Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.

Corrigan’s selling price is $65 per unit for the universal gismo, which is subject to a 15 percent sales commission. (In the following requirements, ignore income taxes.)

Required:

1. How many units must the company sell to break even if Model 6754 is selected? (Do not round intermediate calculations and round your final answer up to nearest whole number.)

2. Calculate the net income of the two systems if sales and production are expected to average 49,000 units per year.

3. Which of the two systems would be more profitable? Model No. 675 or   Model No. 4399

4. Assume Model 4399 requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $410,000 and will be depreciated over a five-year life by the straight-line method. How many units must Corrigan sell to earn $959,000 of income if Model 4399 is selected? As in requirement (2), sales and production are expected to average 49,000 units per year. (Do not round intermediate calculations and round your final answer up to nearest whole number.)

5. Ignoring the information presented in part (4), at what volume level will the annual total cost of each system be equal? (Do not round intermediate calculations and round your final answer up to nearest whole number.)

Disk City, Inc. is a retailer for digital video disks. The projected net income for the current year is $1,920,000 based on a sales volume of 290,000 video disks. Disk City has been selling the disks for $16 each. The variable costs consist of the $6 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $400,000.

Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 30 percent. (Ignore income taxes.)

Required:

1. Calculate Disk City’s break-even point for the current year in number of video disks. (Round your final answer up to nearest whole number.)
2. What will be the company’s net income for the current year if there is a 10 percent increase in projected unit sales volume?
3. What volume of sales (in dollars) must Disk City achieve in the coming year to maintain the same net income as projected for the current year if the unit selling price remains at $16? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)
4. In order to cover a 30 percent increase in the disk’s purchase price for the coming year and still maintain the current contribution-margin ratio, what selling price per disk must Disk City establish for the coming year? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

2.        Shauna Coleman is single. She works as an architectural designer for Streamline Design (SD).For 2018, she correctly calculated her AGI to be $107,000. However, she wasn’t sure how to compute the rest of her taxable income. She provided the following information with hopes that you could use it to determine her 2018 federal income tax return.

a.           Shauna paid $4,680 for medical expenses for care from a broken ankle sustained in a biking accident. Blake, Shauna’s boyfriend, drove Shauna (in her car) a total of 115 miles so that she could receive care for the broken ankle.

b.          Shauna paid a total of $3,400 in health insurance premiums during the year (not through an exchange). SD did not reimburse any of this expense. Besides the health insurance premiums and the medical expenses for her broken ankle, Shauna had Lasik eye surgery last year and she paid $3,000 for the surgery (she received no insurance reimbursement). She also incurred $450 of other medical expenses for the year.

c.           SD withheld $1,800 of state income tax, $7,495 of Social Security tax, and $14,500 of federal income tax from Shauna’s paychecks throughout the year.

d.          In 2018, Shauna was due a refund of $250 for overpaying her 2017 state taxes. On her 2017 state tax return that she filed in April of 2018, she applied the overpayment towards her 2018 state tax liability. She wasn’t sure but she estimated that her state tax liability for 2018 will be $2,300.

e.           Shauna paid $3,200 of property taxes on her personal residence. She also paid $500 to the developer of her subdivision, because he had to replace the sidewalk in certain areas of the subdivision.

f.            Shauna paid a $200 property tax based on the state’s estimate of the value of her car.

g.           Shauna has a home mortgage loan in the amount of $220,000 that she secured when she purchased the home. The home is worth about $400,000. Shauna paid interest of $12,300 in interest on the loan this year.

h.          Shauna made several charitable contributions throughout the year. She contributed stock in ZYX Corp. to the Red Cross. On the date of the contribution, the FMV of the donated shares was $1,000 and her basis in the shares was $400. Shauna originally bought the ZYX Corp. stock in 2008. Shauna also contributed $300 cash to State University and religious artifacts she has held for several years to her church. The artifacts were valued at $500 and Shauna’s basis in the items was $300. Shauna had every reason to believe the church would keep them on display indefinitely. Shauna also drove 200 miles doing church-related errands

i             Shauna paid $250 in investment advisory fees and another $150 to have her tax return prepared (that is, she paid $150 in 2018 to have her 2017 tax return prepared).

