FINE WOOD MACHINING IS CONSIDERING REPLACING AN EXISTING LATHE WITH A MORE EFFICIENT LATH. THE NEW LATHE COST $55,000 AND REQUIRES $5,000 IN INSTALLATION COST. THE OLD LATHE WAS PURCHASED 2 YEARS AGO FOR AN INSTALLED COST OF $35,000 AND HAS A BOOK VALUE OF $16,800. IT CAN BE SOLD TODAY FOR $20,000. ASSUME THE NEW MACHINE INCREASES WORKING CAPITAL BY $2,000. THE FIRM IS IN THE 21% TAX BRACKET. THE NEW MACHINE WILL PROVIDE $15,000/YEAR OF INCREMENTAL OPERATING CASH FLOWS FOR 4 YEARS AND THE COMPANY’S COST OF CAPITAL IS 10%.
I HAVE THE BA II PLUS AND THE TI-84 PLUS, PLEASE SHOW YOUR CALCULATED WORK. THANKS!
A: WHAT IS THE INITIAL INVESTMENT FOR THE PROPOSED PROJECT?
B: COMPUTE THE NET PRESENT VALUE FOR THE PROJECT.
C: COMPUTE THE IRR.
D: MAKE A RECOMMENDATION TO ACCEPT OR REJECT THE PROJECT AND EXPLAIN.
In: Accounting
Cost Information and the Weighted Average Method
Morrison Company had the equivalent units schedule and cost information for its Sewing Department for the month of December, as shown below.
Direct Materials | Conversion Costs | ||||||
Units completed | 48,000 | 48,000 | |||||
Add: Units in ending work in process × | |||||||
Percentage complete: | |||||||
17,000 × 100% direct materials | 17,000 | — | |||||
17,000 × 40% conversion materials | — | 6,800 | |||||
Eqivalent units of output | 65,000 | 54,800 | |||||
Costs: | |||||||
Work in process, December 1: | |||||||
Direct materials | $60,000 | ||||||
Conversion costs | 12,000 | ||||||
Total work in process | $72,000 | ||||||
Current costs: | |||||||
Direct materials | $500,000 | ||||||
Conversion costs | 186,000 | ||||||
Total current costs | $686,000 |
Required:
1. Calculate the unit cost for December, using
the weighted average method. Do NOT round interim calculations and,
if required, round your answer to the nearest cent.
$ per equivalent unit
2. Calculate the cost of goods transferred out, calculate the cost of EWIP, and reconcile the costs assigned with the costs to account for.
Cost of goods transferred out:
Units completed | $ |
Cost of EWIP | |
Total costs assigned (accounted for) | $ |
Reconciliation
Cost to account for:
BWIP | $ |
Current (December) | |
Total | $ |
3. What if you were
asked to show that the weighted average unit cost for materials is
the blend of the November unit materials cost and the December unit
materials cost? The November unit materials cost is $3.53
($60,000/17,000), and the December unit materials cost is $10.42
($500,000/48,000). The equivalent units in BWIP are 17,000, and the
FIFO equivalent units are 48,000. Calculate the weighted average
unit materials cost using weights defined as the proportion of
total units completed from each source (BWIP output and current
output). Do NOT round interim calculations and, if required, round
your answer to the nearest cent.
$ per unit
In: Accounting
What is a good example of a company that uses job costing and another company that uses process costing? Also, what type of products do these companies make or provide services for and why would one company use one method over the other?
In: Accounting
In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be managed in the free time he has available from his regular occupation, and it could be closed easily when he retires. After careful study, Mr. Duncan determined the following:
Mr. Duncan will not open the car wash unless it provides at least a 15% return.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation.
2-a. Determine the net present value using the net present value method of investment analysis.
2-b. Would you advise Mr. Duncan to open the car wash?
In: Accounting
On January 1, 2017, Blue Company issued $1,810,000 face value, 7%, 10-year bonds at $1,943,218. This price resulted in a 6% effective-interest rate on the bonds. Blue uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1.
A. Prepare the journal entries to record the following transactions. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
1. | The issuance of the bonds on January 1, 2017. | |
2. | Accrual of interest and amortization of the premium on December 31, 2017. | |
3. | The payment of interest on January 1, 2018. | |
4. |
Accrual of interest and amortization of the premium on December 31, 2018. |
B. Show the proper long-term liabilities balance sheet presentation for the liability for bonds payable at December 31, 2018. (Round answers to 0 decimal places, e.g. 125.)
C. Provide the answers to the following
questions.
1. What amount of interest expense is reported for 2018?
(Round answer to 0 decimal places, e.g.
125.)
Interest expense to be reported |
$ enter Interest expense in dollars |
2. The bond interest expense reported in 2018 would be (select an
option: greater than, less than, same as) the amount that would be
reported if the straight-line method of amortization were used.
In: Accounting
Tharp Company operates a small factory in which it manufactures
two products: C and D. Production and sales results for last year
were as follows.
