Last year, two friends Gear and Nogear invested in residential apartments. Each invested $1m of their own money (their net wealth).

Apartments cost $1m last year and they earned net rents of $30k pa over the last year. Net rents are calculated as rent revenues less the costs of renting such as property maintenance, land tax and council rates. However, interest expense and personal income taxes are not deducted from net rents.

Gear and Nogear funded their purchases in different ways:

Gear used $1m of her own money and borrowed $4m from the bank in the form of an interest-only loan with an interest rate of 5% pa to buy 5 apartments.

Nogear used $1m of his own money to buy one apartment. He has no mortgage loan on his property.

Both Gear and Nogear also work in high-paying jobs and are subject personal marginal tax rates of 45%. Assume that capital gains are taxed at the full 45% personal rate when the asset is sold.

Over the past year, house prices increased by 4%, before subtracting capital gains tax (CGT).

Gear and Nogear both sold their houses and Gear paid back all debt.

Which of the below statements about the past year is NOT correct? Note that m stands for million (10^6) and k stands for kilo (10^3).

Select one:

a. Gear's debt-to-assets ratio one year ago was 80% while Nogear's was zero.

b. Gear's net rent before tax was 150k while Nogear's was 30k.

c. Gear's capital gains before tax were 200k while Nogear's was 40k.

d. Gear's interest expense before tax was 250k while Nogear's was zero.

e. Gear's income and capital gains after tax due to the investment properties (ignoring opportunity costs) was 82.5k while Nogear's was 38.5k.

The A&M Hobby Shop carries a line of radio-controlled model racing cars. Demand for the cars is assumed to be constant at a rate of 40 cars per month. The cars cost $60 each, and ordering costs are approximately $15 per order, regardless of the order size. The annual holding cost rate is 20%.

1. Determine the economic order quantity and total annual cost under the assumption that no backorders are permitted. If required, round your answers to two decimal places.
   
   Q^* =
   
   Total Cost = $  
   
2. Using a $45 per-unit per-year backorder cost, determine the minimum cost inventory policy and total annual cost for the model racing cars. If required, round your answers to two decimal places.
   
   S^* =
   
   Total Cost = $  

The Children’s Hour Theatre is a local nonprofit organization that stages plays for children while allowing individuals who aspire to work in theatre an opportunity to try the craft. The theatre has a small administrative staff and the directors and actors are paid a fee for each performance which includes rehearsals. The Children’s Hour Theatre has planned five different productions with a total of 90 performances for this season. One of the classics presented is Peter and the Wolf. The theatre receives grants from donors to cover short falls from the discounted ticket prices that it charges. Therefore, the theatre only budgets its costs for each season. Some of the costs vary with the number of productions, some with the number of performances and some are fixed.

                                                            Fixed element Variable element         Variable element

                                                            Per season                    Per Production         Per Performance

Director & Actor wages                               $0                               $0                           $2,175

Stagehands wages                                        $0                                 $0                             $285

Ticket Booth & usher wages                       $0                                 $0                              $120

Scenery, costumes & props                         $0                       $20,500                                  $0

Theater hall rent                                           $0                                 $0                              $500

Printed programs                                          $0                                 $0                              $235

Publicity                                              $2,500                             $825                                  $0       

Administrative expenses                     $14,000                             $700                              $100

During the season, the theatre increased its productions to 6 and the performances to 120. The theatre's actual costs for the season are listed below:

The Children’s Hour Theatre

Actual Costs

2019 Season

Director & Actor wages                                              $ 260,250                               

Stagehands wages                                                            34,500

Ticket Booth & usher wages                                           14,800

Scenery, costumes & props                                           120,900

Theatre hall rent                                                               60,000                   

Printed programs                                                              28,060

Publicity                                                                             7,535                               

Administrative expenses                                                  31,245

            Total Expenses                                                $ 557,290

  
Required:

Prepare a flexible budget performance report showing both the company's activity variances and spending variances for the theatre season. Label each variance as favorable (F) or unfavorable (U).

Fenny owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home where she meets with clients, prepares bills, and performs other work-related tasks. The home office is 350 square feet and the entire house is 4,000 square feet. Fenny incurred the following home-related expenses during the year. Unless indicated otherwise, assume Fenny uses the actual expense method to compute home office expenses.

