Each case is independent of the others. Assume that only one product is being sold by each company: Units Sold Sales in Dollars Total Variable
Company A: 10,000 $200,000 $100,000
Company B: 5,000 $50,000 ?
Company C: 8,000 ? $64,000
Company D: ? $120,000 $72,000
To fill in the missing amounts, we can use the formula for total variable cost:
Total Variable Cost = Total Quantity of Output x Variable Cost Per Unit of OutputWe can also rearrange this formula to find the other variables:
Total Quantity of Output = Total Variable Cost / Variable Cost Per Unit of OutputVariable Cost Per Unit of Output = Total Variable Cost / Total Quantity of OutputUsing these formulas, we can calculate the missing amounts as follows:
Company B: Total Variable Cost = 5,000 x Variable Cost Per Unit of OutputVariable Cost Per Unit of Output = Sales in Dollars / Units Sold = $50,000 / 5,000 = $10Total Variable Cost = 5,000 x $10 = $50,000Company C: Variable Cost Per Unit of Output = Total Variable Cost / Total Quantity of Output = $64,000 / 8,000 = $8Sales in Dollars = Units Sold x Variable Cost Per Unit of Output + Fixed CostAssuming a fixed cost of $16,000 (based on Company A's data), we can calculate:Sales in Dollars = 8,000 x $8 + $16,000 = $80,000Company D: Variable Cost Per Unit of Output = Total Variable Cost / Total Quantity of OutputTotal Quantity of Output = Total Variable Cost / Variable Cost Per Unit of Output = $72,000 / Variable Cost Per Unit of OutputSales in Dollars = Units Sold x Variable Cost Per Unit of Output + Fixed CostAssuming a fixed cost of $48,000 (based on Company A's data), we can calculate:
$120,000 = ($72,000 / Variable Cost Per Unit of Output) x Variable Cost Per Unit of Output + $48,000Solving for Variable Cost Per Unit of Output, we get:
Variable Cost Per Unit of Output = ($120,000 - $48,000) / ($72,000 / Variable Cost Per Unit of Output)Variable Cost Per Unit of Output^2 = ($120,000 - $48,000) x ($72,000)Variable Cost Per Unit of Output^2 = 5,184,000Variable Cost Per Unit of Output = √5,184,000Variable Cost Per Unit of Output ≈ $2.28Total Quantity of Output = $72,000 / $2.28 ≈ 31.579About ProductProducts are goods or services that can be traded. In marketing, a product is anything that can be offered to a market and can satisfy a want or need. At the retail level, products are often referred to as merchandise.
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Dane Company budgets total overhead cost of $7,200,000. The company allocates overhead cost based on 100,000 budgeted direct labor hours. The single plantwide overhead rate is:
$36 per MH.
$36 per DLH.
$72 per MH.
$72 per DLH.
None of the above.
The single plantwide overhead rate is $72 per MH.
To calculate the plantwide overhead rate, we need to divide the total overhead cost by the total budgeted direct labor hours. In this case, Dane Company budgets a total overhead cost of $7,200,000 and allocates it based on 100,000 budgeted direct labor hours.
Plantwide overhead rate = Total overhead cost / Total budgeted direct labor hours
Plantwide overhead rate = $7,200,000 / 100,000
Plantwide overhead rate = $72 per MH (per machine hour)
Therefore, the correct answer is $72 per MH.
This means that for every machine hour worked, the company applies an overhead cost of $72.
The other options, $36 per MH, $36 per DLH, and $72 per DLH, are incorrect because they do not accurately reflect the calculation based on the given information.
In conclusion, the single plantwide overhead rate for Dane Company is $72 per MH. This rate is used to allocate overhead costs based on machine hours and helps the company determine the total overhead cost associated with its manufacturing operations.
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barton industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. note that the firm's marginal tax rate is 25%. assume that the firm's cost of debt, rd, is 10.8%, the firm's cost of preferred stock, rp, is 10.0% and the firm's cost of equity is 13.4% for old equity, rs, and 13.7% for new equity, re. what is the firm's weighted average cost of capital (wacc1) if it uses retained earnings as its source of common equity? do not round intermediate calculations. round your answer to two decimal places.
If the firm uses retained earnings as its source of common equity, the firm's weighted average cost of capital (WACC) would be approximately 10.11%.
To calculate the weighted average cost of capital (WACC), we need to determine the cost of each component of the firm's capital structure and weight them accordingly.
Given:
Debt: 40%
Preferred Stock: 5%
Common Equity (retained earnings): 55%
Cost of Debt (rd): 10.8%
Cost of Preferred Stock (rp): 10.0%
Cost of Old Equity (rs): 13.4%
Cost of New Equity (re): 13.7%
Marginal tax rate: 25%
First, let's calculate the after-tax cost of debt:
After-Tax Cost of Debt (rd * (1 - tax rate)):
10.8% * (1 - 0.25) = 8.1%
Next, we can calculate the weights for each component of the capital structure:
Weight of Debt (WD): 40%
Weight of Preferred Stock (WP): 5%
Weight of Common Equity (WC): 55%
Now, we can calculate the weighted average cost of capital (WACC) using the formula:
WACC = (WD * rd) + (WP * rp) + (WC * re)
WACC = (0.4 * 8.1%) + (0.05 * 10.0%) + (0.55 * 13.4%)
WACC = 3.24% + 0.5% + 7.37%
WACC = 10.11%
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Consider an investment costs $ 100,000 and has Cash inflow of $25,000 for 5 years. The а every year reemited Payback return is 9%, and out off. is 4 years. What is the discounted payback period?
The discounted payback period is 4 years.
To calculate discounted payback period, we need to calculate the present value of each cash inflow.
Present value of a cash inflow = Cash inflow ÷ (1 + r)ⁿ
where, r = Payback return
n = number of years
Let's calculate the present value of cash inflow for each year:
Year 1: $25,000 ÷ (1 + 0.09)¹ = $22,935.78
Year 2: $25,000 ÷ (1 + 0.09)² = $20,985.40
Year 3: $25,000 ÷ (1 + 0.09)³ = $19,267.68
Year 4: $25,000 ÷ (1 + 0.09)⁴ = $17,759.12
Year 5: $25,000 ÷ (1 + 0.09)⁵ = $16,439.25
To calculate discounted payback period, we need to calculate the cumulative present value of cash inflow. We keep adding the present values of cash inflow until it is greater than or equal to the initial investment.
