Determine an A-B-C classification for these items:

•

Which items are A, B, and C - explain how you derive the answers?

Item   Unit Cost Annual volume(000)

1 300 25

2 90 30

3 30 60

4 50 10

5 15 70

6 100 40

7 10 60

Hint:

Determine the Annual Dollar Value (Unit Cost * Annual Volume) for

each item and the sum of the individual Annual Dollar Values.

Arrange the items in descending order based on Annual Dollar Values.

Then, determine the percentage of items and the percentage of Annual

Dollar Value for each category (round to two decimals). Determine the

A, B, and C items.

Ahmed Corporation makes a mechanical stuffed alligator. The following information is available for Ahmed Corporation’s expected annual volume of 500,000 units:

The company has a desired ROI of 40%. It has invested assets of $24,600,000.

1)Using absorption-cost pricing, calculate the markup percentage. (Round answer to 2 decimal places, e.g. 15.25%.)
2)Using variable-cost pricing, calculate the markup percentage. (Round answer to 2 decimal places, e.g. 15.25%.)

Lovell Computer Parts Inc. is in the process of setting a selling price on a new component it has just designed and developed. The following cost estimates for this new component have been provided by the accounting department for a budgeted volume of 50,000 units.

Lovell Computer Parts management requests that the total cost per unit be used in cost-plus pricing its products. On this particular product, management also directs that the target price be set to provide a 20% return on investment (ROI) on invested assets of $1,000,000.

Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 20% on this new component. (Round markup percentage to 2 decimal places, e.g. 10.50%.) Assuming that the volume is 40,000 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 20% on this new component. (Round answers to 2 decimal places, e.g. 10.50% or 10.50.)

Ord Construction Company’s debt yields 8% and composes 25% of its overall capital structure. Ord Construction just paid $2 in dividends per share. The dividends of the company are expected to grow at the rate of 25% for the next 5 years. From year 6 onwards, the average growth rate of dividends for the company is expected to decline to 7% per year. The company’s estimated beta is 1.4. Assume that the expected return on the S&P 500 index, which you use as a proxy for the market portfolio, is 12%, and the risk free rate is 2%.

a. Calculate Ord Construction’s return on equity. b. What should Ord Construction’s price per share be? c. What would be the price of Ord Construction’s stock if the company did not grow and maintained its dividends at the current level of $2 per share? d. What is the present value of Ord Construction’s growth opportunities (PVGO)? e. Assuming a 21% corporate tax rate, calculate Ord Construction’s weighted average cost of capital.

a. A trendy French restaurant is one of the first businesses to open in a small corner of a commercial building still under construction. The restaurant has received rave reviews and has lines of diners waiting for tables most nights. i. In the short run (next few months), what measures should the restaurant take to maximize its profit? Explain. ii. In the long run (next six months and beyond), how can it maximize its profit? (Assume that the impressive state of demand is permanent.)

b. Comment on the following statement: “Average cost includes both fixed and variable costs, whereas marginal cost only includes variable costs. Therefore, marginal cost is never greater than average cost.”

c. “If it were not for the law of diminishing returns, a firm’s average cost and average variable cost would not increase in the short run.” Do you agree with this statement? Explain.

Problem 10-12 Acquisition costs; lump-sum acquisition; noninterest-bearing note; interest capitalization [LO10-1, 10-2, 10-3, 10-7]

Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $1,160,000. San Antonio paid $380,000 and signed a noninterest-bearing note requiring the company to pay the remaining $780,000 on March 28, 2020. An interest rate of 10% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $38,000 were paid at closing.
   
During April, the old building was demolished at a cost of $88,000, and an additional $68,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

San Antonio borrowed $6,300,000 at 10% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $780,000. The fair values of the equipment and the furniture and fixtures were $572,000 and $308,000, respectively. In December, San Antonio paid a contractor $375,000 for the construction of parking lots and for landscaping.
  
Required:
1. Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.
2. How much interest expense will San Antonio report in its 2018 income statement?

Describe the changes to the balance sheet, income statement, and statement of cash flows for the following transactions:

a. billing a client for a completed construction project

b. pay invoices for building materials

c. labor charged to a job

d. paying employees wages

e. signing a construction or development loan

Construction Safety

Q1. What is the significance of objectivity and consistency when enforcing safety rules? Please support your answers with examples for each aspect.

Q2. What elements of OSHA guidelines on workplace violence can be adapted for use in construction companies? Enlist and explain those elements?

Calculate the following measurements: working capital, current ratio, profitability rate/percentage, and net income percentage. Comment with 2-3 sentences about how your business is performing after one month of operations.

You opened a new pet supplies store and named it Ozzie’s Pet Supply and Boarding on December 1, 2019. The following information about December’s transactions, accounts, and adjustment data is available.

Transactions:
Dec. 1 Family members contributed $50,000 cash to the business in exchange for capital.

Dec. 2 Purchased $10,800 of equipment for the store paying cash.

Dec. 3 Paid $4,500 for a 9-month insurance policy starting on December 1.

Dec. 4 Paid $18,000 cash to purchase land to be used in operations.

Dec. 5 Purchased office supplies on account, $3,000.

Dec. 6 Borrowed $28,000 from the bank for business use. You signed a bank payable note for an interest rate of 5% APR.

Dec. 7Paid $800 for advertising expenses.

Dec. 8 Purchased inventory (dog food) for the store at a cost of $1,500

Dec. 9 Paid for office supplies $3,000

Dec 10 Received a bill for utilities to be paid in January, $200.

Dec 31 Service Revenues earned during the month included $18,500 cash and $2,000 on account.

Dec. 31 Sold one hundred percent of the dog food purchased on Dec. 8^th for $2,100 in cash.

Dec. 31 Paid employees' salaries $2,000 and building rent $800.

Dec. 31 Dividends of $200 were paid.

Dec. 31 Customer prepaid $1,000 for boarding services in January.

Accounts

Cash; Accounts Receivable; Office Supplies; Prepaid Insurance; Equipment; Accumulated Depreciation-Equipment; Land; Accounts Payable; Utilities Payable; Interest Payable; Unearned Revenue; Bank Notes Payable; Family, Capital; Service Revenue; Dog Food Revenue; Salaries Expense; Rent Expense; Utilities Expense; Advertising Expense; Supplies Expense; Insurance Expense; Interest Expense; and Depreciation Expense-Equipment; Inventory; COGS; Dividends; Service Charge-Bank; Uncollectible Accounts Expense; Allowance for Doubtful Accounts.

Adjustment Data

1. Office Supplies used during the month, $600.
2. Depreciation on the Equipment for the month should be calculated based on straight-line depreciation and a useful life of 4 years (zero residual).
3. One month insurance has expired.
4. Calculate accrued interest expense and make adjusting entry.
5. Service charge from bank totaled $25.
6. Sales Method for reserving for doubtful accounts was executed (Remember, only A/R balances are considered).

Seven different financing plans with their D-E mixes and costs of debt and equity capital for a new innovations project are summarized below. Use the data to determine what mix of debt and equity capital will result in the lowest WACC.

D-E mix of_____ %–_____ % has the lowest WACC value.