|
Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31. |
| Transactions | Units | Unit Cost | |||||||
| Beginning inventory, January 1 | 3,400 | $ | 50 | ||||||
| Transactions during the year: | |||||||||
| a. | Purchase, January 30 | 4,700 | 65 | ||||||
| b. | Sale, March 14 ($100 each) | (3,050 | ) | ||||||
| c. | Purchase, May 1 | 3,400 | 80 | ||||||
| d. | Sale, August 31 ($100 each) | (3,500 | ) | ||||||
|
Assuming that for Specific identification method (item 1d) the
March 14 sale was selected two-fifths from the beginning inventory
and three-fifths from the purchase of January 30. Assume that the
sale of August 31 was selected from the remainder of the beginning
inventory, with the balance from the purchase of May 1. |
| Required: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. |
Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)
a. last in, first out b. weighted average cost c. first in, first out d. specific identification Amount of Goods available for sale, ending inventory, cost of goods sold for each |
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In: Accounting
Tampa Enterprises is considering the addition of a new product line. The firm would not need additional factory space, but it would require the purchase of $2.45 million of equipment installed. The equipment would be depreciated using a 7-year accelerated depreciation schedule. Additional inventory of 13% of the projected increase in next year’s sales would be necessary prior to each year of operation, but the entire value will be recovered at the end of the project. The firm expects to sell 340,000 units during the first year of the project, increasing to 355,000 units during the next three years before decreasing to 100,000 during the fifth and final year of the project. The product is expected to be obsolete at that point. The expected sales price is $13 per unit with a variable cost of $6 per unit during the first year of operations. Variable costs will increase by 5% per year, but the sales price remains fixed. Fixed costs are estimated at $610,000 during the first year, but will increase by 6% per year. The firm’s tax rate is 21%. The equipment has an estimated salvage value of $500,000.
What is the estimated net present value of the project assuming a required return of 18%?
Management of the firm is concerned the economy is potentially entering a recession, which would decrease the demand for the product to an estimated 100,000 units for all 5 years and force the firm to drop the price to $9.
What is the estimated net present value of the project assuming a recession?
Based on your calculations, what recommendations would you make to the management of Tampa Enterprises?
Please provide answers in excel if possible.
In: Finance
Jack Tar, CFO of Sheetbend & Halyard, Inc., opened the company confidential envelope. It contained a draft of a competitive bid for a contract to supply duffel canvas to the U.S. Navy. The cover memo from Sheetbend?s CEO asked Mr. Tar to review the bid before it was submitted. The bid and its supporting documents had been prepared by Sheetbend?s sales staff. It called for Sheetbend to supply 100,000 yards of duffel canvas per year for 5 years. The proposed selling price was fixed at $30 per yard. Mr. Tar was not usually involved in sales, but this bid was unusual in at least two respects. First, if accepted by the navy, it would commit Sheetbend to a fixed-price, long-term contract. Second, producing the duffel canvas would require an investment of $1.5 million to purchase machinery and to refurbish Sheetbend?s plant in Pleasantboro, Maine. Mr. Tar set to work and by the end of the week had collected the following facts and assumptions: ? The plant in Pleasantboro had been built in the early 1900s and is now idle. The plant was fully depreciated on Sheetbend?s books, except for the purchase cost of the land (in 1947) of $10,000. ? Now that the land was valuable shorefront property, Mr. Tar thought the land and the idle plant could be sold, immediately or in the near future, for $600,000. ? Refurbishing the plant would cost $500,000. This investment would be depreciated for tax purposes on the 10-year MACRS schedule. ? The new machinery would cost $1 million. This investment could be depreciated on the 5-year MACRS schedule. ? The refurbished plant and new machinery would last for many years. However, the remaining market for duffel canvas was small, and it was