Problem 20-05A a, b1-b3, c (Part Level Submission)

Brislin Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $212,000 and the following divisional results.

Division

IIIIIIIV

Sales$246,000$195,000$498,000$452,000

Cost of goods sold198,000192,000304,000247,000

Selling and administrative expenses77,00054,00056,00051,000

Income (loss) from operations$ (29,000)$ (51,000)$138,000$154,000

Analysis reveals the following percentages of variable costs in each division.

IIIIIIIV

Cost of goods sold73%92%77%79%

Selling and administrative expenses41604862

Discontinuance of any division would save 50% of the fixed costs and expenses for that division.

Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be discontinued.

(a)

Your answer is correct.

Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Division IDivision II

Contribution margin$$

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(b1)

Prepare an incremental analysis concerning the possible discontinuance of Division I. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

ContinueEliminateNet Income
Increase (Decrease)

Contribution margin$$$

Fixed costs

   Cost of goods sold

   Selling and administrative

      Total fixed expenses

Income (loss) from operations$$$

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1. An article entitled “The Income Elasticity of Health Care Spending in Developing and Developed Countries” by Farag et al, 2012 finds the following results (from Table 2 of the paper on page 153):

The authors ran two separate models. The first only controls for a country’s income (measured by gross domestic product). The other adds in country-specific attributes. All of the results are significant as indicated by ***. Answer the following questions: (30 points)

1. Are health care commodities normal goods? y/n
2. Would you say health care services as it relates to income is elastic based on Model 1? y/n
3. Once we control for indicators of how developed the country is (including any unobservable differences across countries by controlling for fixed effects) the income effect goes down. In other words, by controlling for more factors that explain health care spending, and are also related to GDP (which measures the country’s income), we come closer to the isolated effect of income. This provides support for which of the following economic concepts used repeatedly in our modeling?
   1. Complements
   2. Elasticities
   3. Ceterus parabus
   4. Consumer sovereignty

4. Would you classify health care as a necessity, or a luxury based on the income elasticity in Model 2 (the preferred model)?

Question text

Inventory Costing Methods—Perpetual Method

Chou Sales Corporation uses the perpetual inventory system. On January 1, 2018, Chen had 1,000 units of product A with a unit cost of $20 per unit. A summary of purchases and sales during 2018 follows:

Required
a. Assume that Chou uses the first-in, first-out method. Compute the cost of goods sold for 2018 and the ending inventory balance at December 31, 2018, for product A.

b. Assume that Chou uses the last-in, first-out method. Compute the cost of goods sold for 2018 and the ending inventory balance at December 31, 2018, for product A.

c. Assume that Chou uses the weighted-average cost method. Compute the cost of goods sold for 2018 and the ending inventory balance at December 31, 2018, for product A. Do not round until your final answers. Round to the nearest dollar.

Christopher took a loan of $8,300 from his parents to purchase equipment for his hair salon. They agreed on an interest rate of 3% compounded monthly on the loan. What equal quarterly payments made at the end of each period will settle the loan for 5 years if the first payment is to be made 4 years and 1 quarter from now?

The spread of the coronavirus in the U.S. has had negative effects on the U.S. economy. GDP growth rate went negative (-5.8%) in the first quarter of 2020 and unemployment rate spiked to 14.7% in April. Use the aggregate demand and aggregate supply model from chapter 10 to explain this short run downturn? Make sure to indicate the shifts in the curves.

LaChut Corporation has found that 80​% of its sales in any given month are credit​ sales, while the remainder are cash sales. Of the credit​ sales, LaChut Corporation has experienced the following collection​ pattern:

November sales for last year were $80,000​, while December sales were $110,000. Projected sales for the next three months are as​ follows:

Requirement

Prepare a cash collections budget for the first​ quarter, with a column for each month and for the quarter. ​(Round your answers to the nearest whole​ dollar.)

Holiday Tree Farm has a cash balance of $34 and a short-term loan balance of $180 at the beginning of Q1. The net cash inflow for the first quarter is $36 and for the second quarter there is a net cash outflow of $48. All cash shortfalls are funded with short-term debt. The firm pays 2 percent of its prior quarter's ending loan balance as interest each quarter. The minimum cash balance is $20. What is the short-term loan balance at the end of Q2?

Multiple Choice

• $184.3

• $193.1

• $128.4

• $138.6

• $179.2

• Which statement is true?

  Multiple Choice

• The number of days in the cash cycle can be positive, negative, or equal to zero.

• Paying a supplier within the discount period rather than waiting until the end of the normal credit period will decrease the cash cycle.

• An increase in the inventory turnover rate must increase the cash cycle.

• The payables period must be shorter than the receivables period.

• A decrease in the accounts receivable turnover rate decreases the cash cycle.

Baird Company, which expects to start operations on January 1, 2018, will sell digital cameras in shopping malls. Baird has budgeted sales as indicated in the following table. The company expects a 14 percent increase in sales per month for February and March. The ratio of cash sales to sales on account will remain stable from January through March.

Required

1. Complete the sales budget by filling in the missing amounts.

2. Determine the amount of sales revenue Baird will report on its first quarter pro forma income statement.

Complete the sales budget by filling in the missing amounts. (Round intermediate calculations and final answers to 2 decimal places.)

Determine the amount of sales revenue Baird will report on its first quarter pro forma income statement. (Round intermediate calculations and final answer to 2 decimal places.)

Original Warranty Review Problem
While attending a trade show in August 2018, Savy Tech, Inc. sold tablets and laptops totaling $40,000. Each product sold came with a 1-year manufacturer’s warranty.
Warranty costs related to the manufacturer’s warranty were estimated to be 5% of sales. As of December 31, 2018 (Savy Tech’s year-end), Savy Tech had paid out $800 in cash
to fix or replace broken products. The Company paid out an additional $1,500 in cash during the first quarter of 2019 to satisfy more warranty claims.

1. Record any necessary journal entries that Savy Tech would need to make in 2018.

2. What amount of warranty liability should Savy Tech report on its December 31, 2018 balance sheet (assuming the company began with a zero balance in this
account in 2018)?

3. Prepare the journal entry Savy Tech would make to record the payment of warranty costs during the first quarter of 2019.

Solomon Company, which expects to start operations on January 1, 2018, will sell digital cameras in shopping malls. Solomon has budgeted sales as indicated in the following table. The company expects a 15 percent increase in sales per month for February and March. The ratio of cash sales to sales on account will remain stable from January through March.

1. Complete the sales budget by filling in the missing amounts.

2. Determine the amount of sales revenue Solomon will report on its first quarter pro forma income statement.

• Required A
• Required B

Complete the sales budget by filling in the missing amounts. (Round intermediate calculations and final answers to 2 decimal places.)

Determine the amount of sales revenue Solomon will report on its first quarter pro forma income statement. (Round intermediate calculations and final answer to 2 decimal places.)