Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger SO Division. Selected financial data for the past year is shown below. Divisional investment is as of the beginning of the year. Colonial Pharmaceuticals uses a 9 percent cost of capital and uses beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes.
| AC Division | SO Division | |||||
| Allocated corp. overhead | $ | 645 | $ | 1,350 | ||
| Cost of goods sold | 3,290 | 6,100 | ||||
| Divisional investment | 9,900 | 75,500 | ||||
| R&D | 2,450 | 3,150 | ||||
| Sales | 9,800 | 15,500 | ||||
| SG&A | 835 | 1,080 | ||||
Required:
a. Compute divisional income for the two divisions.
division income
ac division
so division
b. Calculate the operating margin, which is equivalent to the return on sales, for the two divisions. (Enter your answers as a percentage rounded to 2 decimal places (i.e., 32.16).)
operating margin
AC division %
SQ divison %
c. Calculate ROI for the two divisions. (Enter your answers as a percentage rounded to 2 decimal places (i.e., 32.16).)
Roi
AC divison %
So divison %
d. Compute residual income for the two divisions. (Negative amounts should be indicated by a minus sign.)
residual income for ac division So division
In: Accounting
On January 1, 2018, Rick’s Pawn Shop leased a truck from Chumley Motors for a six-year period with an option to extend the lease for three years. Rick’s had no significant economic incentive as of the beginning of the lease to exercise the 3-year extension option. Annual lease payments are $27,000 due on December 31 of each year, calculated by the lessor using a 4% discount rate. Assume that at the beginning of the third year, January 1, 2020, Rick’s had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was “reasonably certain.” The relevant interest rate at that time was 5%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entry, if any, at the beginning of the third year for the lessee to account for the reassessment.
In: Accounting
5. For the Fourth of July, Ray (manager of Tucker’s Grocery) decided to try to sell some red, white and blue T-shirts with the Berryville logo and fireworks on them. Ray bought 100 of these T-shirts at $3.00 apiece and decided to sell them for $5.00 each. The shirts weren’t as popular as Ray had expected. By July 5, Ray had sold only 30 of the shirts. He decided to mark the shirts down to $4.00 apiece. By July 20, Ray sold 20 more shirts. He then marked the remainder of the shirts down to $3.00 each and sold the rest by July 30.
Part 1 - Please calculate the initial margin, markdown dollars, markdown percent, maintain margin dollars, and maintain margin percent for the T-shirts.
Part 2 – Based on the numbers found in Part 1, would you recommend Ray make a similar purchase next year? If Ray does decide to purchase the t-shirts again next year, would you recommend any changes to his pricing strategy? What and why?
In: Accounting
Andretti Company has a single product called a Dak. The company normally produces and sells 89,000 Daks each year at a selling price of $62 per unit. The company’s unit costs at this level of activity are given below:
| Direct materials | $ | 7.50 | |
| Direct labor | 11.00 | ||
| Variable manufacturing overhead | 2.90 | ||
| Fixed manufacturing overhead | 6.00 | ($534,000 total) | |
| Variable selling expenses | 1.70 | ||
| Fixed selling expenses | 4.00 | ($356,000 total) | |
| Total cost per unit | $ | 33.10 | |
A number of questions relating to the production and sale of Daks follow. Each question is independent.
Required:
1-a. Assume that Andretti Company has sufficient capacity to produce 120,150 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 89,000 units each year if it were willing to increase the fixed selling expenses by $150,000. What is the financial advantage (disadvantage) of investing an additional $150,000 in fixed selling expenses?
1-b. Would the additional investment be justified?
2. Assume again that Andretti Company has sufficient capacity to produce 120,150 Daks each year. A customer in a foreign market wants to purchase 31,150 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $4.70 per unit and an additional $15,575 for permits and licenses. The only selling costs that would be associated with the order would be $2.10 per unit shipping cost. What is the break-even price per unit on this order?
