, compute the amount that should be reported in the operating activities section of the statement of cash flows under the direct method. Cash payments for rent $ Cash payments for salaries $ Cash receipts from customers
Answer:
See below
Explanation:
1. Cash payments
= Rent expense + Prepaid rent, December 31 - Prepaid rent January 1
= $48,000 + $9,000 - $5,900
= $51,100
2. Cash payments for salaries
= Salaries and wages expense + salaries and wages payable January 1, - salaries and wages payable December 31
= $54,000 + $10,000 - $8,000
= $56,000
3. Cash receipts from customers
= Sales revenue + Accounts receivables January 1 - Accounts receivables, December 31
= $175,000 + $16,000 - $7,000
= $184,000
Hsung Company accumulates the following data concerning a proposed capital investment: cash cost $226,445, net annual cash flows $40,500, and present value factor of cash inflows for 10 years is 5.89 (rounded). (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45).) Determine the net present value, and indicate whether the investment should be made.
Answer:
Hsung Company
a. The net present value is:
= $12,100.
b. Since the investment could yield a net present value of $12,100, the investment should be made.
Explanation:
a) Data and Calculations:
Cash cost of proposed capital investment = $226,445
Net annual cash inflows = $40,500
Present value factor of cash inflows for 10 years = 5.89 (rounded)
Present value of net annual cash inflows = $238,545 ($40,500 * 5.89)
The net present value of the proposed capital project = Present value of net annual cash inflows minus the initial investment cost
= $12,100 ($238,545 - $226,445)
Answer:
12100
Explanation:
40500*5.89=238545
238545-226445=12100
12100
Required: 1-a. Prepare a contribution format income statement for the game last year. 1-b. Compute the degree of operating leverage. 2. Management is confident that the company can sell 41,796 games next year (an increase of 9,396 games, or 29%, over last year). Given this assumption: a. What is the expected percentage increase in net operating income for next year
Question Completion:
Magic Realm, Inc., has developed a new fantasy board game. The company sold 32,400 games last year at a selling price of $67 per game. Fixed expenses associated with the game total $567,000 per year, and variable expenses are $47 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor. Required: 1-a. Prepare a contribution format income statement for the game last year. 1-b. Compute the degree of operating leverage. 2. Management is confident that the company can sell 41,796 games next year (an increase of 9,396 games, or 29%, over last year). Given this assumption: a. What is the expected percentage increase in net operating income for next year?
Answer:
Magic Realm, Inc.
1-a. Contribution-Format Income Statement
For the last year ended December 31
Sales revenue $2,170,000 (32,400 * $67)
Variable costs 1,522,800 (32,400 * $47)
Contribution $647,200 (32,400 * $20)
Fixed expenses 567,000
Net operating income $80,200
1-b. Degree of Operating Leverage = Contribution/Net operating income
= 8.07
The expected percentage increase in net operating income for next year
= 235.3%
Explanation:
a) Data and Calculations:
Last year's figures:
Sales = 32,400 games
Selling price per game = $67
Variable cost per game = $47
Fixed expenses = $567,000 per year
1-a. Contribution-Format Income Statement
For the last year ended December 31
Sales revenue $2,170,000 (32,400 * $67)
Variable costs 1,522,800 (32,400 * $47)
Contribution $647,200 (32,400 * $20)
Fixed expenses 567,000
Net operating income $80,200
1-b. Degree of Operating Leverage = Contribution/Net operating income
= $647,200/$80,200 = 8.07
2. Next year:
Sales = 41,796 games
Sales revenue = $2,800,332 (41,796 * $67)
Variable cost = 1,964,412 (41,796 * $47)
Contribution = $835,920
Fixed costs = 567,000
Net operating income $268,920
The expected percentage increase in net operating income for next year
Increase in net operating income = $188,720 ($268,920 - $80,200)
= $188,720/$80,200 * 100 = 235.3%
Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below: Puget Sound Divers Planning Budget For the Month Ended May 31 Budgeted diving-hours (q) 350 Revenue ($390.00q) $ 136,500 Expenses: Wages and salaries ($11,100 + $120.00q) 53,100 Supplies ($5.00q) 1,750 Equipment rental ($2,500 + $25.00q) 11,250 Insurance ($4,100) 4,100 Miscellaneous ($520 + $1.42q) 1,017 Total expense 71,217 Net operating income $ 65,283 During May, the company’s actual activity was 340 diving-hours. Required: Prepare a flexible budget for May. (Round your answers to the nearest whole number.)