not clear that additional orders could be obtained once the navy contract was finished. The machinery was custom-built and could be used only for duffel canvas. Its secondhand value at the end of 5 years was probably zero. ? Table 9?4 shows the sales staff?s forecasts of income from the navy contract. Mr. Tar reviewed this forecast and decided that its assumptions were reasonable, except that the forecast used book, not tax, depreciation. ? But the forecast income statement contained no mention of working capital. Mr. Tar thought that working capital would average about 10% of sales. Armed with this information, Mr. Tar constructed a spreadsheet to calculate the NPV of the duffel canvas project, assuming that Sheetbend?s bid would be accepted by the navy. He had just finished debugging the spreadsheet when another confidential envelope arrived from Sheetbend?s CEO. It contained a firm offer from a Maine real estate developer to pur- chase Sheetbend?s Pleasantboro land and plant for $1.5 millionin cash. Should Mr. Tar recommend submitting the bid to the navy at the proposed price of $30 per yard? The discount rate for this proj- ect is 12%. Year 1 2 3 4 5 1 Yards sold 100 100 1000 100 100 2 Price per yard 30 30 30 30 30 3 Revenue (1 x 2) 3000 3000 3000 3000 3000 4 cost of goods sold 2100 2184 2271.36 2362.21 2456.7 5 operating cash flow (3-4) 900 816 728.64 637.79 543.3 6 Depreciation 250 250 250 250 250 7 Income (5-6) 650 566 478.64 387.79 293.3 8 Tax at 35% 227.5 198.1 167.52 135.72 102.65 9 Net Income (7-8) $422.50 $367.90 $311.12 $252.07 $190.65 TABLE 9?4 Forecast income statement for the U.S. Navy duffel canvas project (dollar figures in thousands, except price per yard) Notes: 1. Yards sold and price per yard would be fixed by contract. 2. Cost of goods includes fixed cost of $300,000 per year plus variable costs of $18 per yard. Costs are expected to increase at the inflation rate of 4% per year. 3. Depreciation: A $1 million investment in machinery is depreciated straight-line over 5 years ($200,000 per year). The $500,000 cost of refurbishing the Pleasantboro plant is depreciated straight-line over 10 years ($50,000 per year.
MY QUESTION: What is the difference between profits and cash flow?What are the key factors affecting this decision that Mr. Tar should consider?
Thank you
In: Finance
Your pricing team has run an A/B test and determined that when the price of your product is $300 the quantity demanded is 100 units. However, when the price is $200 quantity demanded is 150 units.
Your procurement and warehousing team has also provided a best estimate of your costs. The fixed cost for rent is $1,000 / month. The variable cost to procure and ship your product is 8Q + 2Q²
Answer the following questions:
Write out your demand and inverse demand functions.
Write out your profit function.
Using calculus, what is the quantity that maximizes profit (prove using derivatives that it is indeed a maximum)?
Using Excel, create a graphshowing TR, TC, and Profit from Q = 50 to Q = 200 by increments of 10.
At P=84
How much quantity is demanded?
What is the elasticity of demand?
The company is debating increasing price by 5%. What will happen to revenue if price increases by 5%? (Revenue goes down or goes up? Why?)
In: Economics
Suppose that a market could be either a monopoly or a competitive market. Suppose that in either case the demand curve can be written as Qd= 100-2P. Suppose further that the marginal cost of production is the same in either case. This means that the supply curve in the competitive market is the same as the marginal cost curve for the monopoly. So the supply curve is Qs= -20+P and, rearranging the terms, the marginal cost of the monopolist is MC= 20+Q.
What is the price and quantity in the market if the market is competitive?
What is the price and quantity in the market if the market is a monopoly?
How does the price and quantity compare between competition and monopoly?
What is the markup in the market is competitive? What is the markup if the market is a monopoly? Calculate directly as P/MC.
What is the markup in the market is competitive? What is the markup if the market is a monopoly? Calculate using the elasticity of demand. For competition, Ed= -infinity for the individual firm (ie. perfectly elastic demand because of a vast array of perfect substitutes). For monopoly, calculate the elasticity of demand at the quantity and price that the monopoly produces.