C | D | ||||
Units sold | 9,200 | 19,900 | |||
Selling price per unit | $95 | $78 | |||
Variable cost per unit | 49 | 42 | |||
Fixed cost per unit | 25 | 25 |
For purposes of simplicity, the firm averages total fixed costs
over the total number of units of C and D produced and sold.
The research department has developed a new
product (E) as a replacement for product D. Market studies show
that Tharp Company could sell 11,600 units of E next year at a
price of $114; the variable cost per unit of E is $42. The
introduction of product E will lead to a 12% increase in demand for
product C and discontinuation of product D. If the company does not
introduce the new product, it expects next year’s results to be the
same as last year’s.
Compute company profit with products C & D and with products C
& E.
Net profit with products C & D | $ | ||
Net profit with products C & E | $ |
Should Tharp Company introduce product E next year? (Yes or NO)
e7.17
In: Accounting
In preparing for the upcoming holiday season, Fresh Toy Company (FTC) designed a new doll called The Dougie that teaches children how to dance. The fixed cost to produce the doll is $120,000. The variable cost, which includes material, labor, and shipping costs, is $30 per doll. During the holiday selling season, FTC will sell the dolls for $45 each. If FTC overproduces the dolls, the excess dolls will be sold in January through a distributor who has agreed to pay FTC $8 per doll. Demand for new toys during the holiday selling season is extremely uncertain. Forecasts are for expected sales of 40,000 dolls with a standard deviation of 10,000. The normal probability distribution is assumed to be a good description of the demand. FTC has tentatively decided to produce 40,000 units (the same as average demand), but it wants to conduct an analysis regarding this production quantity before finalizing the decision.
In: Accounting
The following investments are available to you:
Annual pretax yield
The stocks are subject to a tax rate of 40% of the tax rate applicable to fully taxable bonds. This lower tax rate reflects capital gains treatment and deferral of taxation
At what tax rate are you indifferent between investing the fully taxable bonds and stocks and at what tax rate are you indifferent between investing in stocks and tax-exempt bonds?
In: Accounting
Glad Bags produces restaurant storage containers. The company makes two sizes of containers: regular (55 gallon) and large (100 gallon). The company uses the same machinery to produce both sizes. The machinery can be run for only 2,500 hours per period. Glad can produce 20 regular containers every hour, whereas it can produce 8 large containers in the same amount of time. Fixed costs amount to $1,000,000 per period. Sales prices and variable costs are as follows:
Per Unit |
Regular |
Large |
Sales price |
$105 |
$225 |
Variable costs |
28 |
42 |
Demand |
30,000 |
20,000 |
Total investment $12,500,000
Required rate of return 10%
Consider each of the following INDEPENDENT scenarios:
1) To maximize profits, how many of each size container should Glad produce? Prepare an income statement with this level of sales. What other strategies might Glad consider
In: Accounting
Camarillo Manufacturing Company was established to manufacture
two types of pipe fittings, XL1 and XL2. The manufacturing process
involves molding the fittings and then smoothing them.
The firm was initially capitalized with $500,000 as an S
Corporation. The firm purchased equipment for $450,000 with cash of
$125,000 and a note payable of $325,000. It also acquired furniture
for $120,000 with cash of $60,000 and a note payable of $60,000.
Management is now preparing the master budget for the first year of
operations.
Sales Budget
Management expects to meet established market prices for its pipe
fittings of $50 for XL1 and $40 for XL2. Sales representatives have
estimated that total sales of XL1 fittings will be 4,500 units and
sales of XL2 will be 12,000 units.
Production Budget
Management has expressed a desire to have 1,000 units of XL1 and
3,000 units of XL2 in ending inventory.
Material Acquisition Budget
The firm’s industrial engineer has prepared standards that call for
0.6 pounds of material per XL1 casting and 0.4 pounds per XL2
casting. Both products require the same material. Management also
desires to end the period with 2,000 pounds of material in raw
materials inventory. The purchasing agent anticipates that the
metal can be purchased at an average cost of $4 per pound.
Direct Labor Budget
The standards for a unit of XL1 call for 0.5 hours of direct labor
in Molding and 0.3 hours in Smoothing. The standards for a unit of
XL2 call for 0.4 hours in Molding and 0.2 hours in Smoothing.
Management’s anticipated average cost for labor is $15 per
hour.
Factory Overhead Budget
Service Department 1 handles personnel matters. The firm
anticipates having 12 factory employees and expects the variable
costs to operate the personnel department to average $1,000 per
employee. The cost of this department is allocated to other
departments on the assumption that there will be three employees in
the maintenance department, five employees in the molding
department, and four employees in the smoothing department. The
personnel department’s fixed costs are estimated to be $15,000 and
will be allocated on a lump sum basis at $3,000 to maintenance,
$6,000 to molding and $6,000 to smoothing.
The maintenance department is budgeted to make 100 service calls during the period, 60 calls for the molding department and 40 calls for the smoothing department. The maintenance manager estimates that it will cost an average of $150 in variable costs per service call. The fixed costs of $14,000 are thought to benefit the two production departments equally.