Answer:
Puget Sound Divers
Puget Sound Divers Planning and Flexible Budgets
For the Month Ended May 31
Planning Flexible
Budget Budget
Budgeted diving-hours (q) 350 340
Revenue ($390.00q) $ 136,500 $132,600
Expenses:
Wages and salaries 53,100 51,900
Supplies ($5.00q) 1,750 1,700
Equipment rental 11,250 11,000
Insurance ($4,100) 4,100 4,100
Miscellaneous 1,017 1,003
Total expense 71,217 69,703
Net operating income $ 65,283 $ 62,897
Explanation:
a) Data and Calculations:
Puget Sound Divers Planning Budget
For the Month Ended May 31
Budgeted diving-hours (q) 350
Revenue ($390.00q) $ 136,500
Expenses:
Wages and salaries ($11,100 + $120.00q) 53,100
Supplies ($5.00q) 1,750
Equipment rental ($2,500 + $25.00q) 11,250
Insurance ($4,100) 4,100
Miscellaneous ($520 + $1.42q) 1,017
Total expense 71,217
Net operating income $ 65,283
Flexing the budget with actual activity of 340:
Revenue ($390.00q) $ 136,500/350 * 340 = $132,600
Expenses:
Wages and salaries ($11,100 + $120.00 * 340) = $51,900
Supplies ($5.00q) 1,750/350 * 340 = $1,700
Equipment rental ($2,500 + $25.00 * 340 = $11,000
Miscellaneous ($520 + $1.42 * 340 = $1,003
Sunland Company just began business and made the following four inventory purchases in June: June 1 153 units $1071 June 10 204 units 1632 June 15 204 units 1836 June 28 153 units 1530 $6069 A physical count of merchandise inventory on June 30 reveals that there are 204 units on hand. Using the average cost method, the amount allocated to the ending inventory on June 30 is
Answer:
the ending inventory is $1,734
Explanation:
The computation of the amount allocated to the ending inventory is shown below:
But before that the average per unit is
= Total amount ÷ total units
= $6,069 ÷ (153 + 204 + 204 + 153)
= $8.5
Since the ending inventory units is 204 units
So, the ending inventory is
= $8.5 ×204 units
= $1,734
hence, the ending inventory is $1,734
Problem 8-27A (Static) Computing standard cost and analyzing variances LO 8-5, 8-6 Spiro Company manufactures molded candles that are finished by hand. The company developed the following standards for a new line of drip candles. Amount of direct materials per candle 1.6 pounds Price of direct materials per pound $ 1.50 Quantity of labor per unit 1 hour Price of direct labor per hour $ 20 /hour Total budgeted fixed overhead $ 390,000 During Year 2, Spiro planned to produce 30,000 drip candles. Production lagged behind expectations, and it actually produced only 24,000 drip candles. At year-end, direct materials purchased and used amounted to 40,000 pounds at a unit price of $1.35 per pound. Direct labor costs were actually $18.75 per hour and 26,400 actual hours were worked to produce the drip candles. Overhead for the year actually amounted to $330,000. Overhead is applied to products using a predetermined overhead rate based on estimated units.
This question asks us to:
a. Determine the standard cost per candle for direct products, direct labor, and overhead.
b. Calculate the total standard cost of one drip candle.
c. Determine the direct materials, direct labor, and overhead actual costs per candle.
d. The total actual cost of each candle
Answer:
Explanation:
a.