j.            Shauna is involved in horse racing as a hobby. During the year, she won $2,500 in prize money (which she is including in income) and incurred $10,000 in expenses. She has never had a profitable year with her horse racing activities, so she acknowledges that this is a hobby for federal income tax purposes.

k.              Shauna sustained $2,000 in gambling losses over the year (mostly horse-racing bets) and   only had $200 in winnings (which she is including in income)

Required: Determine Shauna’s 2018 taxable income starting with Adjusted Gross Income of $107,000 reported on line 7 of Form 1040 and complete page 2 of Form 1040 through Taxable Income, line 10. Also complete Schedule A, Itemized Deductions.

On June 1, 2017, Griffin Company issued $294,000 of 20-year, 7% bonds at 112. The bonds were dated June 1, 2017, and pay interest on June 1 and December 1. Griffin Company uses the straight-line method to amortize the discount or premium. Required: Assuming that the entry to amortize the discount or premium to date has been made, what is the carrying value of the bonds on December 31, 2023?

Pick ONE of the following options: Develop an ad campaign for a company/product/service related to your employment (note that if your employment is B2B in nature, most B2B doesn’t involve much advertising. They tend to use other promotional elements. So keep that in mind), OR Develop an ad campaign for your very own local tanning salon OR sporting goods store that’s been in business for just over one year To try to develop demand for your company/product/service -- OR to resuscitate your ailing store -- you've decided to conduct an ad campaign. Following the steps outlined in the Lecture from Chapter 18, provide a detailed description of your campaign. Be sure to mention each of the areas listed below. Also be sure that you are focusing on strategies for this specific ad campaign -- not simply your advertising or marketing in general. Do not use any current advertising campaign! NOTE: If you select your current employer who uses a differentiated strategy, select only one specific target market for this campaign. Introduction Please start by giving a brief explanation of the product/service/store you are advertising. Step 1 -- target market of this specific ad campaign Provide a geographic, demographic, and psychographic description of your target. I am looking for an insightful description of your target. Step 2a -- objective of this specific ad campaign Be sure you identify what you want this ad campaign to accomplish. Which of the types of advertising (informative, persuasive or reminder) will you be using and why? Step 2b -- focus of campaign What will be the focus of your ads – product-focused or institutional? Why? (NOTE: In addition to your text, see the lecture for clarification of these terms). Step 3 –- determine your budget Think about the size of your business, overall sales and success. You don’t need a specific budget number but discuss how these areas will affect how much you are able to spend and whether that potentially eliminates some types of media. Step 4a –- convey the message (Be creative!) Develop a unique selling proposition (USP) for the campaign. Make sure to provide an explanation of your rationale for the USP. Step 4b -- appeal Will you use an informational or emotional appeal? Why? Step 5a & b -– media types and vehicles. Describe which media types you will use and why. List the specific media vehicles for each type. A media vehicle is the specific communication tool. For instance if magazine is the media type, then Sports Illustrated or Cosmopolitan is the media vehicle; if TV is the media type then Food Network or “FOX2 News at 10pm” is the vehicle (it can be a cable network or a specific program). Step 5c -– media schedule How will you schedule your media? (continuous, pulsing, flighting)? Explain how your budget will help you make this decision. Step 6 -- IMC – integrating your ad with the rest of the promotional tools Identify and discuss other, non-advertising promotions you will use to coordinate with this ad campaign. Are there personal selling, sales promotions/incentives, public relations and/or social media efforts you’d like to include? (Keep being creative!) Really explore social media strategies using the information from Chapter 3. NOTE: In your book, step 6 is creating the ad but we are substituting IMC in this activity. Step 7 –- evaluating your campaign This is maybe one of the most important steps. How will you evaluate the effectiveness of your campaign? How will you know if it “worked?” How will you know if you should repeat the campaign, or completely revamp it? You can use some of the methods talked about in the lecture or your book.