Year 1: $22,935.78
Year 2: $43,921.18
Year 3: $63,188.86
Year 4: $80,947.98
Year 5: $97,387.23
We can see that discounted cash inflow is greater than the initial investment after Year 4. So, the discounted payback period is 4 years.
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Why Do Capital Expenditures Increase An Organization's Assets (pp&e), While Other Expenditures, Like Paying Taxes, Employee Salaries, Utility Bills, Etc. Do Not Increase An Organization's Asset Base, But Instead Show Up As Expenses On The Income Statement That Reduce Equity Via Retained Earnings?
Capital expenditures, also known as CapEx, refer to expenditures made by an organization to acquire, improve, or maintain long-term assets such as property, plant, and equipment (PP&E). These expenditures are typically made with the intention of generating future benefits and enhancing the organization's productive capacity.
The reason capital expenditures increase an organization's assets (PP&E) is that they are considered investments in long-term assets that have the potential to generate economic benefits over an extended period of time. These assets are expected to contribute to the organization's revenue generation and profit-making capabilities.
On the other hand, expenditures such as paying taxes, employee salaries, utility bills, and other operating expenses are considered day-to-day expenses incurred in the regular course of business operations. These expenses are necessary to maintain ongoing business activities and generate revenue in the short term.
While operating expenses are necessary for the organization's day-to-day operations, they do not typically result in the acquisition or enhancement of long-term assets. Instead, they are recognized as expenses on the income statement in the period they are incurred. This recognition of expenses reduces the organization's equity via retained earnings, as these expenses are subtracted from revenue to determine the organization's net income or loss.
In summary, capital expenditures increase an organization's assets because they represent investments in long-term assets with future economic benefits, while other expenditures, such as operating expenses, are recognized as expenses on the income statement and do not increase the organization's asset base.
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Technology has been changing working lives and employment for many years. The Covid 19 pandemic over the last 2 years has further accelerated many of these changes. Discuss the impact technology has had on work and summarise what this means for individuals.
Technology has revolutionized work by automating tasks, enabling remote work, increasing productivity, creating new job opportunities, but also disrupting traditional employment patterns and requiring individuals to adapt and acquire new skills.
In more detail, technology has had a profound impact on work and employment, and the Covid-19 pandemic has acted as a catalyst for further acceleration of these changes.
Technological advancements have led to automation and the use of artificial intelligence, resulting in the replacement of certain jobs and tasks that can be performed more efficiently by machines. This has created concerns about job displacement and the need for individuals to reskill or upskill to remain employable in the evolving job market.
Furthermore, the pandemic has necessitated a rapid shift to remote work, with technology enabling virtual collaboration, communication, and remote access to work tools and systems.
This has provided flexibility and opened up new opportunities for individuals to work from anywhere. However, it has also highlighted the digital divide and the need for equitable access to technology and digital skills.
Technology has also enhanced productivity by streamlining processes, improving efficiency, and enabling new forms of work, such as gig economy platforms and online marketplaces. This has created new job opportunities, but it has also brought challenges like job insecurity, lack of benefits, and income volatility.
Overall, the impact of technology on work means that individuals must be adaptable and continuously acquire new skills to stay relevant in the labor market. Lifelong learning and digital literacy have become crucial for individuals to navigate the changing work landscape and seize emerging opportunities.
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Point Omar is the Head of IT Systems and Applications at AAA corporation. His job has been redesigned to include shifting him between jobs at regular intervals. Specify the job design approach that is used in this case. [Explanation is not required] Use the editor to format your answer
The job design approach used in Omar's case is the job rotation approach.
The job design approach used in Omar's case is job rotation. Job rotation involves periodically shifting an employee between different jobs or roles within an organization. In Omar's position as the Head of IT Systems and Applications at AAA corporation, his job has been redesigned to include regular intervals of being shifted between different jobs.The purpose of job rotation is to provide employees with exposure to different tasks, functions, and responsibilities. It allows employees to gain a broader perspective of the organization, develop new skills, and prevent monotony or stagnation in their current role.
By implementing job rotation for Omar, AAA corporation aims to enhance his knowledge, skills, and versatility. It can also lead to increased employee engagement and motivation, as employees have the opportunity to experience new challenges and learn from different areas of the organization.Overall, the job rotation approach in Omar's case provides benefits such as skill development, knowledge sharing, and increased adaptability, while also preventing boredom and enhancing job satisfaction.
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Summarize Fama and French’s findings from their five-factor
model. Compare this new model with the older CAPM and the
Fama-French three-factor models.
Fama and French's Five-Factor Model The Fama-French Five-Factor Model is an extension of the Fama-French Three-Factor Model, which adds two additional factors to the equation.
The Fama-French Three-Factor Model added market risk, book-to-market ratios, and small stock premiums to the CAPM equation. Their findings from Fama and French's five-factor model are:
1. The model provides a better fit to the empirical data.
2. The high loading of the two new factors SMB and HML reveals that they are major risk factors, as they have a significant impact on expected returns.
3. Size and value premiums are prevalent in stock markets worldwide.
4. Both high and low-beta stocks have higher average returns than those predicted by the CAPM.
5. The effects of all factors remain stable over time. The Five-Factor Model from Fama and French compares the traditional CAPM model and the Fama-French three-factor model to reveal how size, value, profitability, and investment have an impact on expected stock returns.
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10. Compare Keynesian money demand function with Monetarist (Fridman) money demand function in terms of stability and responsiveness of change in interest rate.
Keynesian money demand function and Monetarist (Friedman) money demand function have different perspectives on the stability and responsiveness of changes in interest rates.
Keynesian money demand function suggests that the demand for money is primarily influenced by income levels and transactions motives. According to Keynes, money demand is relatively stable and less responsive to changes in interest rates. This means that individuals hold a certain amount of money for their daily transactions and precautionary purposes.
On the other hand, the Monetarist (Friedman) money demand function emphasizes the role of interest rates in determining the demand for money. Monetarists argue that individuals hold money as an asset and consider the opportunity cost of holding money in relation to other interest-earning assets. Therefore, the Monetarist view suggests that changes in interest rates will have a significant impact on the demand for money.
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How could the firm managers in "identifying assets in low-valued uses and devise ways to profitably move them to higher-valued uses" (Froeb et al, 2018)?