Cost Computation Standard cost per unit
Direct material [tex]\$1.50 \times 1.6[/tex] 2.4
Direct Labor [tex]\$20 \times 1[/tex] 20
Overhead [tex]\dfrac{\$390,000}{30000}[/tex] 13
b.
To find the total average standard cost for 1 drip candle
The total standard cost per dip candle = $(2.4+20+13)
=$35.40
c. The actual cost per candle for direct materials, direct labor, and overhead can be computed as:
Cost Computation Standard cost per unit
Direct material [tex](\dfrac{40000}{24000}\times 1.35)[/tex] 2.25
Direct Labor [tex]\dfrac{26400}{24000} \times 18.75[/tex] 20.63
Overhead [tex]\dfrac{\$330,000}{24000}[/tex] 13.75
d. The total actual cost per candle = $(2.25 + 20.63 + 13.75)
= $36.63
Satka Fishing Expeditions, Inc., recorded the following transactions in July
1. Provided an ocean fishing expedition for a credit customer, payment is due August 10
2. Paid Marine Service Center for repairs to boats performed in June. (In June, Satka Fishing Expeditions, Inc., had received and properly recorded the invoice for these repairs.)
3. Collected the full amount due from a credit customer for a fishing expedition provided in June.
4. Recelved a bill from Baldy's Bait Shop for bait purchased and used in July. Payment is due August 3
5. Purchased a new fishing boat on July 28, paying part cash and issuing a note payable for the balance. The new boat is first scheduled for use on August 5
6. Declared and paid a cash dividend on July 31
Indicate the effects that each of these transactions will have upon the following six total amounts in the company's financial statements for the month of July.
Choose I for increase, D for decrease, and NE for no effect in the column headings below to show the effects of the above transactions.
Answer:
Satka Fishing Expeditions, Inc.
Indication of the effects that each of these transactions will have upon the following six total amounts in the company's financial statements for the month of July:
Transaction Income Statement Balance Sheet
Revenue - Expenses = Net Income Assets = Liabilities + Equity
1. I NE I I I
Accounts Receivable and Sales Revenue
2. NE NE NE D D NE
Accounts Payable and Cash
3. NE NE NE NE (I and D) NE NE
Cash and Accounts Receivable
4. NE I D NE I D
Supplies Expenses and Accounts Payable
5. NE NE NE I/D I NE
Boat Purchased, Cash and Note Payable
6. NE NE D NE NE D
Retained Earnings and Cash
Explanation:
a) Data and Transaction Analysis:
1. Accounts Receivable and Sales Revenue
2. Accounts Payable and Cash
3. Cash and Accounts Receivable
4. Supplies Expenses and Accounts Payable
5. Boat Purchased, Cash and Note Payable
6. Retained Earnings and Cash
b)
Key:
I = increase
D = decrease
NE = no effect
No. 3 will increase the assets (cash) by the amount and decrease the assets (accounts receivable) by the same amount. Overall, there will be no effect as the increase cancels the decrease equally.
is Company uses an ABC system. Which of the following statements is/are correct with respect to ABC? I. All cost allocation bases used in ABC systems are cost drivers. II. ABC systems are useful in manufacturing, but not in merchandising or service industries. III. ABC systems can eliminate cost distortions because ABC develops cost drivers that have a cause-and-effect relationship with the activities performed.
Answer:
I. All cost allocation bases used in ABC systems are cost drivers.
III. ABC systems can eliminate cost distortions because ABC develops cost drivers that have a cause-and-effect relationship with the activities performed.
Explanation:
I. is TRUE since the basis of ABC costing is determining, quantifying, and using cost drivers to allocate overhead costs.
III, is TRUE since the advantage of ABC costing is allocating costs based on cause and effect relationships.
