Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.

At this point, Ms. Tyler is manufacturing only one product—a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Required:

3. During the second quarter of operations, the company again produced 31,400 units but sold 34,400 units. (Assume no change in total fixed costs.)

a. What is the company’s variable costing net operating income (loss) for the second quarter?

b. What is the company’s absorption costing net operating income (loss) for the second quarter?

c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.

Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.

At this point, Ms. Tyler is manufacturing only one product—a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Required:

3. During the second quarter of operations, the company again produced 33,200 units but sold 38,200 units. (Assume no change in total fixed costs.)

a. What is the company’s variable costing net operating income (loss) for the second quarter?

b. What is the company’s absorption costing net operating income (loss) for the second quarter?

c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.

Which of the following is a problem (from an efficiency perspective) with ration coupons as an approach to allocate goods in a shortage?

Group of answer choices

People who value the good the most, don’t get more of it than other people

The first people in line buy most of the goods

The government misses out on tax revenue

Prices go up

CURRENT DESIGNS

Diane Buswell is preparing the 2019 budget for one of Current Designs' kayaks. Extensive meetings with members of the sales department and executive team have resulted in the following unit sales projections for 2019.

Current Designs' policy is to have finished goods ending inventory in a quarter equal to 20% of the next quarter's anticipated sales. Preliminary sales projections for 2020 are 1,100 units for the first quarter and 1,500 units for the second quarter. Ending inventory of finished goods at December 31, 2018, will be 200 kayaks.

Production of each kayak requires 54 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). Company policy is that the ending inventory of polyethylene powder should be 25% of the amount needed for production in the next quarter. Assume that the ending inventory of polyethylene powder on December 31, 2018, is 19,400 pounds. The finishing kits can be assembled as they are needed. As a result, Current Designs does not maintain a significant inventory of the finishing kits.

The polyethylene powder used in these kayaks costs $1.50 per pound, and the finishing kits cost $170 each. Production of a single kayak requires 2 hours of time by more experienced, type I employees and 3 hours of finishing time by type II employees. The type I employees are paid $15 per hour, and the type II employees are paid $12 per hour.

Selling and administrative expenses for this line are expected to be $45 per unit sold plus $7,500 per quarter. Manufacturing overhead is assigned at 150% of labor costs.

Instructions:Prepare the following:

1. direct materials budget
2. direct labor budget
3. manufacturing overhead budget
4. selling and administrative budget for this product line by quarter and in total for 2019.

How Falling Oil Prices in Early 2020 Weakened the U.S. Economy

Lutz Kilian, Michael D. Plante and Xiaoqing Zhou

May 19, 2020

The benchmark West Texas Intermediate (WTI) price of oil dropped by more than half from Jan. 21 to April 3. There is a long tradition of economists arguing that lower oil prices, all else equal, are good for the United States economy. Thus, one might have expected this dramatic price cut to have been a much-needed piece of welcome news.

Indeed, President Trump tweeted that the oil price drop “is good for the consumer” on March 9. The Wall Street Journal echoed this sentiment, calling low oil prices “a gift to U.S. consumers” on April 2. This view would have seemed reasonable just a few years ago, but it is no longer accurate today.

Instead, we will show that on balance this oil price decline has weakened rather than strengthened the U.S. economy, making this event different from past episodes of falling oil prices.

Consumer Spending Channel

How much an unexpected shift in the oil price matters for the U.S. economy, in general, depends on how much consumers spend on gasoline as a share of their overall spending. It also depends on how much of that spending is transferred abroad. Every dollar spent on oil or gasoline imported from abroad ends up in the hands of a foreign oil producer who is less likely to spend this revenue in the U.S.

Thus, normally, lower oil prices stimulate U.S. aggregate demand, as consumers have more discretionary income left for other purchases after paying less at the gas pump; conversely, higher oil and gasoline prices reduce aggregate domestic spending and lower economic growth.

Of course, this argument applies only to consumers who actually spend money on gasoline. The first point to keep in mind is that when consumers are cooped up at home with their cars sitting idle in the driveway, they are unlikely to take advantage of lower gasoline prices. Shelter-in-place policies greatly and almost instantaneously reduce the gasoline expenditure share, thereby limiting the direct effect of lower oil prices on domestic consumers.

A second point is that the U.S. economy has undergone major changes in the wake of the shale oil revolution. Historically, the U.S. economy was heavily dependent on petroleum imports. By late 2019, net petroleum imports on average had reached about zero (Chart 1). Thus, regardless of how much more consumers spend on gasoline, lower oil and gasoline prices do not mean that aggregate spending in the U.S. economy goes up.

Downloadable chart | Chart data

A third caveat is that the 2020 oil price decline in part was driven by lower U.S. demand for fuels, as state and local governments issued stay-at-home orders and many businesses shut down. This fact further helps explain why this time lower oil prices did not cause a boom in consumption and non-oil business investment.