The managers can also encourage innovation within the organization to find new ways to use the assets to create value and gain a competitive edge.
Firm managers can identify assets in low-valued uses and devise ways to profitably move them to higher-valued uses by focusing on the assets that are underperforming in the organization and devising strategies to maximize the value of such assets. They can perform a cost-benefit analysis to determine whether an asset is profitable or not and then decide whether to sell or upgrade the asset. They can also identify new markets for the assets, explore opportunities for product diversification, and leverage the power of technology to create value from the assets. They can also collaborate with other organizations or companies to create partnerships that can help them increase the value of their assets. The use of data analytics and market research can also help the firm managers to identify trends in the market and develop strategies to capitalize on these trends. The managers can also encourage innovation within the organization to find new ways to use the assets to create value and gain a competitive edge.
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Develop a SWOT Analysis of your organization and indicate how
each of the strengths listed can be used to gain and/or maintain
the organization’s competitive advantage.
SWOT Analysis of an organization SWOT Analysis is an acronym for Strengths, Weaknesses, Opportunities, and Threats.
A SWOT Analysis helps businesses and individuals to identify their strengths and weaknesses and their external opportunities and threats. SWOT Analysis is a process of self-evaluation that helps to identify the factors that influence a company's ability to compete with its competitors. SWOT analysis of an organization can be defined as an analytical tool that is used to identify the internal and external factors that affect the organization's performance, growth, and sustainability. The SWOT Analysis helps to determine the organization's strengths and weaknesses, as well as the opportunities and threats that it faces. The following is a sample SWOT analysis of an organization: Strengths: The strengths of an organization include its ability to develop new products, its strong brand, its experienced staff, its financial resources, and its ability to generate revenue. These strengths can be used to gain and maintain the organization's competitive advantage. Weaknesses: The weaknesses of an organization include its limited product line, its weak brand, its inexperienced staff, its poor financial resources, and its inability to generate revenue. These weaknesses can be addressed to improve the organization's competitive advantage. Opportunities: The opportunities that an organization faces include new markets, new products, new partnerships, new technologies, and new customers.Learn more about SWOT Analysis
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1.Elaborate on the concept "Batch Input" as related to
accounting information systems.
The concept of "Batch Input" in accounting information systems refers to the process of entering a group or batch of transactions or data into the system simultaneously, rather than entering each transaction individually.
In accounting information systems, batch input is commonly used to streamline the data entry process and improve efficiency. Instead of manually entering each transaction one by one, batch input allows for the input of multiple transactions at once. This is typically done by preparing a file or document containing a group of transactions, which is then uploaded or processed in the system as a batch.
The system will process the batch and update the relevant accounts and records accordingly. Batch input helps to reduce the time and effort required for data entry, especially when dealing with a large volume of transactions. It also minimizes the chances of errors that can occur with manual data entry.
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On May 10, Ayayai Corp. issues 3,200 shares of $6 par value common stock for cash at $15 per share. Prepare a tabular summary to record the issuance of the stock. Include margin explanations for the changes in revenues and expenses. (If a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign for parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.) Assets Liabilities Paid-in-Capital PIC in Exce Common Stock Par Value Cash $ $ May 10 On May 10, Ayayai Corp. issues 3,200 shares of $6 par value common stock for cash at $15 per share. Prepare a tabular summary to record the issuance of the stock. Include margin explanations for the changes in revenues and expenses. (If a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign for parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.) Stockholders' Equity Retained Earnings renue Expense Dividend $ Paid-in-capital in excess of common stock Common stock Paid-in-capital in excess of preferred stock Dividends Interest expense Preferred stock e Textbook and Media Arraunts
The tabular summary to record the issuance of the stock:
Account Debit Credit Explanation
Cash $48,000 - Cash is increased by the amount of cash received from the issuance of stock.
Common Stock $19,200 - Common stock is increased by the par value of the stock issued.
Paid-in-Capital in Excess of Par Value - Common Stock $28,800 - Paid-in-capital in excess of par value is increased by the amount of the proceeds from the issuance of stock in excess of the par value.
Ayayai Corp. issues 3,200 shares of $6 par value common stock for cash at $15 per share. The total proceeds from the issuance of stock is $48,000. The par value of the stock is $19,200. The excess of the proceeds over the par value is $28,800. This excess is credited to Paid-in-Capital in Excess of Par Value - Common Stock.
The issuance of the stock increases the company's assets (cash) and equity (common stock and paid-in-capital in excess of par value - common stock). The increase in assets is offset by the increase in equity. There is no impact on revenues, expenses, or dividends.
The issuance of stock is a common way for companies to raise capital. When a company issues stock, it is essentially selling ownership in the company to investors. The investors who purchase the stock become shareholders and are entitled to a share of the company's profits.
The amount of cash that a company receives from the issuance of stock is typically greater than the par value of the stock. This is because the market price of the stock is often higher than the par value. The excess of the proceeds over the par value is credited to Paid-in-Capital in Excess of Par Value. This account represents the amount of money that the company has raised from investors above and beyond the par value of the stock. The Paid-in-Capital in Excess of Par Value account can be used by the company for a variety of purposes, such as:
Reinvesting in the business
Paying off debt
Making acquisitions
Issuing dividends to shareholders
The issuance of stock is a significant event for a company. It can have a major impact on the company's financial statements and its future prospects.
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Booher Book Stores has a beta of 0.5. The yield on a 3-month T-bill is 3% and the yield on a 10-year T-bond is 7%. The market risk premium is 4.5%, and the return on an average stock in the market last year was 14%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.
The estimated cost of common equity using the CAPM is 0.08 or 8%.
The CAPM stands for the capital asset pricing model. It is utilized for determining the required return on an equity investment that is risk-free and for taking into account the risk incurred by a specific investment. CAPM (Capital Asset Pricing Model) is used for determining the required return on an equity investment that is risk-free and for taking into account the risk incurred by a specific investment.
The calculation of the cost of equity using the CAPM is given below:$$r_{e}=r_{f}+\beta \times (r_{m}-r_{f})$$Where; $r_{e}$= cost of equity, $r_{f}$= risk-free rate of return, $\beta$= beta, $r_{m}$= expected return of market now, let's put the given values in the above formula to calculate the cost of equity:$$r_{e}=0.03+0.5(0.14-0.03-0.045)$$On solving this, we get:$$r_{e}=0.08$$Therefore, the estimated cost of common equity using the CAPM is 0.08 or 8%.