3. The company has 900 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price?
4. Due to a strike in its supplier’s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period.
a. How much total contribution margin will Andretti forgo if it closes the plant for two months?
b. How much total fixed cost will the company avoid if it closes the plant for two months?
c. What is the financial advantage (disadvantage) of closing the plant for the two-month period?
d. Should Andretti close the plant for two months?
5. An outside manufacturer has offered to produce 89,000 Daks and ship them directly to Andretti’s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti’s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?
Assume that Andretti Company has sufficient capacity to produce 120,150 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 89,000 units each year if it were willing to increase the fixed selling expenses by $150,000. What is the financial advantage (disadvantage) of investing an additional $150,000 in fixed selling expenses?
Show less
|
|
Assume again that Andretti Company has sufficient capacity to produce 120,150 Daks each year. A customer in a foreign market wants to purchase 31,150 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $4.70 per unit and an additional $15,575 for permits and licenses. The only selling costs that would be associated with the order would be $2.10 per unit shipping cost. What is the break-even price per unit on this order? (Round your answers to 2 decimal places.)
Show less
|
The company has 900 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.)
|
Due to a strike in its supplier’s plant, Andretti Company is
unable to purchase more material for the production of Daks. The
strike is expected to last for two months. Andretti Company has
enough material on hand to operate at 25% of normal levels for the
two-month period. As an alternative, Andretti could close its plant
down entirely for the two months. If the plant were closed, fixed
manufacturing overhead costs would continue at 35% of their normal
level during the two-month period and the fixed selling expenses
would be reduced by 20% during the two-month period. (Round number
of units produced to the nearest whole number. Round your
intermediate calculations and final answers to 2 decimal places.
Any losses/reductions should be indicated by a minus sign.)
a. How much total contribution margin will Andretti forgo if it
closes the plant for two months?
b. How much total fixed cost will the company avoid if it closes
the plant for two months?
c. What is the financial advantage (disadvantage) of closing the
plant for the two-month period?
Show less
|
Due to a strike in its supplier’s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. Should Andretti close the plant for two months?
Show less
An outside manufacturer has offered to produce 89,000 Daks and ship them directly to Andretti’s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti’s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Show less
|
In: Accounting
| Elizabeth College, a small private college, had the following transactions in fiscal year 2017. |
| 1. |
Gross tuition and fees revenue totaled $5,600,000. Tuition waivers and scholarships of $346,000 were granted. Of the tuition waivers granted $276,400 was for teaching assistantships, which is an instruction expense. |
| 2. | Students received tuition refunds of $101,670. |
| 3. |
During the year the college received $1,891,000 cash in unrestricted private gifts, $575,200 cash in temporarily restricted grants, and $1,000,000 in securities for an endowment. |
| 4. |
A pledge campaign generated $1,090,000 in pledges. Of the amount pledged, $573,200 was for the capital construction campaign, $300,000 was for endowments, and the remainder of the pledges had no purpose restrictions. The pledges will all be collected in 2018. |
| 5. | Auxiliary enterprises provided goods and services that generated $94,370 in cash. |
| 6. | Collections of tuition receivable totaled $5,080,000. |
| 7. | Unrestricted cash of $1,000,000 was invested. |
| 8. | The college purchased computer equipment at a cost of $10,580. |
| 9. | During the year the following expenses were paid: |
| Instruction | $ | 3,566,040 | |
| Academic support | 1,987,000 | ||
| Student services | 87,980 | ||
| Institutional support | 501,130 | ||
