Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows:
| Sales | $ | 2,160,000 |
| Variable expenses | 1,080,000 | |
| Contribution margin | 1,080,000 | |
| Fixed expenses | 200,000 | |
| Net operating income | $ | 880,000 |
Required:
Answer each question independently based on the original data:
1. What is the product's CM ratio?
2. Use the CM ratio to determine the break-even point in dollar sales.
3. If this year's sales increase by $59,000 and fixed expenses do not change, how much will net operating income increase?
4-a. What is the degree of operating leverage based on last year's sales?
4-b. Assume the president expects this year's sales to increase by 10%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?
5. The sales manager is convinced that a 12% reduction in the selling price, combined with a $60,000 increase in advertising, would increase this year's unit sales by 25%.
a. If the sales manager is right, what would be this year's net operating income if his ideas are implemented?
b. Do you recommend implementing the sales manager's suggestions?
6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.90 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $880,000 net operating income as last year? Do not prepare an income statement; use the incremental analysis approach.
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considering the Food and General Merchandise types of retailers (not Service): What type of retailer do you think is experiencing the biggest growth? Why? What type of retailer do you think is decreasing in popularity? Why? Now thinking of Service Retailers: Why are these types of retailers growing significantly? What specific service retailer do you think does a really good job, meaning it runs very efficiently and takes good care of its customers?
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During 2016, Dana Company decided to begin investing its idle cash in marketable securities. The information contained below relates to Dana’s 2016 marketable security transactions:
| Feb. 3 | Purchased 3,000 shares of Blair Company common stock for $12 per share. |
| Apr. 1 | Purchased $20,000 face value of Solomon Inc. 12% bonds at par plus accrued interest; interest on the bonds is payable each June 30 and December 31. |
| Jun. 30 | Received the semiannual interest on the Solomon bonds and a $0.25 per share dividend on the Blair common stock. |
| Sept. 1 | Purchased 4,000 shares of Woodman Corporation common stock for $22 per share. |
| Nov. 1 | Purchased $30,000 face value of Edwards Company 11% bonds at par plus accrued interest; interest on the bonds is payable each June 1 and December 1. |
| Dec. 1 | Received the interest on the Edwards bonds and sold the bonds for $30,300. |
| Dec. 30 | Received a $0.25 dividend per share on the Blair common stock and sold all the shares for $35,300. |
| Dec. 31 | Received the interest on the Solomon bonds. The following information is available concerning the year-end market prices: |
|
Security |
Quoted Market |
| Solomon 12% bonds | $20,200 |
| Woodman common (per share) | 23 |
Required:
| 1. | Record Dana’s investment transactions for 2016. |
| 2. | Show the items of income or loss on temporary investments Dana reports on its 2016 income statement. |
| 3. | Show the carrying value of Dana’s investment account on its December 31, 2016, balance sheet. |
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Proof that the PV of nominal CFs at a nominal rate of interest is equal to PV of the parallel real CFs at a equivalent real rate of interest.
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Question 3: Woo Ltd. recently conducted an extensive review of its accounting and reporting policies. The following accounting changes are an outgrowth of that review: 1. Woo acquired a machine at a cost of $400,000 in 2016. The machine has been depreciated on a straight-line basis with no residual value since it was acquired. During 2019, it was decided that the benefits from the machine would be consumed over a total of 13 years rather than the 20-year useful life now being used to depreciate its cost. 2. At the beginning of 2019, Woo changed its method of valuing inventory from the FIFO cost method to the weighted-average cost method. At December 31, 2018 and 2017, Woo’s inventories were as follow: 2018 2017 On a FIFO cost basis $560,000 $540,000 On a weighted-average cost basis $500,000 $490,000 3. Woo‘s income tax rate is 20%. 4. Woo reports net income for 2019 and 2018 for the following amounts: 2019 2018 Net income $840,000 $900,000 5. The retained earnings of Woo as at December 31, 2018 and 2017 before adjusting the effect from the changes in inventory valuation method are as follow: 2018 2017 Retain earnings $3,200,000 $2,800,000 6. Dividends declared during 2019 and 2018 were $100,000 and $500,000, respectively. Required: a. Prepare the journal entries needed in 2019 related to each change. [10 marks] b. Prepare the statements of changes in equity (in part) for the year ended at 31 December 2019 after the adjustments (including comparative figure for 2018) in accordance with HKAS 8. [10 marks]
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Financial ratios are relationships between two financial statement numbers and are often used in analyzing and describing a company's performance. Liquidity is a measure of a company’s ability to pay their short-term obligations as they come due. Select and define two ratios and explain how they could be used to describe a company's liquidity.
In: Accounting
"Time Value of Money "
The time value of money is a critical concept to understand in accounting, especially when dealing with loans, investment analysis, and capital budgeting decisions. The time value of money concept can be used to decide which projects to start and what investments to make. You can also utilize the time value of money concept in your personal life.
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Question # 1
Barhom’s Cellular (BC) is a distributor and sells phones for $1250. BC gets the phones for $900 each. BC pays the sales staff a commission of 10% for each phone sold. BC’s fixed selling, administrative & other fixed costs total $36,900 per year.
Required:
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Question #6.2: For each of the following independent cases:
a) Record the transaction using the accounting equation. Be specific about account names & $ amounts.
b) Indicate the effect of each transaction on the Statement of Cash Flow (SCF). Specify which section(s) of the SCF the transaction affects and in what direction. If there is no effect on the SCF, write “no effect”.
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Accounting Equation |
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Statement of Cash Flow |
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discuss the concept of cloud cost management, its application and other related issues
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Please write a minimum of 150 words each
6. When is revenue earned and therefore should be recognized?
7. When a company pays $10,000 for insurance that will cover it for two years, the transaction is not immediately recognized as an expense. Explain why.
8. Distinguish between cash flows resulting from operating activities, financing activities, and investing activities.
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Question # 3 Answer each of the following independent questions.
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Required information
Use the following information for the Exercises below.
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[The following information applies to the questions
displayed below.]
Ramirez Company installs a computerized manufacturing machine in
its factory at the beginning of the year at a cost of $44,200. The
machine's useful life is estimated at 10 years, or 392,000 units of
product, with a $5,000 salvage value. During its second year, the
machine produces 33,200 units of product.
Exercise 8-5 Units-of-production depreciation LO P1
Determine the machine’s second-year depreciation using the units-of-production method.
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In: Accounting
Under which method are revenues and expenses recognized in the same accounting period that cash receipts and payments occur?
| Under the cash basis of accounting |
| Under the accrual basis of accounting |
| Under the adjusting method of accounting |
| Under both the cash and accrual basis of accounting |
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