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Ayeza thinks of investing $10,000 a year in real terms into her investment account for the next four years. The relevant nominal discount rate is 7.5% and the inflation rate is 4.2%. Calculate the real worth of the investment in today's dollars.
To calculate the real worth of Ayeza's investment in today's dollars, we need to adjust the future cash flows for inflation using the inflation rate of 4.2%.
Ayeza plans to invest $10,000 each year for four years. We can calculate the nominal cash flows for each year by compounding the inflation rate:
Year 1: Nominal cash flow = $[tex]10,000 * (1 + 0.042) = $10,420[/tex]
Year 2: Nominal cash flow = $[tex]10,000 * (1 + 0.042)^2 = $10,864.68[/tex]
Year 3: Nominal cash flow = $[tex]10,000 * (1 + 0.042)^3 = $11,327.29[/tex]
Year 4: Nominal cash flow = $[tex]10,000 * (1 + 0.042)^4 = $11,809.26[/tex]
Now, we can discount these nominal cash flows back to their present value using the nominal discount rate of 7.5%:
Present value at Year 1 = $[tex]10,420 / (1 + 0.075)^1 = $9,712.38[/tex]
Present value at Year 2 = $[tex]10,864.68 / (1 + 0.075)^2 = $9,829.52[/tex]
Present value at Year 3 = $[tex]11,327.29 / (1 + 0.075)^3 = $9,963.48[/tex]
Present value at Year 4 = $[tex]11,809.26 / (1 + 0.075)^4 = $10,111.40[/tex]
Finally, we sum up the present values of all the cash flows to find the real worth of the investment in today's dollars:
Real worth of the investment =
$[tex]9,712.38 + $9,829.52 + $9,963.48 + $10,111.40 = $39,616.78[/tex]
Therefore, the real worth of Ayeza's investment in today's dollars is approximately $39,616.78.
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The hour, 09 minutes 47 seconds Question completion ratus Question 12 3 points OLOGY a companied budget of 5 million, the MARR valon for this company, assuming the feasible project options shown in the age below,equals vom Lamal Rate Independet pject (Demand er alle elected 20 20 20 11 1F с D 10 Cumulative resment Amount (Gillies of Dollars)
The MARR value for the company is not provided in the given question.
In order to provide a complete and accurate answer, the MARR value for the company is necessary. The MARR (Minimum Acceptable Rate of Return) is a critical parameter used in financial analysis to evaluate the feasibility and profitability of investment projects. Without the MARR value, it is not possible to determine which project options are economically viable for the company.
The MARR value represents the minimum rate of return that a company expects to earn on its investments to justify the risk and opportunity cost of capital. It is typically based on factors such as the company's cost of capital, inflation rate, and desired profit margin.
Once the MARR value is known, it can be compared to the cumulative present amounts of the feasible project options to determine their viability. Project options with cumulative present amounts that exceed the MARR value would be considered financially feasible and potentially attractive for investment.
Therefore, to provide a comprehensive answer, the MARR value for the company needs to be provided. Without this information, it is not possible to evaluate the project options and determine their suitability.
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The internet has enabled a number of innovative businesses to emerge. Give 3 such examples explaining why you feel they are particularly innovative (you are advised NOT to use well known, online businesses like Amazon etc. unless you can demonstrate that they are particularly innovative).
Airbnb revolutionized the hospitality industry by connecting hosts and guests through a peer-to-peer accommodation marketplace. Stripe simplified online payment processing for businesses, while Coursera provided accessible online learning opportunities with partnerships with top institutions. These innovative businesses leveraged technology to disrupt traditional industries, offering unique experiences, seamless payments, and remote education. Their success stems from their ability to provide convenience, accessibility, and personalized solutions in the online space.
1. Airbnb: The innovative aspect of Airbnb lies in its peer-to-peer accommodation marketplace, disrupting the traditional hospitality industry by allowing individuals to rent out their properties. It leverages technology to connect hosts and guests, offering unique and personalized lodging experiences.
2. Stripe: Stripe is an innovative online payment processing platform that simplifies the process of accepting payments for businesses. It provides a seamless and developer-friendly solution, allowing businesses to easily integrate payment capabilities into their websites or applications, streamlining the payment process for both merchants and customers.
3. Coursera: Coursera is an innovative online learning platform that partners with top universities and organizations to offer a wide range of courses and degrees online. It brings education to a global scale, providing accessible and flexible learning opportunities for individuals worldwide, enabling them to upskill, gain knowledge, and pursue their educational goals remotely.
These examples demonstrate innovation through their disruptive business models, use of technology, and the transformation of traditional industries to offer unique services and opportunities in the online space.
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Why do companies sometimes stock up on extra inventory? O They may be afraid of a strike in the vendor's factory. In anticipation of a rise in the cost of raw materials Surge in expected demand O For all these reasons.
Companies sometimes stock up on extra inventory for various reasons. The most common reasons why companies stock up on extra inventory are in anticipation of a rise in the cost of raw materials and a surge in expected demand.
Additionally, companies may be afraid of a strike in the vendor's factory. Therefore, they have to stock up on extra inventory. Companies stock up on extra inventory in anticipation of a rise in the cost of raw materials. If a company anticipates that the cost of raw materials is going to increase in the near future, it may purchase more raw materials now before the price increases.
By doing so, the company can save money in the long run since it is purchasing the materials at a lower price.A surge in expected demand is another reason why companies may stock up on extra inventory. If a company expects that demand for its products will increase in the future, it may purchase extra inventory now to prepare for the increased demand.
By doing so, the company can ensure that it has enough inventory to meet the demand and avoid stockouts.Another reason why companies may stock up on extra inventory is that they may be afraid of a strike in the vendor's factory.
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A report that is used primarily for strategic decision making is called a(n) ____ report.A) executive B) summary C) key item D) exception
A report that is used primarily for strategic decision making is called an executive report.
Executive summaries are frequently created for top-level executives, department heads, and supervisors in businesses and organizations so they may rapidly access crucial information and make decisions.
The key aspects of a longer report are outlined in an executive summary. Often, it is designed to be shared with others who might not have the time to read the complete report. The executive summary alone should be sufficient for the reader to reach a conclusion. The report's main elements have to be summed up in an executive summary. The report's goals should be reaffirmed, its key ideas should be emphasized, and any findings should be discussed.
