I don’t understand this. Last year [year 1], we decided to drop our highest-end Red model and only produce the Yellow and Green models, because the cost system indicated we were losing money on Red. Now, looking at the preliminary numbers, our profit is actually lower than last year and it looks like Yellow has become a money loser, even though our prices, volumes, and direct costs are the same. Can someone please explain this to me and maybe help me decide what to do next year?

Robert Dolan

President & CEO

Dolan Products

Dolan Products is a small, family-owned audio component manufacturer. Several years ago, the company decided to concentrate on only three models, which were sold under many brand names to electronic retailers and mass-market discount stores. For internal purposes, the company uses the product names Red, Yellow, and Green to refer to the three components.

Data on the three models and selected costs follow:

This year (year 2), the company only produced the Yellow and Green models. Total overhead was $625,400. All other volumes, unit prices, costs, and direct labor usage were the same as in year 1. The product cost system at Dolan Products allocates manufacturing overhead based on direct labor hours.

Required:

a. Compute the product costs and gross margins (revenue less cost of goods sold) for the three products and total gross profit for year 1. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

b. Compute the product costs and gross margins (revenue less cost of goods sold) for the two remaining products and total gross profit for year 2. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
     

c. Should Dolan Products drop Yellow for year 3?   

Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.

The weighted average cost of capital is 10%, and the FCFs are expected to continue growing at a 3% rate after Year 5. The firm has $24 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 21 million shares outstanding. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations.

Business Basics - Assignment 2

GLOBUS ENTERPRISES YEAR END BALANCES

Assignment

Using the data in the table above, create a balance sheet for Globus’s operations as of yearend (December 31, 200X)

Using the data in the table above, create an income statement for the year being examined.

Analyze the financial statements using the following analytical tools:

Current ratio (What does this ratio tell us about Globus?)

Net working capital (What does net working capital tell us about Globus?)

Note: Net working capital is the difference between current assets and current liabilities.

Debt to equity ratio (What does this ratio tell us about Globus?) Note: To compute owners’ equity from the data supplied here, remember the fundamental accounting equation:

Assets = Liabilities + Owners’ equity

Leverage ratio (What does this ratio tell us about Globus?)

Return on equity (What does this ratio tell us about Globus?)

The table shows growth rates for a population over time. Use this data to sketch a smooth curve relating the two variables.

Draw rectangles on this graph to help you underestimate the total change in the world's population between 1950 and 1990. What underestimate did you obtain

million people?

Draw rectangles on this graph to help you overestimate the total change in the world's population between 1950 and 1990. What overestimate did you obtain?

million people?

If the population in 1950 were 2844 million and if the population in 1990 were 5393 million, what would be the true total change in population?

million people ?

While preparing its year 3 financial statements, Dek Corp. discovered computational errors in its year 2 and year 1 depreciation expense. These errors resulted in overstatement of each year’s income by $25,000, net of income taxes. The following amounts were reported in the previously issued financial statements:

Dek’s year 3 income is correctly reported at $180,000. Which of the following amounts should be adjusted to retained earnings and presented for net income in Dek’s year 3 and year 2 comparative financial statements?

This Answer is Correct (Answer is below)

This answer is correct. ASC Topic 250 requires that items of profit or loss related to the correction of an error in the financial statements of a prior period be accounted for and reported as prior period adjustments and excluded from the determination of net income for the current period. When comparative financial statements are prepared, it is necessary to adjust net income, its components, retained earnings balances, and other affected balances for all of the periods presented to reflect retroactive application of prior period adjustments. Hence, the amounts for each period must be stated in the comparative statements as if the errors had not occurred. Thus, both year 1 and year 2 net income and retained earnings would be retroactively reduced by $25,000 to reflect the correct amounts for each period. After these adjustments are made, the amounts for year 3 will be correctly stated. Note that this retroactive treatment is only used for presentation purposes in the comparative financial statements. The actual journal entry made to correct retained earnings at 1/1/Y3 is

I don't understand why the answer below is correct for this problem regardless of explanation above? Can please explain why this is the answer in a easier way so I can understand? Also why is retained earnings in Year 2 ($50,000)

While preparing its year 3 financial statements, Dek Corp. discovered computational errors in its year 2 and year 1 depreciation expense. These errors resulted in overstatement of each year’s income by $25,000, net of income taxes. The following amounts were reported in the previously issued financial statements:

Dek’s year 3 income is correctly reported at $180,000. Which of the following amounts should be adjusted to retained earnings and presented for net income in Dek’s year 3 and year 2 comparative financial statements?

This Answer is Correct (Answer is below)

This answer is correct. ASC Topic 250 requires that items of profit or loss related to the correction of an error in the financial statements of a prior period be accounted for and reported as prior period adjustments and excluded from the determination of net income for the current period. When comparative financial statements are prepared, it is necessary to adjust net income, its components, retained earnings balances, and other affected balances for all of the periods presented to reflect retroactive application of prior period adjustments. Hence, the amounts for each period must be stated in the comparative statements as if the errors had not occurred. Thus, both year 1 and year 2 net income and retained earnings would be retroactively reduced by $25,000 to reflect the correct amounts for each period. After these adjustments are made, the amounts for year 3 will be correctly stated. Note that this retroactive treatment is only used for presentation purposes in the comparative financial statements. The actual journal entry made to correct retained earnings at 1/1/Y3 is

I don't understand why the answer below is correct for this problem regardless of explanation above? Can please explain why this is the answer in a easier way so I can understand? Also why is retained earnings in Year 2 ($50,000)

A bicycle manufacturer buys 5000 tires a year from a distributor. It cost 6 to store one bicycle tire for a year. To re-order, there is a fixed cost of $24 per shipment plus $11 for each tire. How many times per year should the manufacturer order bicycle tires and in what lot size, to minimize inventory cost?

Suppose currently 10-year Treasury note offers 2.8% yield and the average yield on investment grade 10-year corporate bonds is 4.4%. Calculate the risk spread. Predict what will happen to the yields of corporate and treasury bonds as well as the risk spread if the federal government guarantees today that it will pay to bondholders if the corporations go bankrupt in the future.

•Note the following yields: 10 year treasury 2.37%, 10 year AAA rated bond credit spread 0.90% (90 basis points), BBB rated bond credit spread 1.20% (120 basis points). What is the price of a 10 year bond, $1000 par value, with a coupon rate of 6% that pays interest semi-annually and has risk similar to a BBB rated corporate bond?

•Suppose Company X has earnings next year of $1.00 and grows earnings by 40% for 2 years and will grow earnings thereafter by 4%. It pays no dividends until year 4, where it will then initiate a 50% dividend payout rate. If the cost of equity capital is 12%, what is the price of the stock?