Current Attempt in Progress

The comparative statements of Sandhill Co. are presented here.

All sales were on account. Net cash provided by operating activities for 2017 was $229,000. Capital expenditures were $137,000, and cash dividends were $61,400.

Compute the following ratios for 2017. (Round all answers to 2 decimal places, e.g. 1.83 or 1.83%.)

The following totals are used to create a CVP Income Statement for Frederick Company for FY2018:

Frederick Company utilizes a JIT production system and there are no Raw Materials, Work-in-Process or Finished Goods inventories. Use this information to determine the FY 2016 breakeven point in units. Round and enter as a whole number.

Mello Manufacturing Company is a diversified manufacturer that manufactures three products (Alpha, Beta, and Omega) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:

The activity bases identified for each activity are as follows:

The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

Each product requires 40 minutes per unit of machine time.

Bowie Sporting Goods manufactures sleeping bags. The manufacturing standards per sleeping bag, based on 5,000 sleeping bags per month, are as follows:

Direct material of 6.00 yards at $5.75 per yard

Direct labor of 3.00 hours at $17.00 per hour

Overhead applied per sleeping bag at $15.00

In the month of April, the company actually produced 5,200 sleeping bags using 27,300 yards of material at a cost of $5.10 per yard. The labor used was 11,700 hours at an average rate of $18.50 per hour. The actual overhead spending was $96,200.

Determine the total materials variance and round to the nearest whole dollar. Enter a favorable variance as a negative number. Enter an unfavorable variance as a positive number.

Wolsey Industries Inc. expects to maintain the same inventories at the end of 20Y3 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 21,300 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 25,825 units.

2. What is the expected contribution margin ratio?

3. Determine the break-even sales in units and dollars. Round your answers to the nearest whole number.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?

$

5. What is the expected margin of safety in dollars and as a percentage of sales? If applicable, use amounts previously computed and then round your answers to the nearest whole number.

6. Determine the operating leverage. Round to one decimal place.

Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products.

The gaming market has traditionally been targeted at teenagers and young adults; however, the increasing affordability of computers and the incorporation of computer activities into junior high and elementary school curriculums has led to a significant increase in sales to younger children. MSI has always included games for younger children but now wants to expand its business to capitalize on changes in the industry. The company currently has excess capacity and is investigating several possible ways to improve profitability.

MSI is considering eliminating a product from its ToddleTown Tours collection. This collection is aimed at children one to three years of age and includes “tours” of a hypothetical town. Two products, The Pet Store Parade and The Grocery Getaway, have impressive sales. However, sales for the third CD in the collection, The Post Office Polka, have lagged the others. Several other CDs are planned for this collection, but none is ready for production.

MSI’s information related to the ToddleTown Tours collection follows:

      
*Allocated based on total sales dollars.

MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining fixed overhead currently allocated to the POP product would be redistributed to the remaining two products.

Required:
1. Calculate the incremental effect on profit if the POP product is eliminated.

2. Should MSI drop the POP product?

3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1,200 of the common fixed costs could be avoided if the POP product line were eliminated.

3-b. Should MSI drop the POP product?

Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products.

The gaming market has traditionally been targeted at teenagers and young adults; however, the increasing affordability of computers and the incorporation of computer activities into junior high and elementary school curriculums has led to a significant increase in sales to younger children. MSI has always included games for younger children but now wants to expand its business to capitalize on changes in the industry. The company currently has excess capacity and is investigating several possible ways to improve profitability.

MSI’s educational products are currently sold without any supplemental materials. The company is considering the inclusion of instructional materials such as an overhead slide presentation, potential test questions, and classroom bulletin board materials for teachers. A summary of the expected costs and revenues for MSI’s two options follows:

  
Required:
1. Based on the given data, Compute the increase or decrease in profit that would result if instructional materials were added to the CDs.

