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.)
In: Finance
The following trial balance of Sunland Co. does not
balance.
|
SUNLAND CO. |
||||||
|
Debit |
Credit |
|||||
| Cash | $3,307 | |||||
| Accounts Receivable | $3,668 | |||||
| Supplies | 1,237 | |||||
| Equipment | 4,237 | |||||
| Accounts Payable | 3,103 | |||||
| Unearned Service Revenue | 1,637 | |||||
| Common Stock | 6,437 | |||||
| Retained Earnings | 3,437 | |||||
| Service Revenue | 2,817 | |||||
| Salaries and Wages Expense | 3,837 | |||||
| Office Expense | 1,377 | |||||
| Totals |
$15,993 |
$19,101 |
||||
Each of the listed accounts should have a normal balance per the
general ledger. An examination of the ledger and journal reveals
the following errors.
| 1. | Cash received from a customer on account was debited for $570, and Accounts Receivable was credited for the same amount. The actual collection was for $750. | |
| 2. | The purchase of a computer printer on account for $937 was recorded as a debit to Supplies for $937 and a credit to Accounts Payable for $937. | |
| 3. | Services were performed on account for a client for $890. Accounts Receivable was debited for $890 and Service Revenue was credited for $89. | |
| 4. | A payment of $502 for telephone charges was recorded as a debit to Office Expense for $502 and a debit to Cash for $502. | |
| 5. | When the Unearned Service Revenue account was reviewed, it was found that service revenue amounting to $762 was performed prior to June 30 (related to Unearned Service Revenue). | |
| 6. | A debit posting to Salaries and Wages Expense of $1,107 was omitted. | |
| 7. | A payment on account for $206 was credited to Cash for $206 and credited to Accounts Payable for $260. | |
| 8. | A dividend of $1,012 was debited to Salaries and Wages Expense for $1,012 and credited to Cash for $1,012. |
Prepare a correct trial balance.
In: Accounting
8. At the beginning of 2014, Mask Ltd. had a Retained Earnings balance of $31,860. For the next three years, the firm reported the following net income (loss) and cash dividends declared and paid:
|
Year: |
Net Income (loss): |
Cash Dividends: |
|
2014 |
$9,040 |
$425 |
|
2015 |
$16,850 |
$1,220 |
|
2016 |
($3,895) |
$0 |
What would be the balance of Retained Earnings reported on the year-end balance sheet as of 12/31/2016?
| a. |
$60,000 |
|
| b. |
$55,500 |
|
| c. |
$52,210 |
|
| d. |
$53,855 |
|
| e. |
$27,965 |
-2.
Consider the following list of accounts:
How many of these accounts are reported on the income statement?
| a. |
Six |
|
| b. |
Two |
|
| c. |
Four |
|
| d. |
Three |
|
| e. |
Five |
-3. LPM Ltd. uses units produced as its measure of activity. During August, the company budgeted for 48,900 units of output, but actually produced 46,700 units of output. The company uses the following revenue and cost formulas in its budgeting, where q is the number of units of output:
Revenue: $11.60q
Salaries: $31,050 + $2.45q
Supplies: $1.25q
Utilities: $0.60q
Insurance: $23,090
Miscellaneous expenses: $13,800 + $0.21q
The company reported the following actual results for August:
|
Revenue |
$ |
611,250 |
|
|
Salaries |
$ |
148,360 |
|
|
Supplies |
$ |
55,795 |
|
|
Utilities |
$ |
31,920 |
|
|
Insurance |
$ |
22,100 |
|
|
Miscellaneous expense |
$ |
20,845 |
|
The spending variance in August for ‘Supplies’ is:
In: Accounting
II. Room Pricing in the Off-Season (Modeling)
The data in the table, from a survey of hotels with comparable rates on Hilton Head Island, show that room occupancy during the off-season (November through February) is related to the price charged for a basic room.
| Price per Day | Occupancy Rate, % |
|---|---|
| 104 | 53 |
| 134 | 47 |
| 143 | 46 |
| 149 | 45 |
| 164 | 40 |
| 194 | 32 |
The goal is to use these data to help answer the following questions.
What price per day will maximize the daily off-season revenue for a typical hotel in this group if it has rooms available?
Suppose that for this typical hotel, the daily cost is plus per occupied room. What price will maximize the profit for this hotel in the off-season?
The price per day that will maximize the off-season profit for this typical hotel applies to this group of hotels. To find the room price per day that will maximize the daily revenue and the room price per day that will maximize the profit for this hotel (and thus the group of hotels) in the off-season, complete the following.
Multiply each occupancy rate by to get the hypothetical room occupancy. Create the revenue data points that compare the price with the revenue, , which is equal to price times the room occupancy.
Find an equation that models the revenue, , as a function of the price per day, .
Use maximization techniques to find the price that these hotels should charge to maximize the daily revenue.
Find a model for the occupancy as a function of the price, and use the occupancy function to create a daily cost function.
Form the profit function.
Use maximization techniques to find the price that will maximize the profit.