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Sharon is considering the purchase of a car. After making the down payment, she will finance $10,270. Sharon is offered three maturities. On a four-year loan, Sharon will pay $236.51 per month. On a five-year loan, Sharon's monthly payments will be $193.81. On a six-year loan, they will be $165.40. Sharon rejects the four-year loan, as it is not within her budget. So, Sharon would pay $1,358.60 in interest over the life of the five-year loan. On the six-year loan, Sharon would pay $1,638.80 in interest. If Sharon had been able to afford the four-year loan, how much interest would she have saved compared to the five-year loan? The interest Sharon would have paid on the four-year loan is $ __________.
Sharon is considering the purchase of a car. After making the down payment, she will finance $10,270. She is offered three maturities. On a four-year loan, Sharon will pay $236.51 per month. On a five-year loan, Sharon's monthly payments will be $193.81.
Sharon is considering the purchase of a car. After making the down payment, she will finance $10,270. She is offered three maturities. On a four-year loan, Sharon will pay $236.51 per month. On a five-year loan, Sharon's monthly payments will be $193.81. On a six-year loan, they will be $165.40. She rejects the four-year loan, as it is not within her budget. Therefore, Sharon would pay $1,358.60 in interest over the life of the five-year loan. On the six-year loan, Sharon would pay $1,638.80 in interest.
Interest is a fee charged by a lender to a borrower for the use of their money. In this case, it is the fee that Sharon has to pay on the loan she takes out for her car purchase. A down payment, on the other hand, is a part of the purchase price of a property or vehicle that is paid upfront, reducing the amount of the loan needed. This is money that Sharon will have to pay towards the car purchase before the rest of the money is financed. The interest that Sharon would have paid on the four-year loan can be calculated as follows: Since she is financing $10,270, the total interest she pays on the loan is given as:
Loan amount × Interest rate × Time period= $10,270 × Interest rate × 4Interest rate × 4= Total interest paid / $10,270
Therefore, Interest rate for four-year loan= $1,358.60 / $10,270 = 0.132
The interest Sharon would have paid on the four-year loan is:
Interest rate × Loan amount × Time period= 0.132 × $10,270 × 4= $5,410.08
Therefore, Sharon would have paid $5,410.08 in interest on the four-year loan. To find out how much interest she would have saved compared to the five-year loan, we can subtract the amount of interest she would have paid on the four-year loan from the amount of interest she actually paid on the five-year loan: Interest saved = Interest on 5-year loan - Interest on 4-year loan= $1,358.60 - $5,410.08= -$4,051.48
Since the answer is negative, it means that Sharon would not have saved any interest by taking out the four-year loan instead of the five-year loan. Therefore, the interest Sharon would have paid on the four-year loan is $5,410.08.
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MC2 Rajang Inc. made $2,000,000 in credit sales and has $800,000 of accounts receivable at the end of the period. They also have a credit balance of $5,500 in their allowance for doubtful accounts. Rajang Inc. believes that 1% of their net credit sales will be uncollectable. What would they record as their bad debt expense for the period? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a 25,500 b 20,000 с 14,500 d 8,000
The business will record $25,500 as their bad debt expense for the period. Option a is correct.
Determine the net credit sales. Net credit sales are the total credit sales minus any returns or discounts given to customers. The formula for net credit sales is:
Net credit sales = Total credit sales - Returns - Discounts
Net credit sales = $2,000,000 - $0 - $0 = $2,000,000
Calculate the bad debt expense for the period by multiplying the net credit sales by the estimated percentage of uncollectible accounts. The formula is:
Bad debt expense = Net credit sales × Estimated percentage of uncollectible account
Bad debt expense = $2,000,000 × 1% = $20,000
Finally, we need to add the beginning balance of the allowance for doubtful accounts to the calculated bad debt expense and subtract the ending balance of the allowance for doubtful accounts. The formula is:
Bad debt expense for the period = Beginning balance of allowance for doubtful accounts + Bad debt expense - Ending balance of allowance for doubtful accounts
Bad debt expense for the period = $5,500 + $20,000 - $5,500 = $20,000
Therefore, the business will record $25,500 ($20,000 + $5,500) as their bad debt expense for the period. Option (a) $25,500 is the correct answer.
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Jobs, Alford, and Norris formed the JAN Partnership by making capital contributions of $150,000, $100,000, and $250,000, respectively on January 7, 2019. They anticipate annual net incomes of $240,000
Jobs, Alford, and Norris formed the JAN Partnership by making capital contributions of $150,000, $100,000, and $250,000, respectively on January 7, 2019. Jobs would receive 30% of $240,000, which is $72,000. Alford would receive 20% of $240,000, which is $48,000, while Norris would receive 50% of $240,000, which is $120,000.
The JAN Partnership was established by Jobs, Alford, and Norris on January 7, 2019, by contributing $150,000, $100,000, and $250,000, respectively, and they anticipate annual net incomes of $240,000.In a partnership, capital contributions are made by the partners. The quantity of capital that each partner contributes is recorded in the partnership accounts. These accounts are utilized to determine each partner's share of the profits or losses earned by the partnership. Jobs, Alford, and Norris contributed $150,000, $100,000, and $250,000, respectively, to the JAN Partnership. As a result, the entire capital contribution to the partnership is $500,000. Each partner's share of the profits or losses will be determined based on their capital contribution ratio. This ratio can be found by dividing each partner's capital contribution by the total capital contribution of all partners, or $500,000 in this case.Job's contribution is $150,000/$500,000, which equals 0.30. Alford's contribution is $100,000/$500,000, which equals 0.20.Norris' contribution is $250,000/$500,000, which equals 0.50. Their capital contribution ratio will be: Jobs = 30%, Alford = 20%, Norris = 50%.If the partnership has an annual net income of $240,000, it will be divided among the partners in accordance with their capital contribution ratio. Therefore, Jobs would receive 30% of $240,000, which is $72,000. Alford would receive 20% of $240,000, which is $48,000, while Norris would receive 50% of $240,000, which is $120,000.For more such questions on JAN Partnership, click on:
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Boba Fett has been employed in the accounts payable department as an A/P Supervisor for the past 3 years by Beskar Metal Works Inc. (BMW), a public Canadian corporation incorporated in Ontario in 2014. BMW is a leading wholesaler of beskar metals across Canada. Boba has asked you, Sasha Banks CPA, the trusted tax person at BMW for your help in the preparation of their 2021 personal tax return. Boba has provided you with the following information about receipts, selected disbursements and the following information/calculations.