2. Should MSI add the instructional materials or sell the CDs without them?

  
3-a. Suppose that the higher price of the CDs with instructional materials is expected to reduce demand to 20,000 units. Complete the table given below based on Requirement 1 and 2 data.

  

3-b. Should MSI add the instructional materials or sell the CDs without them?

Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products.

The gaming market has traditionally been targeted at teenagers and young adults; however, the increasing affordability of computers and the incorporation of computer activities into junior high and elementary school curriculums has led to a significant increase in sales to younger children. MSI has always included games for younger children but now wants to expand its business to capitalize on changes in the industry. The company currently has excess capacity and is investigating several possible ways to improve profitability.

MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co. (MLC) to produce 25,000 units of the module per year for $22.00 each. The following information pertains to MSI’s production of the control modules:        

MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production.

Required:
1. Compute the difference in cost between making and buying the control module.

Difference in Cost:

2. Should MSI buy the modules from MLC or continue to make them?

3-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $41,000 in annual profit. Recompute the difference in cost between making and buying under this scenario.

Difference in Cost:

3-b. Does this change your recommendation to MSI?

“I’m not sure we should lay out $360,000 for that automated welding machine,” said Jim Alder, president of the Superior Equipment Company. “That’s a lot of money, and it would cost us $96,000 for software and installation, and another $62,400 per year just to maintain the thing. In addition, the manufacturer admits it would cost $59,000 more at the end of three years to replace worn-out parts.”

“I admit it’s a lot of money,” said Franci Rogers, the controller. “But you know the turnover problem we’ve had with the welding crew. This machine would replace six welders at a cost savings of $126,000 per year. And we would save another $8,700 per year in reduced material waste. When you figure that the automated welder would last for six years, I’m sure the return would be greater than our 17% required rate of return.”

“I’m still not convinced,” countered Mr. Alder. “We can only get $23,000 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will only be worth $42,000 for parts. But have your people work up the figures and we’ll talk about them at the executive committee meeting tomorrow.”

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. Compute the annual net cost savings promised by the automated welding machine.

2a. Using the data from (1) above and other data from the problem, compute the automated welding machine’s net present value.

2b. Would you recommend purchasing the automated welding machine?

3. Assume that management can identify several intangible benefits associated with the automated welding machine, including greater flexibility in shifting from one type of product to another, improved quality of output, and faster delivery as a result of reduced throughput time. What minimum dollar value per year would management have to attach to these intangible benefits in order to make the new welding machine an acceptable investment?

Jeremy and Alyssa Johnson have been married for five years and do not have any children. Jeremy was married previously and has one child from the prior marriage. He is self-employed and operates his own computer repair store. For the first two months of this year, Alyssa worked for Office Depot as an employee. In March, Alyssa accepted a new job with Super Toys, Inc. (ST) where she worked for the remainder of the year. This year the Johnsons received $274,000 of gross income.

a. Expenses associated with Jeremy’s store include $44,750 in salary (and employment taxes) to employees, $50,700 of supplies, and $19,900 in rent and other administrative expenses.

b. As a salesperson, Alyssa incurred $2,190 in travel expenses related to her employment that were not reimbursed by her employer.

c. The Johnsons own a piece of raw land held as an investment. They paid $690 of real property taxes on the property and they incurred $295 of expenses in travel costs to see the property and to evaluate other similar potential investment properties.

d. The Johnsons own a rental home. They incurred $8,690 of expenses associated with the property.

e. Jeremy paid $4,690 for health insurance coverage for himself (not through an exchange). Alyssa was covered by health plans provided by her employer, but Jeremy is not eligible for the plan until next year.

f. Jeremy paid $2,690 in self-employment taxes ($1,345 represents the employer portion of the self-employment taxes).

g. Jeremy paid $5,380 in alimony and $3,285 in child support from his prior marriage (divorced 2010).

h. The Johnsons donated $2,190 to their favorite charity.

Determine the Johnson"s AGI given the above information