Problem 1-23A High-Low Method; Contribution Format Income Statement [LO1-5, LO1-6] Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid in planning, the company has decided to start using a contribution format income statement. To have data to prepare such a statement, the company has analyzed its expenses and has developed the following cost formulas: Cost Cost Formula Cost of good sold $30 per unit sold Advertising expense $180,000 per quarter Sales commissions 7% of sales Shipping expense ? Administrative salaries $90,000 per quarter Insurance expense $10,000 per quarter Depreciation expense $60,000 per quarter Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements. Units sold and the related shipping expense over the last eight quarters follow: Quarter Units Sold Shipping Expense Year 1: First 26,000 $ 170,000 Second 28,000 $ 185,000 Third 33,000 $ 227,000 Fourth 29,000 $ 190,000 Year 2: First 27,000 $ 180,000 Second 30,000 $ 195,000 Third 40,400 $ 242,000 Fourth 37,400 $ 218,000 Milden Company’s president would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter. Required: 1. Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above. 2. In the first quarter of Year 3, the company plans to sell 35,000 units at a selling price of $60 per unit. Prepare a contribution format income statement for the quarter. (Do not round your intermediate calculations.)

Titans, Inc uses a periodic inventory system. One of the store's most popular products is a nerf-type basketball. The inventory quantities, purchases, and sales of this product for the most recent year are as follows:

A. What is the cost of the December 31 inventory and the cost of goods sold for the basketballs during the year under each of the following cost flow assumptions? Show your work.

1. First in, first-out

2. Last in, first-out

3. Weighted Average cost (round to the nearest dollar, except unit cost)

B. Which of the three inventory pricing methods provides the most useful balance sheet valuation of inventory considering the current replacement cost of the basketballs? Explain.

C. Which of the three inventory pricing methods provides the most useful measure of income in light of the costs incurred by Titans to replace the basketballs when they are sold? Consider which method results in a net income measure that is most predictive of future profitability. In other words, if you were thinking about buying stock in Titans, which inventory pricing measure gives you the most useful measure of its future profitability? Explain.

Exercise 8-3 Direct Materials Budget [LO8-4]

Four grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $2.10 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

Musk oil has become so popular as a perfume ingredient that it has become necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 78,400 grams of musk oil will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.

Calculating the Cost of Equity Gabriel Industries stock has a beta of 1.12. The company just paid a dividend of $1.15, and the dividends are expected to grow at 4 percent. The expected return on the market is 11.4 percent, and Treasury bills are yielding 3.8 percent. The most recent stock price is $85.

a. Calculate the cost of equity using the dividend growth model method.

b. Calculate the cost of equity using the SML method.

c. Why do you think your estimates in (a) and (b) are so different?

Which of the following is true of sole proprietorships in the United States?

Taxes collected on the basis of the benefits-received principle:

Which of the following is true of sole proprietorships in the United States?

Which of the following is true of a recession?​

4. Now assume that your wealthy grandfather wants to invest some money in your behalf. He wants the money to be worth $65,000 on December 31, 2025. How much money will he need to invest on a one-time basis on December 31, 2020 in order to earn enough interest to accumulate to $65,000 by December 31, 2025? Assume a 5% interest rate. (Hint: I recommend that you use the PV formula in Excel to solve this problem.)
Use the information from Question 4 except assume that the interest rate is 3% per year. How much will he have to invest on a one-time basis on December 31, 2020 to have $65,000 by December 31, 2025? Please use excel and show the formula and screenshot

Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff. It was November of 20x0, and the group was discussing preparation of the firm’s master budget for 20x1. “I’ve decided to go ahead and purchase the industrial robot we’ve been talking about. We’ll make the acquisition on January 2 of next year, and I expect it will take most of the year to train the personnel and reorganize the production process to take full advantage of the new equipment.”In response to a question about financing the acquisition, Vaughn replied as follows: “The robot will cost $1,000,000. We’ll finance it with a one-year $1,000,000 loan from Shark Bank and Trust Com-pany. I’ve negotiated a repayment schedule of four equal installments on the last day of each quarter. The interest rate will be 10 percent, and interest payments will be quarterly as well.” With that the meeting broke up, and the budget process was on.Frame-It Company is a manufacturer of metal picture frames. The firm’s two product lines are designated as S (small frames, 5×7 inches) and L (large frames, 8×10 inches). The primary raw materials are flexible metal strips and 9-inch by 24-inch glass sheets. Each S frame requires a 2-foot metal strip; an L frame requires a 3-foot strip. Allowing for normal breakage and scrap glass, Frame-It can get either four S frames or two L frames out of a glass sheet. Other raw materials, such as cardboard backing, are insignificant in cost and are treated as indirect materials. Emily Jackson, Frame-It’s controller, is in charge of preparing the master budget for 20x1. She has gathered the following information:

1. Sales in the fourth quarter of 20x0 are expected to be 50,000 S frames and 40,000 L frames. The sales manager predicts that over the next two years, sales in each product line will grow by 5,000 units each quarter over the previous quarter. For example, S frame sales in the first quarter of 20x1 are expected to be 55,000 units.

2. Frame-It’s sales history indicates that 60 percent of all sales are on credit, with the remainder of the sales in cash. The company’s collection experience shows that 80 percent of the credit sales are collected dur-ing the quarter in which the sale is made, while the remaining 20 percent is collected in the following quarter. (For simplicity, assume the company is able to collect 100 percent of its accounts receivable.)