| Auxiliary enterprises | 92,410 | ||
| 10. | Instruction provided $450,000 in services related to the temporarily restricted grant recorded in transaction 3. |
| 11. |
At year-end, the allowance for uncollectible tuition and fees
was increased by $7,200. The fair value of investments had
increased $11,540; of this amount, $3,040 was allocated to
permanently restricted net assets, the remainder was allocated to
unrestricted net assets. Depreciation on plant |
| 12. | All nominal accounts were closed. |
| a-1. |
Prepare journal entries to record the foregoing transactions for the fiscal year ended June 30, 2017. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) |
In: Accounting
The following are BAC Bhd.’s year end statement of financial
position and statement of profit and loss for 2016 and 2017:
2017 ($) 2016 ($)
Non Current Assets:
Gross Non Current assets 317,503 232,179
Less accumulated depreciation 54,045 34,187
Net Non Current assets 263,458 197,992
Current Assets:
ICLBAT/JANUARY2019
7
Cash and equivalents 208,323 102,024
Accounts receivable 690,294 824,979
Inventories 942,374 715,414
Total Current Aassets 1,840,991 1,642,417
Total Assets 2,104,449 1,840,409
Non Current Liabilities
Long term debt 410,769 372,931
Total Non Current Liabilities 410,769 372,931
Current Liabilites
Short term borrowings 288,798 296,149
Accounts payable 636,318 414,611
Accruals 106,748 103,362
Total Current Liabilities 1,031,864 814,122
Total Liabilities 1,442,633 1,187,053
Shareholders’ Equity
Common stock (100,000 shares) 550,000 550,000
Retained earnings 111,816 103,356
Total Shareholders’ Equity 661,816 653,356
Total Liabilities and Shareholders’ Equity 2,104,449
1,840,409
ICLBAT/JANUARY2019
8
2017 ($) 2016 ($)
Sales 2,325,967 2,220,607 (-) Cost of goods sold 1,869,326
1,655,827 Other expenses 287,663 273,870 Total operating costs
excluding depreciation and amortization 2,156,989 1,929,697
Depreciation and amortization 25,363 26,341 Total operating costs
2,182,352 1,956,038 EBIT 143,615 264,569 (-) Interest expense
31,422 13,802 EBT 112,193 250,767 (-) Taxes (30%) 33,658 75,230 Net
income 78,535 175,537
Related items:
2017 2016 Total dividends paid $70,075 $150,000 Stock price per
share $15.60 $21.80
Required:
(a) Calculate the after tax operating income (i.e. after-tax EBIT)
for 2016 and 2017.
(b) Calculate the net working capital (NWC) that is supported by
non-free sources for 2016 and 2017, and the changes in NWC between
these two years.
(c) What is free cash flow (FCF)? Calculate the FCF for 2017. Is a
negative FCF always a bad sign?
(d) Calculate the following for the company for 2017: (i) Earnings
per share (1 mark) (ii) Dividends per share (1 mark) (iii) Book
value per share (1 mark) (Total: 15 marks)
In: Accounting
Mrs Solly signed as a surety for her nephew that wanted to start a panel beating company. Mrs Solly’s nephew has being lying about his business doing poorly and continuously borrows money from Mrs Solly. Due to this lie, Mrs Solly does not want to fulfil her obligations in terms of the Suretyship Agreement. Legally advise Mrs Solly on the following:
1.1 The nature of a Surety Agreement
1.2 The benefits available to a Surety
1.3 The various ways in which a Surety Agreements may be terminated
In: Accounting
You are an eager and ambitious young graduate of the Reginal F. Lewis College of Business at Virginia State University with a new Accounting degree and a great life ahead of you. One of your closest friends is an inventor and an entrepreneur who wants to start a business selling a break-through new drywall screw that he has invented and that he believes works much better than the drywall screws currently on the market. He wants to start the business by opening a factory to produce the screws which can then be sold to either wholesalers or retailers who will then sell them to the general public. After searching all over creation for the right sized building in the perfect location to properly meet the needs of his target customers, he found that the ideal building in which to put up his factory was right here in Petersburg all along.
To begin, he was able to purchase the building he needed outright for $525,000. Useful life of the building is 40 years and it is depreciated on a straight-line basis. Estimated salvage value is $25,000. Property taxes on the building each year are $3,500.