II. ABC systems are useful in manufacturing, but not in merchandising or service industries. ⇒ FALSE
ABC costing can also be used for merchandising and service industries, although, it is mostly used in manufacturing businesses.Budgeted amount: 0.5 machine hours per (MH) unit Variable overhead rate is $15 per MH Fixed overhead rate is $40 per MH Budgeted fixed overhead is $600,000 Actual amounts: Variable overhead incurred is $190,000 Fixed overhead incurred is $630,000 MH used is 11,000 Actual output is 20,000 units What is the Fixed Overhead Volume Variance
Answer:
Fixed overhead volume variance = $200,000 Favorable
Explanation:
The fixed overhead volume variance is the difference between the actual and budgeted production unit multiplied by the standard fixed production overhead cost per unit
Units
Budgeted units 15,000
Actual units 20,000
Variance 5,000
Fixed overhead rate per unit × $40
Fixed overhead volume variance $200,000
Last month when Holiday Creations, Inc., sold 41,000 units, total sales were $282,000, total variable expenses were $214,320, and fixed expenses were $36,900. Required: 1. What is the company’s contribution margin (CM) ratio? 2. What is the estimated change in the company’s net operating income if it can increase total sales by $1,700? (Do not round intermediate calculations.)
Answer:
1. Company’s contribution margin (CM) ratio = 24%
2. Estimated change in the company’s net operating income = $408
Explanation:
1. What is the company’s contribution margin (CM) ratio?
Contribution margin (CM) = Total sales - Total variable expenses = $282,000 - $214,320 = $67,680
Contribution margin (CM) ratio = Contribution margin / Total sales = $67,680 / $282,000 = 0.24, or 24%
2. What is the estimated change in the company’s net operating income if it can increase total sales by $1,700? (Do not round intermediate calculations.)
Estimated change in the company’s net operating income = Increase total in sales * Contribution margin (CM) ratio = $1.700 * 24% = $408
Assume that last year, Cliff Consulting, a firm in Berkeley, CA, had the following contribution income statement:
CLIFF CONSULTING
Contribution Income Statement
For the Year Ended September 30
Sales revenue $ 1,200,000
Variable costs
Cost of services $ 480,000
Selling and administrative 60,000 540,000
Contribution margin 660,000
Fixed Costs -selling and administrative 440,000
Before-tax profit 220,000
Income taxes (21%) 46,200
After-tax profit $ 173,800
(a) Determine the annual break-even point in sales revenue.
(b) Determine the annual margin of safety in sales revenue.
(c) What is the break-even point in sales revenue if management makes a decision that increases fixed costs by $80,000?
(d) With the current cost structure, including fixed costs of $440,000, what dollar sales revenue is required to provide an after-tax net income of $250,000?
(e) Prepare an abbreviated contribution income statement to verify that the solution to requirement (d) will provide the desired after-tax income.
Answer:
Cliff Consulting
a) Annual Break-even point in sales revenue is:
= $800,000
b) Annual margin of safety is:
= $400,000
c) If fixed costs increases by $80,000, the break-even point in sales revenue
= $945,455
d) Dollar Sales Revenue required to provide an after-tax net income of $250,000 is:
= $1,375,375
e) Abbreviated Contribution Income Statement
Sales revenue $1,375,375
Variable costs = 618,919
Contribution = $756,456
Fixed costs 440,000
Before tax income 316,456
Income tax (21%) 66,458
After-tax income $249,998
equivalent to $250,000
Explanation:
a) Data and Calculations:
CLIFF CONSULTING
Contribution Income Statement
For the Year Ended September 30
Sales revenue $ 1,200,000
Variable costs
Cost of services $ 480,000
Selling and administrative 60,000 540,000
Contribution margin 660,000
Fixed Costs -selling and administrative 440,000
Before-tax profit 220,000
Income taxes (21%) 46,200
After-tax profit $ 173,800
Break-even point in sales revenue = Fixed costs/Contribution margin ratio
= $440,000/0.55
= $800,000
Annual margin of safety = normal sales revenue minus break-even sales revenue
= $1,200,000 - $800,000
= $400,000
Contribution margin ratio = contribution margin/sales revenue * 100
