The Production Department of Hruska Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

Each unit requires 0.25 direct labor-hours and direct laborers are paid $12.00 per hour.

In addition, the variable manufacturing overhead rate is $1.70 per direct labor-hour. The fixed manufacturing overhead is $84,000 per quarter. The only noncash element of manufacturing overhead is depreciation, which is $24,000 per quarter.

Required:

1. Calculate the company’s total estimated direct labor cost for each quarter of the upcoming fiscal year and for the year as a whole. Assume that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the estimated number of units produced.

2&3. Calculate the company’s total estimated manufacturing overhead cost and the cash disbursements for manufacturing overhead for each quarter of the upcoming fiscal year and for the year as a whole

2&3

Calculate the company’s total estimated manufacturing overhead cost and the cash disbursements for manufacturing overhead for each quarter of the the upcoming fiscal year and for the year as a whole.

Is the following statement true or false:  "The correlation between (U.S.) stock market returns and long-term U.S. treasury bond returns is generally negative during times when equity markets are crashing."

True

False

Is the following statement true or false: " Consider a strategy that buys 1-year US treasury bonds, holds them to maturity, and uses the proceeds from the maturing bonds to buy new 1-year bonds. In this case, the actual/realized returns is uncertain, but it is always positive."

True

False

What does the flight-to-safety feature of government bonds imply? Choose all that apply.

A polling organization conducted telephone surveys in March of 2004, 2005 and 2006. In each year, 1001 people age 18 or older were asked about whether they planned to use a credit card to pay federal income taxes that year. The data are given in the accompanying table. Is there evidence that the proportion falling in the three credit card response categories is not the same for all three years? Test the relevant hypotheses using a 0.05 significance level. (Round your answer to two decimal places.)

χ² =

P-value interval

p < 0.001

0.001 ≤ p < 0.01   

0.01 ≤ p < 0.05

0.05 ≤ p < 0.10

p ≥ 0.10

Conclusion

The proportion falling in the three credit card response categories is the same for all three years.

The proportion falling in the three credit card response categories is not the same for all three years.    

You may need to use the appropriate table in Appendix A to answer this question.

Cook Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2020.

Your assistant has prepared two budgets: (1) the manufacturing overhead budget shows expected costs to be 125% of direct labor cost, and (2) the direct materials budget for Tarr shows the cost of Tarr purchases to be $303,000 in quarter 1 and $423,500 in quarter 2.

(Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)

1- Prepare the sales budget.

2- Prepare the production budget.

3- Prepare the direct materials budget. (Round Cost per pound answers to 2 decimal places, e.g. 52.70.)

4- Prepare the direct labor budget. (Enter Direct labor time per unit in proportion to hours, e.g. for 45 minutes the proportion will be 0.75.)

5- Prepare the selling and administrative expense budget.
6-Prepare the budgeted multiple-step income statement for the first 6 months. (Round intermediate calculations to 2 decimal places and final answer to 0 decimal places, e.g. 1,255.)

Issue 5: Inventory

Included in BCE’s inventory (valued using the LIFO method) are the following:

• $100,000 (cost) of computers which manufacturers ceased producing in the middle of 20X3.   Although the wholesale value of these computers now is only about $60,000, the retail value (if they could all be sold today, which they can’t be) is approximately $110,000. The selling costs of these specific machines are considered negligible, and a normal profit margin is approximately 25% of sales price. The retail market is “thin” and it will take some time to sell the computers. Management intends to sell all of these computers at retail and believes that the retail value of these computers is likely to decrease at an average rate of 5 percent every quarter for the next year; thus, on average a computer with a retail value of $1,000 on 12/31/X3 would have an average retail value of $950 and $900 during the first two quarters of 20X4, respectively. Management believes that the computers will be sold within the next year as follows--first quarter 40% of inventory, second quarter 35%, third quarter 20 %, and fourth quarter 5% at market values at the time of sale. These projections seem reasonable. It is currently February 15 and you note that sales are right on schedule and that retail prices have dropped a bit from year-end, as projected.
• Because of discontinuance of the above computers, many suppliers of parts for these computers have chosen to quit manufacturing the items with the result that shortages are occurring. As a result, BCE’s $50,000 inventory of parts for these machines has increased in value and would now cost $65,000 to replace (its retail value is $110,000). Historically, the normal profit margin on sales of parts is 40% of sales price. Also, management has pointed out to you that computers in inventory that don’t sell could be used for parts. But management does not anticipate the need to do this.
• Historically, BCE (and competitors) have in general separated Computers from Parts when calculating the lower of cost or market for inventory.

Does BCE need to record an inventory writedown to reflect a lower of cost or market value? If so, how much?

Cook Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2020.

Your assistant has prepared two budgets: (1) the manufacturing overhead budget shows expected costs to be 125% of direct labor cost, and (2) the direct materials budget for Tarr shows the cost of Tarr purchases to be $302,000 in quarter 1 and $427,500 in quarter 2.

(Note: Do not prepare the manufacturing overhead budget or the direct materials budget for Tarr.)

1- Prepare the sales budget.