1. Salary $130,000
Deductions:
Income taxes $36,000
Canada Pension Plan premium $3,166
Utilities (500/2,500 * $1,500) $300
Employment Insurance premium $889
Clothing costs $1,900
Home office supplies $600
Group accident disability insurance premiums $1,200 (44,055)
Net Income $ 85,945
2. On December 13th, 2021 Boba requested and received from BMW an advance of $6,500 against his 2022 salary. Boba needed the advance to pay for his family to attend Comicon in Detroit over the latter part of December. A cheque for $6,500 was paid through the accounts payable department at BMW. Boba’s monthly payments in January 2022 was reduced by $6,500 as a means for Boba to pay back the advance.
3. In 2018 BMW granted Boba stock options to purchase a total of 7,000 shares over the next 6 years. The exercise price of these shares is $44 and the fair market value of the shares on the grant date was $40 per share. In 2021, Boba exercised the option to purchase 1,000 of the shares when the market price per share was $56. Boba did not dispose of these shares during 2021 and this was the first time Boba had purchased any shares.
4. Image is important at BMW, as such in 2021 Boba was provided with a $2,400 clothing
In preparing Boba Fett's 2021 personal tax return, several aspects need to be considered. Firstly, his salary of $130,000 will form the basis of his income. Deductions include income taxes of $36,000, Canada Pension Plan premium of $3,166, employment insurance premium of $889, and group accident disability insurance premiums of $1,200. Additionally, Boba can claim deductions for utilities ($300), clothing costs ($1,900), and home office supplies ($600). After accounting for these deductions, Boba's net income for 2021 is $85,945. Furthermore, Boba received an advance of $6,500 in December 2021, which will affect his salary payments in January 2022. Lastly, Boba exercised stock options in 2021, purchasing 1,000 shares at an exercise price of $44 per share, when the market price was $56 per share. These details need to be considered in the preparation of Boba's tax return.
1. Income and Deductions:
- Boba's salary of $130,000 forms the basis of his income for the year.
- Deductions include income taxes ($36,000), Canada Pension Plan premium ($3,166), employment insurance premium ($889), and group accident disability insurance premiums ($1,200).
- Additional deductions are allowed for utilities, which amount to $300 (calculated as a proportion of $1,500 based on business use), clothing costs of $1,900, and home office supplies of $600.
- Subtracting these deductions from Boba's salary gives us a net income of $85,945.
2. Advance Payment:
- In December 2021, Boba received an advance of $6,500 from BMW against his 2022 salary.
- Although the advance was paid in 2021, it should not be included as income for the year.
- However, the monthly payments in January 2022 will be reduced by $6,500 as Boba repays the advance.
3. Stock Options:
- In 2018, BMW granted Boba stock options to purchase 7,000 shares over 6 years.
- The exercise price of the shares is $44 per share, and the fair market value on the grant date was $40 per share.
- In 2021, Boba exercised the option to purchase 1,000 shares when the market price per share was $56.
- Since Boba did not dispose of these shares in 2021, there is no capital gain or loss to report for the year. However, the cost base of these shares will be adjusted for future calculations when the shares are eventually disposed of.
4. Clothing:
- BMW provided Boba with $2,400 worth of clothing in 2021.
- This clothing is considered a taxable employment benefit and should be included in Boba's income for the year.
Overall, these details need to be taken into account when preparing Boba Fett's 2021 personal tax return, ensuring accurate calculations and reporting of his income, deductions, and taxable benefits.
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In each of the following independent situations, determine if the redemption of shares will be treated as an exchange or as a distribution. For situations 1−2, the ownership of a corporation is: Situation 1: The corporation redeems 100 shares of stock held by Barb. Situation 2: The corporation redeems 80 shares of stock held by Cindy. Situation 3: The corporation redeems 60 shares of stock held by Andy. Situation 4: Same facts as Situation 1 except Andy is Barb's father. To answer this be sure to first review the "Attribution Rules" discussion in Chapter 18 of the textbook.
When a shareholder of a corporation receives a distribution of property in exchange for its shares, the distribution can either be considered an exchange or a distribution.
An exchange occurs when the shareholder's ownership interest is eliminated and the transaction is treated as a sale or exchange of the shareholder's interest in the corporation. A distribution occurs when the shareholder remains an owner of the corporation, and the transaction is treated as a dividend distribution to the shareholder.
Situation 1: The corporation redeems 100 shares of stock held by Barb. The redemption of 100 shares of stock held by Barb is treated as a distribution because the redemption does not result in the elimination of her ownership interest in the corporation.
Situation 2: The corporation redeems 80 shares of stock held by Cindy. The redemption of 80 shares of stock held by Cindy is treated as an exchange because the redemption results in the elimination of her entire ownership interest in the corporation.
Situation 3: The corporation redeems 60 shares of stock held by Andy. The redemption of 60 shares of stock held by Andy is treated as a distribution because the redemption does not result in the elimination of his ownership interest in the corporation.
Situation 4: Same facts as Situation 1 except Andy is Barb's father. The redemption of 100 shares of stock held by Barb is treated as an exchange because Barb and Andy are considered related parties under the attribution rules, and thus Andy's ownership interest in the corporation is attributed to Barb. As a result, Barb's ownership interest is considered to be eliminated when the corporation redeems the shares.
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What is your investment preferences and how can you justify them considering age, family situation, incomes etc?
An investment preference is a set of conditions that investors use to guide their investment decision-making process. It refers to the choices made by an investor when selecting investment alternatives.
Investment preferences are personal decisions based on a person's financial position, risk tolerance, time horizon, and objectives.
Justifying Investment Preferences Age: Age is a crucial factor when determining investment preferences.
Younger investors often have higher risk tolerance and more extended time horizons than older investors.
The younger you are, the more you can afford to take risks in your investment portfolio.
Younger investors, who are likely to have a more extended time horizon before they need to utilize their investments, may prefer higher risk/reward investment choices.
Family situation: Family situation is another factor that can affect investment preferences.
For instance, a married couple with children and significant expenses like education and medical bills will have different investment preferences than a single person with no dependents.
Income: The amount of income an investor makes can also influence their investment preferences.
An individual with a high income may have a higher risk tolerance than an individual with a lower income.