A. What amount of each of these expenses is allocated to the home office?

B. What are the total amounts of tier 1, tier 2, and tier 3 expenses, respectively, allocated to the home office?

C. If Fenny reported $2,500 of Schedule C net income before the home office expense deduction, what is the amount of her home office expense deduction and what home office expenses, if any, would she carry over to next year?

D. What is the total amount of from AGI deductions relating to the home that Fenny may deduct in the current year?

E. Assuming Fenny reported $2,500 of Schedule C income before the home office expense deduction, complete Form 8829 for Fenny’s home office expense deduction. Also assume the value of the home is $550,000 and the adjusted basis of the home (exclusive of land) is $514,821.

F. Assume that Fenny uses the simplified method for computing home office expenses. If Fenny reported $2,500 of Schedule C net income before the home office expense deduction, what is the amount of her home office expense deduction and what home office expenses, if any, would she carry over to next year?

1. Weighted Average Cost Method with Perpetual Inventory

   The beginning inventory at Midnight Supplies and data on purchases and sales for a three-month period ending March 31, are as follows:

   Date		Transaction	Number of Units		Per Unit		Total
   Jan. 1		Inventory	7,500		$75.00		$562,500
   10		Purchase	22,500		85.00		1,912,500
   28		Sale	11,250		150.00		1,687,500
   30		Sale	3,750		150.00		562,500
   Feb. 5		Sale	1,500		150.00		225,000
   10		Purchase	54,000		87.50		4,725,000
   16		Sale	27,000		160.00		4,320,000
   28		Sale	25,500		160.00		4,080,000
   Mar. 5		Purchase	45,000		89.50		4,027,500
   14		Sale	30,000		160.00		4,800,000
   25		Purchase	7,500		90.00		675,000
   30		Sale	26,250		160.00		4,200,000

   Required:

   1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 5, using the weighted average cost method. Round unit cost to two decimal places, if necessary.

   Midnight Supplies Schedule of Cost of Merchandise Sold Weighted Average Cost Method For the three months ended March 31
   	Purchases			Cost of Merchandise Sold			Inventory
   Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
   Jan. 1								$	$
   Jan. 10		$	$
   Jan. 28					$	$
   Jan. 30
   Feb. 5
   Feb. 10
   Feb. 16
   Feb. 28
   Mar. 5
   Mar. 14
   Mar. 25
   Mar. 30
   Mar. 31	Balances					$			$

   2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.

   Total sales	$
   Total cost of merchandise sold	$
   Gross profit from sales	$

   3. Determine the ending inventory cost as of March 31.
   $

Check My Work

Weighted Average Cost Method with Perpetual Inventory

The beginning inventory at Midnight Supplies and data on purchases and sales for a three-month period ending March 31, are as follows:

Required:

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 5, using the weighted average cost method. Round unit cost to two decimal places, if necessary.

2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.

3. Determine the ending inventory cost as of March 31.
$

Weighted Average Cost Method with Perpetual Inventory

The beginning inventory at Midnight Supplies and data on purchases and sales for a three-month period ending March 31, are as follows:

Required:

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 5, using the weighted average cost method. Round unit cost to two decimal places, if necessary.

2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.

3. Determine the ending inventory cost as of March 31.
$

This problem is based on one of the topics, Costs of Quality, in chapter four of your class textbook - Managing Quality: Integrating the Supply Chain, 6^th Edition by S. Thomas Foster. An example is solved for you in the text. Study the chapter and solve the following problems.

Statement of the problem

Assume Gilead faces the following cost structure regarding the production of Sovaldi. Complete the table below.

EOQ

Thomas Corporation produces heating units. The following values apply for a part used in their production (purchased from external suppliers):

Required:

1. For Thomas, calculate the ordering cost, the carrying cost, and the total cost associated with an order size of 120 units. If required, round your answers to the nearest cent.

2. Calculate the EOQ and its associated ordering cost, carrying cost, and total cost. If required, round your answers to the nearest cent.

3. What if Thomas enters into an exclusive supplier agreement with one supplier who will supply all of the demands with smaller, more frequent orders? Under this arrangement, the ordering cost is reduced to $ 0.39 per order.

Calculate the new EOQ. (Round your answer to one decimal place.)

units