Question

Homework: Economics 2 - Problem A-Design Inc., a federally incorporated company in Canada, specializing in the design and manufacturing of armrests for the wheelchair industry plans to produce and sell 15,000 armrests at $50 per unit in its third year of operation and has also planned $20,000 for marketing campaigns, $100,000 for electricity, $240,000 for salaries, $300,000 for production materials, $20,000 for overhead, $24,000 for rent and $10,000 for depreciation. A-Design has a debt of $100,000 at an annual simple interest rate of 5% and a 25% income tax rate. Homework: Economics 2 - Questions 1. Produce a table of A-Design's different costs and classify them. 2. Produce A-Design's income statement at the end of their third year and determine the operating income, earnings before taxes and net income. 3. As at December 31st, 2018, A-Design Inc. presented the following financial data: $320,000 in cash, $100,000 for inventory, $580,000 in equipment, $500,000 in bank loans, $300,000 in accounts payable and $100,000 in other liabilities. Produce a balance sheet for A- Design Inc. for the year 2018. 4. For the month of January 2017, A-Design Inc. reported the following financial data in its journal: $100,000 in sales, $10,000 in loans, $2,000 for rent, $75,000 for production materials, $2,000 for marketing, $20,000 in salaries and $10,000 for electricity. Produce a cash flow statement for A-Design Inc. for January 2017.

Answer 1

Answer:

1. Types of cost and their classification

	Type of cost	Classification
Marketing campaigns	Non-Operating Cost	Indirect
Electricity Cost	Non-Operating Cost	Indirect
Salaries	Non-Operating Cost	Indirect
Prodiction Material	Operating Cost	Direct
Overheads	Operating Cost	Direct
Rent		Indirect
Depreciation	Non-Operating Cost	Indirect
Debt	Non-Operating Cost	Indirect
Interest	Non-Operating Cost	Indirect
Income Tax	Non-Operating Cost	Indirect

2. A- Designs Income Statement at the end of its third year:

Total Revenue = No.of armrestsPrice of each armrest

= 1500050

= $ 750000

Operating Costs:

a. Production Materials = $300000

b.Overheads = $20000

Total Operating Costs = Production Materials + Overheads

= $300000 + $ 20000

= $320000.

Operating Income = Total Revenue - Total Operating Costs

= $750000 - $320000

= $430000.

Non Operating Costs (without tax):

Marketing campaigns =$20000

Electricity costs = $100000

Salaries = $240000

Rent = $24000

Depreciation = $10000

Interest = $100000 0.05 = $5000

Therefore, Total Non-Operating Costs = $399000

Earnings before Taxes = $430000 - $399000

= $31000

Income Tax = $310000.25 = $7750

Net Income= $31000 - $7750 = $23250.

3. Balance Sheet for the year ended 2018

Assets	Liabitities
Current Assets:
Cash	$320000	Bank Loan	$500000
Inventory	$100000	Account Payable	$300000
Long Term Assets:		Other Liabilities	$100000
Equipment	$580000
Total Assets	$1000000	Total Liabilities	$800000

4. Cashflow Statement:

Cash flow from operating activities & Financial Activities

Sales	$100000
Less:Loan	$10000
Less:Rent	$2000
Less:Productionmaterials	$75000
Less:Marketing	$2000
Less:Salary	$20000
Less:Electricity	$10000
Net Cash Flow (Negative )	($19000)

Thankyou.