In: Statistics and Probability
The trial balance of Watteau Co. does not balance.
|
WATTEAU CO. |
||||||
|
Debit |
Credit |
|||||
| Cash | $3,036 | |||||
| Accounts Receivable | $3,397 | |||||
| Supplies | 966 | |||||
| Equipment | 3,966 | |||||
| Accounts Payable | 2,832 | |||||
| Unearned Service Revenue | 1,366 | |||||
| Common Stock | 6,166 | |||||
| Retained Earnings | 3,166 | |||||
| Service Revenue | 2,546 | |||||
| Salaries and Wages Expense | 3,566 | |||||
| Office Expense | 1,106 | |||||
| Totals |
$14,367 |
$17,746 |
||||
Each of the listed accounts should have a normal balance per the
general ledger. An examination of the ledger and journal reveals
the following errors.
| 1. | Cash received from a customer on account was debited for $570, and Accounts Receivable was credited for the same amount. The actual collection was for $750. | |
| 2. | The purchase of a computer printer on account for $666 was recorded as a debit to Supplies for $666 and a credit to Accounts Payable for $666. | |
| 3. | Services were performed on account for a client for $890. Accounts Receivable was debited for $890 and Service Revenue was credited for $89. | |
| 4. | A payment of $231 for telephone charges was recorded as a debit to Office Expense for $231 and a debit to Cash for $231. | |
| 5. | When the Unearned Service Revenue account was reviewed, it was found that service revenue amounting to $491 was performed prior to June 30 (related to Unearned Service Revenue). | |
| 6. | A debit posting to Salaries and Wages Expense of $836 was omitted. | |
| 7. | A payment on account for $206 was credited to Cash for $206 and credited to Accounts Payable for $260. | |
| 8. | A dividend of $741 was debited to Salaries and Wages Expense for $741 and credited to Cash for $741. |
In: Accounting
The new revenue recognition standard issue by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) will call for major changes in the way companies in the airline industry recognize revenue. Airlines may have to change how they account for loyalty status benefits, mileage credits, change fees, and breakage for tickets that expire unused. The American Institute of Certified Public Accountants (AICPA) has formed an airlines task force to address implementation issues of the new standard for the airline industry. Assume that you have been called upon to present an analysis of the impact of the new standard on Southwest Airlines.
Refer to Southwest’s (ticker symbol: LUV) current/most recent financial statements (10-K) and the accompanying notes to answer the following questions. The current/most recent financial statement can be found on https://www.sec.gov/edgar/searchedgar/companysearch.html. Search for the company in the ‘Fast Search’ box by using the ticker symbol provided above. In the list of results, find the latest filing labeled 10-K and select the ‘Documents’ link. On the next page, select the document of type ’10-K’ to open it.
A. For each of the following revenue categories, describe the current accounting, the likely changes (if any) that the new revenue recognition standard will require, and the potential impact of those changes on patterns of revenue recognition.
1) Flight Transportation (for tickets used and for ticket breakage)
2) Loyalty Program
3) Ancillary Services and Other Revenue
B. Identify any areas that will require more discretion and judgment and specify why.
In: Accounting
Charles Berkle is the manager of Nogain Manufacturing and is interested in doing a cost of quality analysis. The following cost and revenue data are available for the most recent year ended December 31.
| Sales revenue | $ | 250,000 | |
| Cost of goods sold | 140,000 | ||
| Warranty expense | 18,000 | ||
| Inspection costs | 10,000 | ||
| Scrap and rework | 8,900 | ||
| Product returns due to defects | 6,000 | ||
| Depreciation expense | 10,000 | ||
| Machine maintenance expense | 1,800 | ||
| Wage expense | 35,000 | ||
| Machine breakdown costs | 4,000 | ||
| Estimated lost sales due to poor quality | 5,000 | ||
|
|
|||
a. Classify each of these costs into the four quality cost categories and prepare a cost of quality report for Nogain.
b. What percentage of sales revenue is being spent on prevention and appraisal activities?
c. What percentage of sales revenue is being spent on internal and external failure costs?
Classify each of the above costs into the four quality cost categories and prepare a cost of quality report for Nogain.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
What percentage of sales revenue is being spent on prevention and appraisal activities? (Round your answer to 1 decimal place.)
|
What percentage of sales revenue is being spent on internal and external failure costs? (Round your answer to 1 decimal place.)
|
In: Accounting
Question 9 options:
A "What-If" analysis:
A department store sells two popular models of wireless headphones, model A and model B. The sales of these products are not independent of each other. Economists call these “substitutable products” because if the price of one increases, more people will choose to substitute the other product and sales of the other will increase.
The electronics manager wants to calculate prices that maximize revenue from these two products. Price and sales data shows the following relationships between the quantity sold (N) and prices (P) of each model:
NA = 13 – 0.45
PA + 0.35
PB
NB = 30 + 0.12
PA – 0.64 PB
A spreadsheet for calculating the total revenue for various values of PA and PB is displayed below. It has been designed with the two prices as input parameters that are easily varied.
| Price A | 19 |
| Price B | 26 |
| Number sold A | =13-0.45*B1+0.35*B2 |
| Number sold B | =30+0.12*B1-0.64*B2 |
| Total Revenue | =B1*B3+B2*B4 |
Copy-and-paste, or type, the Excel information given above into cells A1:B5 of an Excel spreadsheet.
Develop a two-way data table to estimate the optimal prices of each of the two products in order to maximize the total revenue.
Vary the price of each product from 25 to 40 in increments of 1.
Round the Total Revenue to two (2) decimal places.
Optimal Price A =
Optimal Price B =
Total Revenue =
In: Operations Management
Wellness, a healthy living magazine, collected $ 540, 000 in subscription revenue on May 31. Each subscriber will receive an issue of the magazine in each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. What is the balance in the Unearned Revenue account as of December 31?
In: Accounting
Why will a profit-maximizing firm never choose to produce at a quantity where marginal cost exceeds marginal revenue?
a. Draw the marginal cost/marginal revenue graph and use it to help you explain.
b. Which two lines on a cost curve diagram intersect at the zero-profit point?
In: Economics