Absorption and Variable Costing
Comparisons
Red Arrow Blueberries manufactures blueberry jam. Because of bad
weather, its blueberry crop was small. The following data have been
gathered for the summer quarter of last year:
| Beginning inventory (cases) | 0 |
| Cases produced | 8,000 |
| Cases sold | 7,000 |
| Sales price per case | $ 115 |
| Direct materials per case | $ 25 |
| Direct labor per case | $ 40 |
| Variable manufacturing overhead per case | $ 10 |
| Total fixed manufacturing overhead | $ 192,000 |
| Variable selling and administrative cost per case | $ 2 |
| Fixed selling and administrative cost | $ 38,000 |
(a) Prepare a functional income statement for the quarter using
absorption costing. (Round answers to the nearest dollar. Do not
use negative signs with your answers, EXCEPT if
you calculate a net loss.)
| RED ARROW BLUEBERRIES Functional (Absorption Costing) Income Statement For the Summer Quarter (Last Year) |
||
|---|---|---|
| Sales | Answer | |
| Cost of goods sold: | ||
| Variable costs | Answer | |
| Fixed costs | Answer | |
| Goods available | Answer | |
| Ending inventory | Answer | Answer |
| Gross profit | Answer | |
| Operating expenses: | ||
| Variable selling and administrative | Answer | |
| Fixed selling and administrative | Answer | Answer |
| Net income (loss) |
Answer |
|
(c) What is the value of ending inventory under absorption costing?
(Round answer to the nearest whole number.)
$Answer
(d) What is the value of ending inventory under variable
costing?
$Answer
(e) The difference in the value of ending inventory in parts (c)
and (d) is explained by the following difference between absorption
and variable costing:
Variable costing assigns only variable manufacturing costs to products while absorption costing assigns both variable and fixed manufacturing costs to products.
Variable costing treats all manufacturing costs as variable costs while absorption costing treats only variable manufacturing costs as variable costs.
Absorption costing treats fixed costs as period costs while variable costing treats fixed costs as product costs.
Absorption costing treats all manufacturing costs as period costs while variable costing treats only variable manufacturing costs as period costs.
(b) Prepare a contribution income statement for the quarter using
variable costing. (Do not use negative signs with your answers,
EXCEPT if you calculate a net loss.)
| RED ARROW BLUEBERRIES Contribution (Variable Costing) Income Statement For the Summer Quarter (Last Year) |
||
|---|---|---|
| Sales | Answer | |
| Variable expenses: | ||
| Manufacturing | Answer | |
| Selling and administrative | Answer | Answer |
| Contribution margin | Answer | |
| Fixed expenses: | ||
| Manufacturing overhead | Answer | |
| Selling and administrative | Answer | Answer |
| Net income (loss) | Answer | |
In: Accounting
Vita Water purchased a used machine for $117,800 on January 2,
2020. It was repaired the next day at a cost of $5,663 and
installed on a new platform that cost $1,537. The company predicted
that the machine would be used for six years and would then have a
$21,320 residual value. Depreciation was to be charged on a
straight-line basis to the nearest whole month. A full year’s
depreciation was recorded on December 31, 2020. On September 30,
2025, it was retired.
Required:
1. Prepare journal entries to record the purchase of the
machine, the cost of repairing it, and the installation. Assume
that cash was paid.
2. Prepare entries to record depreciation on the
machine on December 31 of its first year and on September 30 in the
year of its disposal. (Round intermediate calculations to
the nearest whole dollar.)
3. Prepare entries to record the retirement of the
machine under each of the following unrelated
assumptions:
a. It was sold for $24,000.
b. It was sold for $27,000.
c. It was destroyed in a fire and the insurance
company paid $27,000 in full settlement of the loss
claim.
In: Accounting
Consider the effects of an exogenous increase in the domestic price level. For each of the assets listed, explain how the change in the price level would affect the wealth of the asset holder. Then explain the effect on aggregate (private sector) wealth and the effect on the aggregate expenditure (AE) curve.
8.1 Cash holdings
8.2 A household mortgage
8.3 A government bond that promises to pay the holder $10,000 on January 1, 2025
In: Economics
On January 1, 2020, Sheffield Company purchased 8% bonds having a maturity value of $240,000, for $260,219.71. The bonds provide the bondholders with a 6% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Sheffield Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.