There is a new machine that another fellow VSU grad has invented that takes the metal for the screws and molds them into their proper size and shape, and takes the plastic for the anchors and molds them into their proper size and shape; an assembly line is attached to the machine where workers put the screws and anchors into boxes. The finished product is a box of 32 drywall screws and their plastic anchors that work unlike any that have come before them. He purchased this machine outright for $175,000. The machine has a useful life of 25 years with no residual value and is depreciated on a straight-line basis. The machine can produce 23,000 boxes of screws and anchors per year. He is sure that he can sell every unit produced.
It is determined that to produce the 32 screws in each box will require 112 ounces of metal which is the only material used to make the screws and to produce the 32 anchors in each box will take 48 ounces of plastic which is the only material used to make the anchors. The metal you need is produced by multiple suppliers and you've found one so far that will allow you to buy it at $1.50 per pound. The plastic used is also produced by multiple suppliers and you've found one so far that will allow you to buy it at $.15 per pound. It takes 15 minutes for the workers on the assembly line to box the screws and anchors because they are put in there in a way that prevents them from becoming disorderly. This is part of the quality aspect of the product. Assembly line workers are paid at a rate of $17.00 per hour.
Your friend hired a Vice President (VP) who has a degree in Marketing from VSU. She did some market research and determined that in order to be competitive with your new product you are going to charge $20.75 per box of screws and anchors. The Vice President is paid $58,000 per year. He also hired a Chief Operating Officer who will be paid $58,000 per year. Your friend has also asked you to serve as a consultant to his company to make sure that the business gets off to a good start. Your fee has not yet been determined and is not part of this problem.
Questions
Prepare a variable costing format income statement assuming that the company makes and sells the maximum possible number of units. If the income is negative, what is the reason? Your friend asks you for advice on how to increase the company income. Give him at least two possible solutions to the problem.Which solution did you recommend to your friend? Why did you choose this particular solution?
Prepare a memo addressed to your friend/client explaining your options and your recommendation. This memo should be no more than one page long.
What is the new break-even point after implementing your solution?
What is the maximum income the company can make after implementing your solution? Is this enough profit to justify going into business? Why or why not?
Prepare both an absorption costing income statement and a variable costing income statement to reflect your solution. State your assumptions about the number of units produced and the number sold.
In: Accounting
Accounting Rate of Return
Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.
| Year | Cash Revenues | Cash Expenses | ||
| 1 | $6,000,000 | $4,800,000 | ||
| 2 | 6,000,000 | 4,800,000 | ||
| 3 | 6,000,000 | 4,800,000 | ||
| 4 | 6,000,000 | 4,800,000 | ||
| 5 | 6,000,000 | 4,800,000 |
| Year | Project A | Project B | ||
| 1 | $22,500 | $22,500 | ||
| 2 | 30,000 | 30,000 | ||
| 3 | 45,000 | 45,000 | ||
| 4 | 75,000 | 22,500 | ||
| 5 | 75,000 | 22,500 |
Required:
1. Compute the ARR on the new equipment that
Cobre Company is considering. Round your answer to one decimal
place.
%
2. Conceptual Connection: Which project should Emily Hansen choose based on the ARR? Notice that the payback period is the same for both investments (thus equally preferred). Unlike the payback period, explain why ARR correctly signals that one project should be preferred over the other.
| ARR | |
| Project A | % |
| Project B | % |
Based on the ARR, Emily Hansen chosen Project A .
3. How much did the company in Scenario c
invest in the project? Round your answer to the nearest whole
dollar.
$
4. What is the average net income earned by the
project in Scenario d?
$
Check My Work
In: Accounting
John has a vacation condo in the Florida Keys that he rented out for two weeks in December for $250 a day. John has used this vacation home himself for a total of three weeks during the year. His total ( unallocated) expenses for the condo are
Taxes: $1,500
Insurance: $2000
Repairs and maintenance: $1,100
Interest: $4,500
Depreciation for the year: $1,000
John received a call from his tenants and they want to extend their rental of the condo for another week. John is in the 35 percent marginal tax bracket. What tax factors should John consider in making the decision to extend the rental of the condo?
