In this exercise, we will use our knowledge of the relationships between revenue, variable costs, fixed costs, contribution margin, operating margin, and unit charge or sales price. We will calculate the number of UOS we need to perform to break even, what the revenue needed to achieve a target operating income, and compute the contribution income statement to prove our results. Please use the Contribution Margin Method to arrive at your answers and show all your calculations for the answer and the proof.

Case 1:

The Laboratory Manager wants to know the number of lab test procedures it will take to achieve the desired operating income of $450,000 next year.

Data Assumptions:

Unit charge for each lab test $250

Variable cost per lab test $150

Total fixed costs $125,000

Please calculate the number of tests needed to be performed and the total revenue needed to achieve an operating income of $450,000. Then compute the contribution income statement method to prove your answers. Please show all calculations.

Case 2:

Now the Laboratory Manager wants to know how many of the lab test procedures will need to be performed to break even next year. Use the same data assumptions you have from the above example. Please calculate the number of lab tests needed to be done to break even and use the contribution income statement method to prove your answer. Please show all calculations.

Case 3:

The Laboratory Manager now wants to forecast what her operating income will be if the Lab performs 3,000 lab tests next year. Use the same data assumptions shown above and calculate the operating income for performing 3,000 tests using the contribution margin income statement method. Please show all calculations.

Rubric

Explain the major difference(s) between revenue and gains and expenses and losses.

Please be as detailed as possible.

The process of break-even analysis examines the relationship between revenue and costs for different factors of production. The main emphasis is in determining the number of units and the sales volume at which the company will recover its costs. At this level of production and sales the company's profits are zero. By examining this initial break-even point companies can analyze the risk of a particular project as well as any potential profits that can be garnered.
In a spreadsheet analysis of break-even problem, the advantage is that many "what if" scenarios can be examined without lengthy computation times and fear of computational errors are virtually eliminated. In addition, by taking advantage of the graphical capabilities of spreadsheet programs, the results can be shown graphically as well as numerically.
A well designed spreadsheet would accommodate cells for the input data such as fixed costs, variable cost per unit, price per unit, etc. It is possible to even provide for raw observational data to be used such as sales volume, total cost, and quantity. However, we will leave that model for a subsequent analysis. In addition, the model should provide an output range to include relevant factors like break-even quantity, break-even dollars, and target profit, etc. The model should be designed such that as the input values are changed the corresponding output values are automatically modified to reflect these changes. This process involves setting up relative formulas for the computation of break-even quantity, break-even dollars, and projected profits. Finally, the model should provide a graphical representation of the problem. This would best be represented as a linear graph of revenue, cost, and profit displayed as a function of quantity.
Some useful hints for creating a well-designed break-even computer model include:
1. The basic computational equation for break-even quantity is: Break-Even Quantity = Fixed Costs / (Price per unit - Variable Cost per Unit) 2. Break-even dollars can be computed using the revenue or cost formula evaluated at the break-even quantity. 3. Projected profits can be evaluated using the profit function evaluated at the planned production level. 4. Each of the above formulas should be written with relative references to the cells of the spreadsheet that contain the input data of price per unit, variable cost per unit, fixed costs, and planned production level.
Break-Even Analysis Project - Saint Francis Hospital
Saint Francis Hospital has an operating room used only for eye surgery. The annual cost of rent, heat, and electricity for the operating room and its equipment is $275,000, and the annual salaries for the people who staff this room total $1,270,000. These costs are the same

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regardless how many surgeries are performed. Each surgery performed requires the use of $1,375 worth of medical supplies and drugs. To promote goodwill, every patient receives a bouquet of flowers the day after surgery. In addition, all patients require dark glasses, which the hospital provides free-of-charge. It costs the hospital $55 for each bouquet of flowers and $25 for each pair of glasses. The hospital receives a payment of $3,500 for each eye operation performed. Last year the hospital performed 950 operations and plans to continue at this level of production.
Identify the revenue per case (price per unit) and the annual fixed and variable costs for running the operating room. Set up your spreadsheet so that theses inputs can readily be changed. Set up an output range to calculate the break-even quantity and dollar amount for total revenue and costs. Also, set up an output range to display the projected profits resulting from different levels of production. How many eye operations must the hospital perform each year in order to break even? What would the annual profits be if they perform 950 operations each year?
One of the nurses has just learned about a machine that would reduce the cost of medical supplies needed by $580 per patient. It can be leased for $475,000 annually. Keeping in mind the financial costs and benefits, advise the hospital on whether or not they should lease this machine. Use the spreadsheet to identify the break-even point and the level of profit associated with 950 operations per year. Modify the fixed and variable costs as appropriate and examine the break-even quantity and profits again.
An advertising agency has proposed to the hospital's president that she spend $10,000 per month on television and radio advertising to persuade people that Saint Francis Hospital is the best place to have any eye surgery performed. The advertising firm estimates that such publicity would increase business by 30 operations per month. If they are correct, what impact would this advertising have on hospital's profit? What would happen to the break-even point? In case the advertising agency is being overly optimistic, what would the decision be if the advertising campaign only increased the number of operation per month by 5? What is the maximum amount the Hospital would be willing to pay for the advertising if the ads generated 30 additional operations each month? Consider this option independent of the machine purchase described above.
Assuming the hospital decided to use the advertising program, should the hospital then also purchase the machine? What impact do these decisions have on profits and risk for the hospital?
Prepare a written report summarizing your results and recommendations. Include an explanation of the effects of changing the price, variable cost, and fixed costs on the break-even point and profits. The report should include printouts of the various spreadsheets and graphs to support your conclusions.
Deliverables
1. Executive summary report to address relevant problem definition, assumptions, alternative solutions, and optimal solutions selection. A Microsoft Word file entitled, Project1.docx 2. Detailed numerical analysis with appropriate calculations and charts for the various scenarios. A Microsoft Excel file entitled, Project1.xlsx

1. Discuss the arguments for and against cost allocation

2. What are the differences between revenue and capital expenditures? In your explanation, discuss the accounting procedures for each type of expenditure.