= $660,000/$1,200,000 * 100 = 55%
If fixed costs increases by $80,000, the break-even point in sales revenue
= ($440,000 + $80,000)/0.55 = $520,000/0.55 = $945,455
To achieve after-tax net income of $250,000, the required dollar sales revenue:
Net income after-tax = $250,000
Tax rate = 21%
Net income before tax = $250,000/1-21%
= $250,000/0.79 = $316,456
Sales dollars to achieve target profit = (Fixed costs + Target Profit/1 - 0.21)/Contribution margin
= ($440,000 + ($250,000/0.79))/0-55
= ($440,000 + $316,456)/0.55
= $756,456/0.55
= $1,375,375
Abbreviated Contribution Income Statement
Sales revenue $1,375,375
Variable costs = 618,919
Contribution = $756,456
Fixed costs 440,000
Before tax income 316,456
Income tax (21%) 66,458
After-tax income $249,998
After-tax income is equivalent to $250,000
Javier is a department manager at a big box store. Over the last month, sales have slumped, and he has lots of inventory going unsold. Now it’s time to put in his orders to restock for next month. a. How, if at all, should Javier adjust his orders for new products? Javier should place his orders according to his initial estimates. The inventory buildup is not an equilibrium. Javier should respond by cutting back on his orders. Javier should wait and see what happens next month, and if his inventory runs out, then he can place an order. b. How will his suppliers respond to this decision? They will produce according to their initial demand estimates. They will cut back on production. They will not be affected. They will expand their output. c. Most other businesses are experiencing a similar decline in sales. Which
Question Completion:
c. Most other businesses are experiencing a similar decline in sales. Which of the following are is likely to occur as a result of the decline in sales?
Aggregate expenditure will fall.
Aggregate expenditure will rise.
Output will not be affected, and eventually, sales will rise to bring the economy back to equilibrium.
Output will fall in response to the decline, as businesses adjust their production.
Answer:
a. How Javier should adjust his orders for new products:
The inventory buildup is not an equilibrium. Javier should respond by cutting back on his orders.
b. How the suppliers will respond to Javier's decision:
They will cut back on production.
c. The consequences of the decline in sales are:
Aggregate expenditure will fall.
Output will fall in response to the decline, as businesses adjust their production.
Explanation:
Aggregate Expenditure determines the total amount spent by firms and households on goods and services during a specific period of time. Inventory management is one of the duties of Javier at the department store. This involves ordering, warehousing, and processing inventory to achieve maximum customer satisfaction.
Using the attached sheet (or a spreadsheet if you prefer), prepare a classified balance sheet for the ABC, LLC for the year ended December 31, 2020 using the following data.
Accounts Payable 4,000
Accounts Receivable 3,000
Cash 20,000
Common Stock 1,000
Land 25,000
Notes Payable (due in 5 years) 10,000
Paid in Capital in Excess of Par - Common Stock 17,000
Paid in Capital in Excess of Par - Preferred Stock 2,000
Preferred Stock 8,000
Retained Earnings 7,000
Salaries Payable 5,000
Treasury Stock 6,000
Answer:
ABC, LLC
Classified balance sheet as at December 31, 2020
$
ASSETS
Non - Current Assets
Land 25,000
Total Non - Current Assets 25,000
Current Assets
Accounts Receivable 3,000
Cash 20,000
Total Current Assets 23,000
TOTAL ASSETS 48,000
EQUITY AND LIABILITIES
LIABILITIES
Non - Current Liabilities
Notes Payable (due in 5 years) 10,000
Total Non - Current Liabilities 10,000
Current Liabilities
Accounts Payable 4,000
Salaries Payable 5,000
Total Current Liabilities 9,000
TOTAL LIABILITIES 19000
EQUITY
Common Stock 1,000
Preferred Stock 8,000
Treasury Stock 6,000
Retained Earnings 7,000
Paid in Capital in Excess of Par - Common Stock 17,000
Paid in Capital in Excess of Par - Preferred Stock 2,000
TOTAL EQUITY 41,000
TOTAL EQUITY AND LIABILITIES 60,000
Explanation:
A classified balance sheet shows the Assets, Liability and Equity Balances in their respective categories as shown above.