The molding department is expected to incur $29,000 in variable overhead and $42,000 in fixed overhead. The smoothing department is expected to have $32,000 in variable overhead and $8,000 in fixed overhead.
Management has decided to allocated 60% of the fixed overhead cost of molding to XL1 and 40% to XL2 and split the fixed smoothing costs evenly between the two products. Variable costs will be allocated based on direct labor hours.
Selling and Administration Expenses
Budget
Budgeted selling and administration expenses are $126,400. This
includes sales commissions at 10% of sales or $56,400;
administration salaries of $30,000; advertising of $6,000; supplies
of $2,000 and interest of $32,000.
Budgeting Cash Receipts and Disbursements
Sales are presumed to be $100,000 in the first quarter; $160,000 in
the second quarter; $220,000 in the third quarter and $225,000 in
the fourth quarter. Seventy percent of sales will be paid for in
the quarter in which they are made and thirty percent will be paid
in the quarter following the sale. Production will be spread
uniformly over the year. The firm will pay for materials, supplies,
and labor in the quarter the cost is incurred. Utilities will be
paid one month after incurred. Half the property tax is aid in the
first and third quarters. The first payment for a new company is
not made until the third quarter. Sales commissions are paid in the
quarter a sale is made. Other selling and administration costs are
incurred and paid uniformly. Finally, the firm makes note payments
of $30,000 per quarter which consists of $22,000 of principal
repayment and $8,000 of interest. Total Costs include depreciation
of $27,000; $21,000 for equipment and $6,000 for the furniture.
Additional Information
Factory Overhead Budget | Personnel | Maintenance | Molding | Smoothing |
Variable Overhead Items | ||||
Indirect Labor | $6,000 | $8,000 | $9,000 | $18,000 |
Supplies | 4,000 | 3,000 | 19,000 | 8,000 |
Utilities | 2,000 | 1,000 | 1,000 | 6,000 |
Fixed Overhead Items | ||||
Property Taxes | 2,000 | 3,000 | 19,000 | 2,000 |
Utilities | 5,000 | 2,000 | 11,000 | 5,000 |
Depreciation | 8,000 | 6,000 | 12,000 | 1,000 |
Sales by Quarter:
1st $100,000
2nd 160,000
3rd 220,000
4th 225,000
Budgeted Selling & Administration Expenses:
Sales Commissions | $70,500 |
Administrative Salaries | 30,000 |
Advertising | 6,000 |
Supplies | 2,000 |
Interest | 32,000 |
Required
Prepare the following budgets:
Factory overhead budget
In: Accounting
Please read and respond/add to posting:
The primary ways to plan for taxes are under standard deductions or itemized ones. The simpler, more commonly used method is the standard deduction, which may be seen as a catch-all, and take much less effort for the planner, as it is a a set amount (which may change periodically). The itemized selection may occasionally save the taxpayer more money, but there are more parts to it, and more things to input. I personally have always taken the standard deduction because it was the easier way to go about having my taxes done, and I don't know of anyone who regularly itemizes their return.
In: Accounting
Mixed Costs and Cost Formula
Callie's Gym is a complete fitness center. Owner Callie Ducain employs various fitness trainers who are expected to staff the front desk and to teach fitness classes. While on the front desk, trainers answer the phone, handle walk-ins and show them around the gym, answer member questions about the weight machines, and do light cleaning (wiping down the equipment, vacuuming the floor). The trainers also teach fitness classes (e.g., pilates, spinning, body pump) according to their own interest and training level. The cost of the fitness trainers is $600 per month and $20 per class taught. Last month, 100 classes were taught.
Required:
1. Develop a cost equation for total cost of labor.
Total labor cost | = | $ | + | $ per class taught |
2. | What was total variable labor cost last month? |
$ |
3. | What was total labor cost last month? |
$ |
4. | What was the unit cost of labor (per class) for last month? |
$ per class |
5. | What if Callie increased the number of classes offered by 50 percent? |
a. | What would be the total labor cost? |
$ | |
b. | The unit labor cost? |
$ | |
c. | Explain why the unit labor cost decreased. |
In: Accounting
CP 9‐5
Paul’s Roofing Corporation paid monthly corporate income tax
installments of $500 commencing February 15, 2019. The company’s
income before income taxes for the year ended December 31, 2019
was $15,000. The corporate income tax rate is 40%. Paul’s Roofing paid
the 2019 corporate income taxes owing on January 31, 2020.
CHAPTER NINE / Debt Financing: Current and Non‐current Liabilities First US Edition
Required:
1. Record the February 15, 2019 payment.
2. Record the 2019 corporate income tax expense.
3. Record the January 31, 2020 payment.
Descriptions and general ledger account numbers are not necessary.
Show calculations where applicable.
In: Accounting
holding too much inventory can be a problem. As a future manager, discuss the pros and cons of having inventory on hand. what can a manager do to ensure he/she has the right amount of inventory on hand?
In: Accounting
The market price of a security is $70. Its expected rate of return is 14%. The risk-free rate is 6% and the market risk premium is 8.5%. What will be the market price of the security if its correlation coefficient with the market portfolio doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity
In: Accounting