People with a high income can invest more in high-risk investments because they have enough funds to cover any losses they may encounter.
Investment preferences are an individual decision, and one size doesn't fit all.
As a result, it is essential to consider various factors like age, family situation, income, risk tolerance, investment goals, and investment experience before deciding on investment preferences.
It's crucial to find an investment style that matches your preferences, needs, and objectives.
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What is the demographic and rockclimbing profile (meaning what type(s) of climbing do they typically engage in and how often do they engage in it) of Extreme Exposure's members? Question 2: How do members rate Extreme Exposure's various climbing facilities? Construct that Question 3: What are members' opinions of cost of the Extreme Exposure membership fee that they pay? Construct that.
The first question seeks to gather information about the demographic characteristics and climbing preferences of Extreme Exposure's members.
Demographic information may include age, gender, location, and other relevant details that provide an understanding of the member base. Additionally, it aims to explore the types of climbing activities that members typically engage in, such as sport climbing, bouldering, traditional climbing, or indoor climbing.
The question also inquires about the frequency of their climbing activities, whether they climb occasionally, weekly, or more frequently.
The second question focuses on assessing members' satisfaction with Extreme Exposure's climbing facilities.
It aims to gather feedback on various aspects of the climbing facilities, such as the quality of equipment, safety measures, cleanliness, layout, and accessibility. By asking members to rate these facilities, the company can gain insights into areas of strength and potential areas for improvement.
The third question explores members' opinions regarding the cost of the Extreme Exposure membership fee.
It aims to gather feedback on whether members perceive the fee as reasonable and whether they feel it offers good value for the services and facilities provided. By understanding members' opinions on the cost, the company can assess the competitiveness of their pricing strategy and make adjustments if necessary to meet members' expectations.
Overall, these questions provide valuable insights into the demographic profile, satisfaction with facilities, and perceptions of the membership fee among Extreme Exposure's members. This information can help the company tailor its offerings to better meet the needs and preferences of its members, leading to improved customer satisfaction and loyalty.
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Kingdom Corporation has the following. Preferred stock, $10 par value, 9%, 50,000 shares issued $500,000 - Common stock, $15 par value, 300,000 shares issued and outstanding $4,500,000 In 2020. The company declared and paid $30,000 of cash dividends In 2021, The company declared and paid $150,000 of cash dividend Required: How much is the TOTAL cash dividends that will be distributed to preferred and common stockholders over the two years, assuming the preferred stock is cumulative Please DO NOT use the "S" and "," signs in you answer. For example, if the right answer is Preferred $10,000 and Common $15,000, it should be EXACTLY written as: 10000 15000 Preferred Common
Given information: Preferred stock, $10 par value, 9%, 50,000 shares issued $500,000 Common stock, $15 par value, 300,000 shares issued and outstanding $4,500,000In 2020, the company declared and paid $30,000 of cash dividends. In 2021, the company declared and paid $150,000 of cash dividend.
Cumulative dividend means that a dividend is payable in arrears. This means that any unpaid dividends must be paid before a common stock dividend is paid. The preferred stock dividend is calculated using the following formula: Preferred stock dividend = Par value * Rate * Number of preferred shares outstanding IN this case, the preferred stock dividend would be:$10 * 9% * 50,000 = $45,000 per year IN 2020, the preferred stockholders would be entitled to receive:$45,000 * 50,000 = $2,250,000
However, the company only paid $30,000 in dividends in 2020, so there is $2,220,000 of unpaid preferred stock dividends that need to be paid before any common stock dividends can be paid. In 2021, the preferred stockholders would be entitled to receive:$45,000 * 50,000 = $2,250,000The total amount of preferred dividends to be paid over the two years is:$2,220,000 + $2,250,000 = $4,470,000
The common stock dividend is calculated by subtracting the preferred stock dividend from the total dividend paid. Common stock dividend = Total dividend paid - Preferred stock dividend In 2020, the common stock dividend paid was:$30,000 - $0 = $30,000In 2021, the common stock dividend paid was:$150,000 - $45,000 = $105,000The total amount of common stock dividends paid over the two years is:$30,000 + $105,000 = $135,000Therefore, the total cash dividends that will be distributed to preferred and common stockholders over the two years, assuming the preferred stock is cumulative is: Preferred: $4,470,000Common: $135,000
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The Stargate Company is contemplating the replacement of its old space-time machine with a new model costing $450,000. The old machine, which originally cost $500,000, has 5 years of expected life remaining and a current book value of $300,000 versus a current market value of $100,000. Stargate's corporate tax rate is 40 percent. If Stargate sells the old machine at market value, what is the initial after-tax outlay for the new space-time machine?
The initial after-tax expenditure for the new space-time machine amounts to $370,000.
To calculate the initial after-tax outlay for the new space-time machine, we need to consider the tax implications of selling the old machine at market value.
The book value of the old machine is $300,000, and the market value is $100,000. Since the market value is lower than the book value, this implies a loss on the sale of the old machine.
The loss on the sale of the old machine is calculated as the book value minus the market value, which is $300,000 - $100,000 = $200,000. This loss can be used to offset taxable income and reduce the tax liability.
The tax savings from the loss on the sale of the old machine can be calculated by multiplying the loss by the corporate tax rate of 40%. Therefore, the tax savings would be $200,000 * 0.40 = $80,000.
The initial after-tax outlay for the new space-time machine is the cost of the new machine minus the tax savings from the sale of the old machine. Therefore, the initial after-tax outlay would be $450,000 - $80,000 = $370,000.
So, the initial after-tax outlay for the new space-time machine is $370,000.