2- Prepare the production budget.

3- Prepare the direct materials budget. (Round Cost per pound answers to 2 decimal places, e.g. 52.70.)

4- Prepare the direct labor budget. (Enter Direct labor time per unit in proportion to hours, e.g. for 45 minutes the proportion will be 0.75.)
5- Prepare the selling and administrative expense budget.
6- Prepare the budgeted multiple-step income statement for the first 6 months. (Round intermediate calculations to 2 decimal places and final answer to 0 decimal places, e.g. 1,255.)

Analytical Questions

1. Consumer health care spending is sensitive to cash flow fluctuations and it has historically been affected by dynamics in income and demographics. Discuss how income and demographics may have contributed to healthcare cost and explain one additional factor that you believe may have played a role in the increase in medical spending/cost.

2. Assume a nation called Rutania is producing only two goods: Medical equipment and Natural Gas using all its resources and technology. When Rutania spends all its resources on Medical equipment, it can produce 2 million units of medical equipment. It can produce $4 trillion worth of Natural gas if it spends all its resources in the production of Natural gas. Draw a bowed-outward PPF for the nation Rutania and show the impact of a significant improvement in the technological capabilities of Rutania in the production of Medical equipment and Natural gas

3. P and Q are the Price and Quantity demanded for Chocolates in NewTown. The interaction of demand and supply determined the equilibrium price and quantity to be P* and Q*. The elasticity of demand for Chocolate in NewTown is 1.88. A recent research publication by FDA showed that eating more chocolates will exacerbate Gastroesophageal reflux diseases (GERD) and the information became common knowledge. Show in a graph the effect of the research finding on the equilibrium price and quantity. Given the effect on price (increase/decrease), what will be the effect on total healthcare spending?

1. Pears PLC adheres to IFRS. It recently imported inventory for $100 million, paid import tax of $ 2milion, carrying in cost of $5 million and spent $5 million for storage prior to selling the goods. The amount it charged to inventory expense ($ millions) was closest to:

1. $100
2. $105
3. $107
4. $115

2. In an inflationary environment, a LIFO liquidation will most likely result in an increase in:

1. Inventory.
2. Accounts payable.
3. Operating profit margin.
4. None of them.

3. The CFO of APEX, S.A. is selecting the depreciation method to use for a new machine. The machine has an expected useful life of six years. Production is expected to be low initially but to increase over time. The method chosen for tax reporting must be the same as the method used for financial reporting. If the CFO wants to maximize tax payments in the first year of the machine’s life, which of the following depreciation methods is the CFO most likely to use?

1. Units-of-production method.
2. Straight-line method.
3. Double-declining balance method.
4. None of the above.

According to Article , “U.S. Debt Is Set to Exceed Size of the Economy Next Year, a First Since World War II,” what happened to the government spending from April to June of 2020? What happened to the national saving as a result? Assume that saving depends on the real interest rate, plot the effect of this fiscal policy on the real interest rate and the amount of investment in the market for loanable funds.

Impact of COVID 19 on the Australian economy

Reserve Bank of Australia (2020) Statement on Monetary Policy, Economic outlook.

The outlook for the Australian and global economies is being driven by the COVID-19 pandemic. The necessary social distancing restrictions and other containment measures that have been in place to control the virus have resulted in a significant contraction in economic activity, but economic conditions will improve as the pandemic is brought under control and containment measures are relaxed.

Global GDP is expected to fall sharply in the first half of 2020. The declines in the March quarter were driven by a contraction in Chinese and euro area activity as well as the rollout of containment measures elsewhere late in the quarter. A further fall in global GDP is expected in the June quarter, with many countries expected to record quarterly declines in GDP.

The Australian economy is expected to record a contraction in GDP of around 10 per cent over the first half of 2020; total hours worked are expected to decline by around 20 per cent and the unemployment rate is forecast to rise to around 10 per cent in the June quarter. Inflation is expected to be negative in the June quarter largely as a result of lower fuel prices and free child care. (Source RBA)

Fiscal Policy Responses

Over the past month, the Federal Government has announced an unprecedented fiscal injection of $194 billion (almost 10 per cent of GDP) consisting of $39 billion directly to business, $25 billion to households and the $130 billion Job-Keeper payment to support business and households through the COVID-19 shutdown.

Monetary Policy responses

The Reserve Bank of Australia has reduced the cash rate to 0.25%

Possible Outcome

A plausible baseline scenario is that the various restrictions are progressively relaxed in coming months and are mostly removed by the end of September, except for some restrictions such as international travel. If this occurs, and the spread of the virus in Australia remains limited, GDP growth is likely to turn around in the September quarter and the recovery would strengthen from there.

Tasks

1. Use the ADAS model to describe the fiscal policy responses of the Australian government. Is this fiscal response a demand side policy or a supply side policy? What are the intended effects?

2. Assuming the marginal propensity to consume is 0.9, calculate the multiplier effect of the fiscal policy response package of $194 billion. Do you think the realised policy effect will be as big as that which you calculated in the previous task? Elaborate on your answers.