In: Accounting
Kellogg Company manufactures and markets ready to eat cereal and convince foods including raisin bran, pop tarts, rice Krisp treats and Pringles. In addition to the raw material used when producing its products. As of January 2, 2016, Kellogg Company has approximately 33,577 employees. A shortages in the labor pool, regulatory measures and other pressures could increase the company's labor cost, having a negative impact on the company's operating income.
1. Suppose Kellogg company noticed an increase in its actual direct labor cost compared to the budgeted amount. How could Kellogg Company investigate it?
2. What is the direct labor cost variance and how would a company calculate this variance?
3. What is the direct labor efficiency variance and how would a company calculate it?
4. Suppose that Kellogg company found an unfavorable total direct labor variance that was due completely to the direct labor cost variance. What measures could Kellogg company take to control this variance?
5. Suppose that Kellogg company found an unfavorable total direct labor variance that was due completely to the direct labor efficiency variance. What measures could Kellogg company take to control this variance?
In: Accounting
Refers to the concept of accounting infrastructure, which encompasses the various environmental factors affecting the issues concerning auditing in a particular country.
Required: Explain the environmental factors that affect the issues concerning auditing in SAUDI ARABIA.
In: Accounting
John Doe has just been offered a home loan towards purchase of house that is being sold for
$230,000.
He will be required to make a
15%
down payment, as well as mortgage processing fees and closing costs of
$3,000.
The loan has to be paid off in monthly payments over a 30-year period at a fixed interest rate of
6%
per year compounded monthly. He will also be required to pay an additional
$92
per month as mortgage insurance. Using Excel, answer the following questions:
(a) The monthly mortgage payment is
(enter as a positive number to the nearest dollar) (b) The total monthly payment is
(enter as a positive number to the nearest dollar)(c) The nominal APR is
(to the nearest 2 decimal places) The effective APR is
(to the nearest 2 decimal places)(d) Over the 30-year period, the total amount of interest paid on the loan is
(enter as a positive number to the nearest dollar).(e) The interest amount in the month
60
payment is
(enter as a positive number to the nearest dollar) The principal amount in the month
60
payment is
(enter as a positive number to the nearest dollar)(f) The balance on the loan immediately after making the payment at the end of month
60
is
(enter as a positive number to the nearest dollar)
In: Accounting
Net Present Value
Use Exhibit 12B.1 and Exhibit 12B.2 to locate the present value of an annuity of $1, which is the amount to be multiplied times the future annual cash flow amount.
Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.
Required:
1. Compute the NPV for Campbell Manufacturing,
assuming a discount rate of 12%. If required, round all present
value calculations to the nearest dollar. Use the minus sign to
indicate a negative NPV.
$
Should the company buy the new welding system?
No
2. Conceptual Connection: Assuming a required
rate of return of 8%, calculate the NPV for Evee Cardenas'
investment. Round to the nearest dollar. If required, round all
present value calculations to the nearest dollar. Use the minus
sign to indicate a negative NPV.
$
Should she invest?
Yes
What if the estimated return was $135,000 per year? Calculate
the new NPV for Evee Cardenas' investment. Would this affect the
decision? What does this tell you about your analysis? Round to the
nearest dollar.
$
The shop should now be purchased. This reveals that the decision to accept or reject in this case is affected by differences in estimated returns
3. What was the required investment for Barker
Company's project? Round to the nearest dollar. If required, round
all present value calculations to the nearest dollar.
$
In: Accounting
Q: As an accounting professional, what can you do better than machines or artificial intelligence? If accounting and auditing standards are 100% rules-based without any judgment, would there be more or less accounting jobs for us?
In: Accounting