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OM in the News: Small Manufacturers Giving Up On "Made in China" tags: Ch.2. China, global OM strategy, restoring by Barry Render As costs in China rise and owners look closely at the hassles of using factories 12,000 miles and 12 time zones away, Businessweek (June 25, 2012) reports that many small companies have decided manufacturing overseas isn't worth the trouble, American production is "increasingly competitive," says the head of the Reshoring Initiative, a group trying to bring factory jobs back to the U.S. "In the last two years there's been a dramatic increase in the amount of work returning. Here are 2 examples: For LightSaver, a lighting manufacturer, the decision was simple. Neither of the founders has ever been to China, which made communicating with manufacturers difficult. Components that were shipped from the U.S. sometimes got stuck in customs for weeks. "If we have an issue in manufacturing, in America we can walk down to the plant floor," says the CEO. "We can't do that in China." He believes manufacturing in the U.S. is probably 2-5% cheaper once he takes into account the time and trouble of outsourcing production overseas. Even with strong Mandarin skills, the founder of Pigtronix, which makes electric guitar pedals, discovered that he couldn't monitor quality at Chinese factories. After several years of finding glitches in 30% of the pedals, the company decided to move production to N.Y. Now Pigtronix can run multiple tests on its products and even has a guitarist play each of the 500 to 1,000 pedals it sells monthly before they're shipped. While manufacturing in the U.S. can cost from 3 to 6 times as much as it does in China, Pigtronix benefits from not having capital tied up in products that spend weeks in transit and then pile up in inventory. "In China, you have high minimum quantities you have to order, so you're building a couple thousand of every guitar pedal. Your carrying costs start to get huge. "The bottom line: Although manufacturing in China can cost a third what it does in American factories, small companies are bringing production back to the U.S. Discussion questions: 1. Why is reshoring gaining traction? 2. Why do many companies continue to move production to Asia?
1. The reshoring is gaining traction because of the increase in the cost of production, labor costs, shipping costs, and logistical issues.
The rising production costs in China have made manufacturers decide that outsourcing overseas is no longer worth the trouble.
2. The primary reason why many companies continue to move production to Asia is to take advantage of the low production costs, even though it is not always cheaper in the long run. One of the major benefits of producing in Asia is the low labor cost, which is generally lower than in the United States.
Furthermore, China has a large and skilled workforce, a well-established infrastructure, and a favorable business environment.
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Calculate the present value of each annuity (round to two decimal places and include a $ in your answer):
a) $200 withdrawn at the end of each year for 6 years at 4%, compounded annually
b) $1000 withdrawn every six months for 4 years at 10%, compounded semi-annually
c) $750 withdrawn at the end of every three months for 10 years at 4.5%, compounded quarterly
The display value of each annuity speaks to the current worth of future cash streams, considering the intrigued rate and compounding recurrence.
a) The compounded annual amount is $951.68
b) The amount compounded semi-annually is $13,340.00
c) The amount compounded quarterly is $13,244.44
How to Calculate the present value of each annuityTo calculate the display value of each annuity, ready to utilize the equation for the display value of a conventional annuity:
PV = P * (1 - (1 + r)^(-n)) / r
Where:
PV = Show Esteem
P = Installment (withdrawal sum)
r = Intrigued rate per compounding period
n = Number of compounding periods
Let's calculate the display esteem for each annuity:
a) For $200 pulled back at the conclusion of each year for 6 a long time at 4%, compounded yearly:
PV = $200 * 1 - (1 + 0.04)^-6 / 0.04 = $200
$200 * 1 - 0.7921/ 0.04 ≈ $951.68
b) For $1000 pulled back every six months for 4 a long time at 10%, compounded semi-annually:
PV = $1000 * 1 - (1 + 0.10/2)^-4*2 / (0.10/2) = $1000
$1000 * (1 - 0.6830) / 0.05 ≈ $13,340.00
c) For $750 pulled back at the conclusion of each three months for 10 a long time at 4.5%, compounded quarterly:
PV = $750 * 1 - (1 + 0.045/4)^-10*4 / (0.045/4) = $750
$750 * (1 - 0.4959) / 0.01125 ≈ $13,244.44
Hence, the display values are:
a) $951.68
b) $13,340.00
c) $13,244.44
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EntertainMe Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March 2017 are as follows:
January February March
Unit Data
Beginning inventory 0 150 150
Production 1,500 1,400 1,520
Sales 1,350 1,400 1,530
Variable costs
Manufacturing cost per unit produced $1,000 $1,000 $1,000
Operating (marketing) cost per unit sold $800 $800 $800
Fixed costs:
Manufacturing costs $525,000 $525,000 $525,000
Operating (marketing) costs $130,000 $130,000 $130,000
The selling price per unit is $3,300. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 1,500 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to the cost of goods sold in the month in which it occurs.
Requirements
1. Prepare income statements for EntertainMe in January, February, and March 2017 under (a) variable costing and (b) absorption costing.
2. Explain the difference in operating income for January, February, and March under variable costing and absorption costing.
To calculate the income statements for EntertainMe Corporation under variable costing and absorption costing, we need to consider the variable and fixed costs and the production and sales data for each month.
(a) Income Statement under Variable Costing:
January 2017:
Sales: 1,350 units × $3,300 per unit = $4,455,000
Variable Manufacturing Costs: 1,500 units × $1,000 per unit = $1,500,000
Variable Operating Costs: 1,350 units × $800 per unit = $1,080,000
Income Statement (Variable Costing) - January 2017:
Sales: $4,455,000
Variable Manufacturing Costs: -$1,500,000
Variable Operating Costs: -$1,080,000
Total Variable Costs: -$2,580,000
Contribution Margin: $4,455,000 - $2,580,000 = $1,875,000
February 2017 and March 2017:
The calculations for February and March follow the same pattern as January, using the respective production and sales data and variable cost per unit.
(b) Income Statement under Absorption Costing:
January 2017:
Sales: 1,350 units × $3,300 per unit = $4,455,000
Variable Manufacturing Costs: 1,500 units × $1,000 per unit = $1,500,000
Fixed Manufacturing Costs: $525,000
Variable Operating Costs: 1,350 units × $800 per unit = $1,080,000
Fixed Operating Costs: $130,000
Income Statement (Absorption Costing) - January 2017:
Sales: $4,455,000
Variable Manufacturing Costs: -$1,500,000
Fixed Manufacturing Costs: -$525,000
Variable Operating Costs: -$1,080,000
Fixed Operating Costs: -$130,000
Total Costs: -$3,235,000
Operating Income: $4,455,000 - $3,235,000 = $1,220,000
February 2017 and March 2017:
The calculations for February and March follow the same pattern as January, using the respective production and sales data and the fixed manufacturing and operating costs.
Difference in Operating Income:
The difference in operating income between variable costing and absorption costing arises from the treatment of fixed manufacturing costs. Under variable costing, fixed manufacturing costs are considered period costs and are deducted in full from the contribution margin to calculate operating income. In contrast, absorption costing assigns fixed manufacturing costs to the units produced and includes them in the cost of goods sold. As a result, the difference in inventory levels between periods affects the allocation of fixed manufacturing costs, leading to variations in operating income between the two costing methods.
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