3. The S frame sells for $10, and the L frame sells for $15. These prices are expected to hold con-stant throughout 20x1.

4. Frame-It’s production manager attempts to end each quarter with enough finished-goods inven-tory in each product line to cover 20 percent of the following quarter’s sales. Moreover, an attempt is made to end each quarter with 20 percent of the glass sheets needed for the following quarter’s production. Since metal strips are purchased locally, Frame-It buys them on a just-in-time basis; inventory is negligible.

5. All of Frame-It’s direct-material purchases are made on account, and 80 percent of each quarter’s purchases are paid in cash during the same quarter as the purchase. The other 20 percent is paid in the next quarter.

6. Indirect materials are purchased as needed and paid for in cash. Work-in-process inventory is negligible.

7. Projected production costs in 20x1 are as follows:

S Frame L Frame

Direct material:

Metal strips: S: 2 ft. @ $1 per foot .............................$2

L: 3 ft. @ $1 per foot ......................................................$3

Glass sheets: S: ¼ sheet @ $8 per sheet .................2

L: ½ sheet @ $8 per sheet .............................................4

Direct labor:

.1 hour @ $20 per hour ..............................................2 2

Production overhead:

.1 direct-labor hour × $10 per hour ........................... 1            1

Total production cost per unit ...................................$7 $10

8. The predetermined overhead rate is $10 per direct-labor hour. The following production overhead costs are budgeted for 20x1.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Entire Year

Indirect material ................................. $10,200 $11,200 $12,200 $13,200 $46,800

Indirect labor ...................................... 40,800 44,800 48,800 52,800 187,200

Other overhead .................................. 31,000 36,000 41,000 46,000 154,000

Depreciation .......................................                     20,000 20,000                  20,000                20,000              80,000

Total overhead .................................... $102,000 $112,000 $122,000 $132,000 $468,000

All of these costs will be paid in cash during the quarter incurred except for the depreciation charges.

9. Frame-It’s quarterly selling and administrative expenses are $100,000, paid in cash.

0. Jackson anticipates that dividends of $50,000 will be declared and paid in cash each quarter.

11. Frame-It’s projected balance sheet as of December 31, 20x0, follows:

Cash ................................................................................................................................................................$95,000

Accounts receivable .......................................................................................................................................132,000

Inventory:

Raw material ..............................................................................................................................................59,200

Finished goods ..........................................................................................................................................167,000

Plant and equipment (net of accumulated depreciation) .............................................................................8,000,000

Total assets ...............................................................................................................................................$8,453,200

Accounts payable ...........................................................................................................................................$99,400

Common stock ...............................................................................................................................................5,000,000

Retained earnings ..........................................................................................................................................3,353,800

Total liabilities and stockholders’ equity .......................................................................................................$8,453,200

7. Prepare a budgeted schedule of cost of goods manufactured and sold for the year 20x1. (Hint: In the budget, actual and applied overhead will be equal.)

8. Prepare Frame-It’s budgeted income statement for 20x1. (Ignore income taxes.)

9. Prepare Frame-It’s budgeted statement of retained earnings for 20x1.

10. Prepare Frame-It’s budgeted balance sheet as of December 31, 20x1.

Budgets required:

sales budget

cash receipts budget

production budget

direct-material budget

cash disbursement budget

summary cash budget

budgeted schedule of costs of good manufactured and sold fot yeat 20x1

budgeted income statement 20x1

budgeted statement of retained earnings 20x1

budgeted balance sheet as of decemeber 20x1

Jones Corporation has the following budgeted sales for the selected four-month period:

Giant Film Company just paid a quarterly dividend of $3 per share yesterday, and has a required return of 12 percent per year. Please answer the following questions:

a. If Giant Film’s future dividends are expected to stay at $3 per quarter forever, what should Giant Film’s current stock price be?

b. If Giant Film’s future dividends are expected to grow at 2% per quarter from now on, and its EPS will stay at $6 per quarter in the foreseeable future, what’s Giant Film’s current stock price?

c. If Giant Film’s future dividends are expected to grow at 10% in the first quarter, 20% in the second quarter, and then turn into a 2% per quarter constant growth rate. What’s Giant Film’s current stock price?

I. You have studied the chapters on unemployment and business cycles. Please review those chapters before you answer this question

1. a) Find the time series data (quarterly or monthly) on the unemployment rate, inflation rate and real GDP growth in the U.S. from 1980 to 2005, and discuss whether the Okun’s Law is valid or not. Then, discuss whether the Phillips curve exists in the U.S. economy( you have to report your data source and or the website).

2. b) Which recession is most severe in terms of its depth and the duration of unemployment?

3. c) Why unemployment rises when the economic is recovering? what kinds of unemployment is it ?

II. Monetary policy will have different impact on the equilibrium rate of interest and GDP. Try to draw three different IS curves with different slopes and show

1. a) The different impact of the same easy money policy on interest rate and GDP in these different IS curves

2. b) Monetary policy is most effective under what conditions ( which IS curve). Why ?

3. c) What determine the slopes of IS curve. Review chapter 14 on sticky price and flexible price model to answer the percentage distribution of both types of firms ,i.e. s vs ( 1-s) under different IS curves( hint : refer to the equations on. P. 408 and p. 411 that

   P=EP+{( 1-s)/a/s} ( ( Y-Y bar) p. 408 Y= Y bar + alpha ( P-EP). P. 411