Oil Sector Investment Spending Channel

It may seem that businesses more broadly should benefit from lower production costs, as oil prices decline, but that effect tends to be negligible in practice for most industries. A more important component of the transmission of lower oil prices to the U.S. economy is that they cause the oil sector to cut back on fixed-investment expenditures.

This effect occurs independently of whether there is a consumption boom and can be large enough in the aggregate to offset any consumption stimulus. In the current environment, the sharp reduction in capital expenditures by oil companies explains why this oil price decline, on balance, actually hurt U.S. investment spending—and hence, economic growth—not only in oil-producing regions, but overall. Capital expenditures by the industry are projected to decline by an additional 30 percent from previously announced levels and are likely to fall further, consistent with a sharp reduction in oil investment in 2020.

Implications for the Banking System

Independently of these expenditure shifts, there has also been concern that lower oil prices may undermine the stability of the banking system with potential spillovers to the economy at large. Because bank loans are securitized by oil reserves that are valued based on the oil futures curve—a measure of what investors believe oil will be worth in the future—a dramatic drop in oil prices matters to banks that are heavily involved in lending to oil companies. One measure of this effect is the decline in banks’ stock valuations when confronted with a large decline in the price of oil.

This argument is reminiscent of the housing crisis of 2007–09. Prior to that crisis, banks nationwide had 37 percent of their loan portfolios in residential mortgages. As house prices collapsed in 2007–09, the return on bank stocks cumulatively declined by 32 percent more than the overall stock market because banks had become overly exposed to house price corrections.

There is no evidence, however, that banks today are similarly dependent on oil-sector lending. Even for the most-exposed banks, the share of bank loans to the energy sector was no larger than 18 percent in the fourth quarter of 2019. Few banks had an exposure greater than 2 percent. Moreover, tighter regulations have forced banks to hold more reserves against potential loan losses.

Standard & Poor’s 500 bank stocks dropped by 19 percent relative to the overall stock market between Jan. 21—when awareness of the COVID-19 virus in the U.S. emerged—and April 3, compared with a decline of 23 percent for S&P 500 energy companies. Put differently, the excess decline experienced by bank stocks relative to the market has been about half of the excess decline of bank stocks during the housing crisis. Thus, there is no evidence to date that the crisis in the oil sector has spilled over into the banking sector more broadly.

In fact, there are many other reasons why bank stocks were hit particularly hard during the current crisis—notably the stress experienced by the broader financial system and falling interest rates. Thus, our analysis likely overstates the systemic impact of lower oil prices on banks’ stock returns.

explain changes in: Aggregate Demand and Aggregate Supply Money Demand Money Supply Exchange rate of the dollar.

unit sales will be 10,000 in quarter 1; 12,000 in quarter 2; 14,000 in quarter 3; and 18,000 in quarter 4. Management desires to have an ending finished goods inventory equal to 10% of the next quarter's expected unit sales. What is budgeted production in units for quarter 2?

Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid in planning, the company has decided to start using a contribution format income statement. To have data to prepare such a statement, the company has analyzed its expenses and has developed the following cost formulas:

Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements. Units sold and the related shipping expense over the last eight quarters follow:

Milden Company’s president would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter.

Required:

1. Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above.

2. In the first quarter of Year 3, the company plans to sell 27,000 units at a selling price of $53 per unit. Prepare a contribution format income statement for the quarter. (Do not round your intermediate calculations.)

Overhead Variances, Four-Variance Analysis, Journal Entries

Laughlin, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 200,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which $300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which $294,700 is fixed overhead.

Required:

1. Calculate the fixed overhead spending and volume variances.

2. Calculate the variable overhead spending and efficiency variances.

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3. Prepare the journal entries that reflect the following:

1. Assignment of overhead to production
2. Recognition of the incurrence of actual overhead
3. Recognition of overhead variances
4. Closing out overhead variances, assuming they are not material

Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank or enter "0".

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2) The following is a sample of times (in minutes) between calls received at a technical support help line. 1.1, 1.6, 2.5, 2.6, 2.6, 2.6, 2.6, 2.9, 2.9, 3.1, 3.1, 3.4, 3.4, 3.5, 3.6, 3.7, 3.8, 3.8, 3.8, 3.8, 4.0, 4.1, 4.1, 4.3, 4.3, 4.4, 4.4, 4.5, 4.5, 4.6, 4.7, 4.8, 4.9, 5.0, 5.2, 5.2, 5.5, 5.7, 5.8, 5.9, 6.3, 6.4, 6.7, 6.7

a) Construct a dot plot.

b) Construct a relative frequency distribution. Use 7 classes. The limits of the first class are 1.1-1.9. Give your relative frequencies as percentages to two decimal places.

c) Construct a relative frequency histogram.

d) Construct a box plot.