Single-Step Income Statement

The following income statement items, arranged in alphabetical order, are taken from the records of Rockmore Inc. for the current year:

Prepare a single-step income statement for the current year.

1. Samsung TV sells for £299. The material cost is given as £55, labor cost as £20, and variable overhead as £25 per unit. Fixed production overhead for the year is £1.2million.

i. calculate the break even level of sale for Both Volume and Revenue.

ii. calculate the break even
Revenue using the C/S ratio

iii. if the budgeted sales revenue is £2.99million, calculate the margin of safety in units and as a percentage

iv. produce a break even chart using the above information

iv. how many Samsung TVs must be sold in order to achieve a profit of £500,000?

The biggest advantage of the two rules to detect the most profitable output level is that these rules tell us that

1. There are always two output levels at which marginal revenue is equal to marginal cost and we need to identify the correct profit-maximizing level of production by using these two rules.
2. When the two rules are satisfied we know that the maximum total profit cannot be negative.
3. In general, marginal revenue equal to marginal cost does not guarantee profit-maximization.
4. For a company with constant marginal cost, profit-maximization is impossible.
5. The maximization of total revenue or sales is what companies should pursue.

Complete the following cost and revenue schedule.

Use the completed cost and revenue schedule to answer the following questions.

a. Use the optimization rule to maximize profit. What rate of output maximizes profit?

b. What is the actual amount of profit at the profit-maximizing level of output you found in (1a)?

Given the following adjusted trial balance, what will be the totals for the debit and credit columns of the post-closing trial balance?

A) $3895

B) $4049

C) $4021

D) $3923

7. Dave’s Pizza periodically has a special week-long sale. As part of the advertising campaign Dave’s

runs one or more television commercials during the weekend preceding the sale. Data from a sample of

4 previous sales are shown.

Number of Ads

Weekly Revenue

12

27600

5

13385

9

15486

15

2820

Estimate the slope and intercept for the number of ads and weekly revenue for Dave’s Pizza. (5 points)

Estimate weekly revenue if 17 ads are placed. Explain your answer. (3 points)

how would you answer these questions

1. What is the firm’s free cash flow (i.e., cash flow from assets) for 2017?

Cash                                                                      $423

Accounts Receivable                                            15% of Total Revenue

Accounts Payable                                                 20% of Cost of Goods Sold

Notes Payable                                                       $800

Inventory                                                              $2,900

Net Fixed Assets                                                   $14,800

Long-term Debt                                                    $3,500

Common Stock                                                     $10,000

Total Revenue                                                      $7,200

Cost of Goods Sold                                               50% of Total Revenue

Depreciation Expense                                           $1,200

Selling, General, & Administrative Expense       $1,000

Interest Expense                                                   10% of Long-term Debt

Income Taxes                                                       35% of Taxable Income

What trends did you notice? What implications do they have?

Slope and the maximum height of a curve

This problem gives you a preview of something you might see in a microeconomics class. Suppose there’s an appliance store that sells air conditioners. It could set its price high and sell very few air conditioners, or it could set its price low and sell many more air conditioners. The following table shows some possible choices this store could make:

The graph below plots the firm’s total revenue curve: that is, the relationship between quantity and total revenue given by the two right columns in the table above. The five choices are also labeled. Finally, two black lines are shown; these lines are tangent to the green curve at points B and D.

Using the information on the slope of the lines tangent to the curve at points B and D, plot the slope of the total revenue curve on the graph below. (As it turns out, it’s a straight line, so the two points you plot will determine a line.)

The total revenue curve reaches its maximum at a quantity of (400, 200, 100, 300)  air conditioners per year. At this point, the slope of the total revenue curve is (negative, equal to zero, positive, at its maximum, at its minimum) .

ABC Ltd. has revenue of N$500 million and sells all of its goods on credit to a variety of different wholesale customers. At the moment the company offers a standard credit period of 30 days. However, 70% of its customers (by revenue) take an average of 70 days to pay, while the other 30% of customers (by revenue) pay within 30 days. The company is considering offering a 2% discount for payment within 30 days and estimates that 80% of customers (by revenue) will take up this offer (including those that already pay within 30 days).

The Managing Director has asked the credit controller if the cost of this new policy would be worth offering. The company has a £80 million overdraft facility that it regularly uses to the full limit due to the lateness of payment and the cost of this overdraft facility is 15% per annum. The credit controller also estimates that bad debt level of 2% of revenue would be halved to 1% of revenue as a result of this new policy.

Required

1. Calculate the approximate equivalent annual percentage cost of a discount of 2%, which reduces the time taken by credit customers to pay from 70 days to 30 days.

2. Calculate the value of trade receivables under the existing scheme and the proposed scheme at the year-end.

3. Evaluate the benefits and costs of the scheme and explain with reasons whether the company should go ahead and offer the discount. You should also consider other factors in this decision. (Hint: You need to work out the cost of the discount compared to the interest on the overdraft saved and bad debt reduction.)