In: Accounting
Footloose Limited acquired furniture and fittings on 1 July 2019 for $42 000.... Footloose Limited acquired furniture and fittings on 1 July 2019 for $42 000. The estimated useful life of the furniture and fittings at acquisition date was 8 years and the residual value was $2000. The company sold all the furniture and fittings on 1 January 2025 for $18 000. The journal entry to reflect the sale is:
In: Accounting
We find the following information on NPNG (No-Pain-No-Gain) Inc.
EBIT = $2,000,000 Depreciation = $250,000
Change in net working capital = $100,000
Net capital spending = $300,000
These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future:
EBIT: 10%
Depreciation: 15%
Change in net working capital: 20%
Net capital spending: 15%
The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $6,000,000 in debt. We have estimated the WACC to be 15%.
a. Calculate the EBIT, Depreciation, Changes in NWC, and Net Capital Spending for the next four years.
b. Calculate the CFA* for each of the next four years, using the following formula: CFA* = EBIT(1 – T) + Depr – ?NWC – NCS
d. Calculate the present value of growing perpetuity at Year 3. (1 mark)
e. Calculate the firm’s value at time 0 using the WACC of the firm as the discount rate. (Note that the first CFA* to be discounted is the cash flow from one year into the future.)
f. Calculate the firm’s equity value at time 0. (1 mark) g. Calculate the firm’s share price at time 0. (1 mark)
Could you please demonstrate how each section is calculated
In: Finance
1. We find the following information on NPNG (No-Pain-No-Gain) Inc. (18 marks total)
These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future:
The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $6,000,000 in debt. We have estimated the WACC to be 15%.
a. Calculate the EBIT, Depreciation, Changes in NWC, and Net Capital Spending for the next four years.
b. Calculate the CFA* for each of the next four years, using the following formula:
CFA* = EBIT(1 – T) + Depr – ΔNWC – NCS
d. Calculate the present value of growing perpetuity at Year 3. (1 mark)
e. Calculate the firm’s value at time 0 using the WACC of the firm as the discount rate. (Note that the first CFA* to be discounted is the cash flow from one year into the future.)
f. Calculate the firm’s equity value at time 0. (1 mark)
g. Calculate the firm’s share price at time 0. (1 mark)
In: Finance
1. We find the following information on NPNG (No-Pain-No-Gain) Inc. (18 marks total)
These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future:
The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $6,000,000 in debt. We have estimated the WACC to be 15%.
a. Calculate the EBIT, Depreciation, Changes in NWC, and Net Capital Spending for the next four years.
b. Calculate the CFA* for each of the next four years, using the following formula:
CFA* = EBIT(1 – T) + Depr – ΔNWC – NCS
d. Calculate the present value of growing perpetuity at Year 3. (1 mark)
e. Calculate the firm’s value at time 0 using the WACC of the firm as the discount rate. (Note that the first CFA* to be discounted is the cash flow from one year into the future.)
f. Calculate the firm’s equity value at time 0. (1 mark)
g. Calculate the firm’s share price at time 0. (1 mark)
In: Finance
1. We find the following information on NPNG (No-Pain-No-Gain) Inc. (18 marks total)
These numbers are projected to increase at the following supernormal rates for the next three years, and 5% after the third year for the foreseeable future:
The firm’s tax rate is 35%, and it has 1,000,000 outstanding shares and $6,000,000 in debt. We have estimated the WACC to be 15%.
a. Calculate the EBIT, Depreciation, Changes in NWC, and Net Capital Spending for the next four years.
b. Calculate the CFA* for each of the next four years, using the following formula:
CFA* = EBIT(1 – T) + Depr – ΔNWC – NCS
d. Calculate the present value of growing perpetuity at Year 3. (1 mark)
e. Calculate the firm’s value at time 0 using the WACC of the firm as the discount rate. (Note that the first CFA* to be discounted is the cash flow from one year into the future.)
f. Calculate the firm’s equity value at time 0. (1 mark)
g. Calculate the firm’s share price at time 0. (1 mark)
In: Finance
Summarize the history of First Solar and provide an overview for what it does and what goods/services it sells.
In: Operations Management