. What do you think accounts for this disparity in revenue between drugs for infectious diseases and drugs for other conditions?

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Question: Homework for intra-entity transactions. Part I Paula Corporation owns all of the voting common st...

Homework for intra-entity transactions.

Part I

Paula Corporation owns all of the voting common stock of Sally Company. Sally manufactures toys and sells them to Paula. In turn, Paula sells them to customers. Neither of these companies do anything else. At the beginning of 2012 neither company had any inventory. During 2012 Sally manufactured 120,000 toys and sold 100,000 of them to Paula for $10 each and Paula sold 90,000 of these toys to customers for $16 each. These toys had cost Sally only $7 each to produce. During 2013 Sally manufactured 115,000 toys and sold 98,000 to Paula for $10 each. Paula sold 100,000 toys to customers during 2013 for $16 each. (The manufacturing cost for Sally was still $7 per toy.) Please determine each of the following:

A. Total Consolidated Sales Revenue for 2013

B.   Total Consolidated Cost of Goods Sold for 2013

C.   Consolidated Ending Inventory for December 31, 2013

During 2014 Sally produced 200,000 toys at a cost of $7 each. Paula produced 30,000 books at a cost of $12 each. Sally sold 120,000 toys to Paula for $10 each and 50,000 toys to customers for $15 each. Paula sold 110,000 of the toys to customers for $16 each and 20,000 books to customers for $20 each. Please determine each of the following:

A. Total Consolidated Sales Revenue for 2014

B.   Total Consolidated Cost of Goods Sold for 2014

C.   Consolidated Ending Inventory for December 31, 2014

Analyzing and Interpreting Income Disclosures

Sales information for Tesla Inc. follows.

Automotive sales revenue includes revenues related to sale of new Model S, Model X and Model 3 vehicles, including access to our Supercharger network, internet connectivity, Autopilot, full self-driving and over-the-air software updates.

Automotive leasing revenue includes the amortization of revenue for Model S and Model X vehicles under direct lease agreements as well as those sold with resale value guarantees accounted for as operating leases under lease accounting. We do not yet offer leasing for Model 3 vehicles.

Services and other revenue consists of non-warranty after-sales vehicle services, sales of used vehicles, sales of electric vehicle components and systems to other manufacturers, retail merchandise, and sales by our acquired subsidiaries to third party customers.

Energy generation and storage revenues consists of the sale of solar energy systems and energy storage systems to residential, small commercial, and large commercial and utility grade customers.

Compute the relative size of sales revenue from the four types of revenue Tesla discloses. (Hint: Scale each type of revenue by total revenue.)
Round answers to the nearest whole percentage.

Compute the growth in sales revenue for both years from each of the four types of revenue.

• Round answers to the nearest whole percentage.
• Use a negative sign with answers, when appropriate.

Required information

[The following information applies to the questions displayed below.]

Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:

When preparing its planning budget the company estimated that it would serve 35 customers per month; however, during May the company actually served 40 customers.

1. What is Adger’s revenue variance, employee salaries and wages spending variance, travel expenses spending variance, and other expenses spending variance for May? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

2. What amount of revenue, employee salaries and wages, travel expenses, and other expenses would be included in Adger’s planning budget for May?

3. What activity variance would Adger report in May with respect to its revenue? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

4. What activity variances would Adger report with respect to each of its expenses for May? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

5. What net operating income would appear in Adger’s flexible budget for May?

Glen Avon Inc. specializes in the production of telecommunication satellites. The company has

a 6-month fiscal end on December 31 and June 30. In 2004 the company decides to expand their

operations and finances it by issuing 4,000 bonds at a 14% coupon rate (annual). The bonds pay

interest on October 31 and April 30, and are due on April 30, 2019.

a. (3 points) Assuming the bonds are issued on April 30, 2004 at 104, record the journal

entry(ies) for the issue.

b. (5 points) Record the proper adjusting entry(ies) for the 6-month fiscal end on June 30, 2004.

c. (4 points) Record the interest payment on October 31, 2014.

d. (8 points) On November 30, 2014, the company purchases 90 percent of the bonds back at

110 plus accrued interest. Record the proper journal entry(ies) for the repurchase.

On November 30,2014(D) What amount should be debited for premium on bonds payable when you are repurchasing the bonds to take the premium account off of the books?

Glen Avon Inc. specializes in the production of telecommunication satellites. The company has a 6-month fiscal end on December 31 and June 30. In 2004 the company decides to expand their operations and finances it by issuing 4,000 bonds at a 14% coupon rate (annual). The bonds pay interest on October 31 and April 30, and are due on April 30, 2019. a. (3 points) Assuming the bonds are issued on April 30, 2004 at 104, record the journal entry(ies) for the issue. b. (5 points) Record the proper adjusting entry(ies) for the 6-month fiscal end on June 30, 2004. c. (4 points) Record the interest payment on October 31, 2014. d. (8 points) On November 30, 2014, the company purchases 90 percent of the bonds back at 110 plus accrued interest. Record the proper journal entry(ies) for the repurchase. On November 30,2014(D) What amount should be debited for premium on bonds payable when you are repurchasing the bonds to take the premium account off of the books? This date is 10 + years after the bonds were issued.