In: Economics
Problem 5:
Suppose that a market could be either a monopoly or a competitive market. Suppose that in
either case the demand curve can be written as ?d = 100 − 2?. Suppose further that the
marginal cost of production is the same in either case. This means that the supply curve in the
competitive market is the same as the marginal cost curve for the monopoly. So the supply curve
is ?s = −20 + ? and, rearranging the terms, the marginal cost of the monopolist is ?? = 20 +
?.
a) What is the price and quantity in the market if the market is competitive?
b) What is the price and quantity in the market if the market is a monopoly?
c) How does the price and quantity compare between competition and monopoly?
d) What is the markup in the market is competitive? What is the markup if the market is a
monopoly? Calculate directly as P/MC.
.
e) What is the markup in the market is competitive? What is the markup if the market is a
monopoly? Calculate using the elasticity of demand. For competition, ?D = −∞ for the
individual firm (ie. perfectly elastic demand because of a vast array of perfect
substitutes). For monopoly, calculate the elasticity of demand at the quantity and price
that the monopoly produces.
In: Economics
Consider a monopolist facing the following situation:
|
Quantity |
0 |
10 |
20 |
30 |
40 |
50 |
60 |
70 |
|
Price |
$50 |
$45 |
$40 |
$35 |
$30 |
$25 |
$20 |
$15 |
|
Marginal Revenue |
$40 |
$35 |
$25 |
$15 |
$2.5 |
$2.5 |
$15 |
|
|
Total Cost |
$100 |
$370 |
$700 |
$960 |
$1120 |
$1225 |
$1650 |
$2250 |
|
Marginal Cost |
$27 |
$35 |
$26 |
$16 |
$11 |
$43 |
$60 |
|
|
Average Total Cost |
$37 |
$35 |
$32 |
$28 |
$25 |
$28 |
$32 |
A. Graph the following:
Demand Curve
Marginal Revenue Curve
Marginal Cost Curve
Average Total Cost Curve
B. Identify the profit maximization point for the monopolist. What are the price and quantities that will maximize profit? What is the total profit received at this point?
C. Suppose you were the regulator of this monopoly and you wished to set price and quantity at the perfectly competitive price and quantity, what would those values be?
D. Compare the results you got in B with the results in C.
In: Economics
. For the following demand function, QD = 100 – P, answer the following questions a. what is the point elasticity of demand at P = 80? b. what is the point elasticity of demand at P = 20? c. at what price is demand unitary price elastic? d. demand is price elastic for prices between __________ and ___________ e. Consider your answer to part d., what happens to revenues as prices decrease within this range? Are marginal revenues positive, constant or negative in this range of prices? f. demand is price inelastic for prices between __________ and ___________ g. Consider your answer to part f., what happens to revenues as prices decrease within this range? Are marginal revenues positive, constant or negative in this range of prices? h. How many units of this good does a firm facing this demand curve have to produce to maximize its revenues? i. What are maximum revenues for this firm? j. Draw the total revenue curve associated to this demand curve. Need help with H-J
In: Economics
For the following demand function, QD = 100 – P, answer the following questions
a. what is the point elasticity of demand at P = 80?
b. what is the point elasticity of demand at P = 20?
c. at what price is demand unitary price elastic?
d. demand is price elastic for prices between __________ and ___________
e. Consider your answer to part d., what happens to revenues as prices decrease within this range? Are marginal revenues positive, constant or negative in this range of prices?
f. demand is price inelastic for prices between __________ and ___________
g. Consider your answer to part f., what happens to revenues as prices decrease within this range? Are marginal revenues positive, constant or negative in this range of prices?
h. How many units of this good does a firm facing this demand curve have to produce to maximize its revenues?
i. What are maximum revenues for this firm?
j. Draw the total revenue curve associated to this demand curve.
***PLEASE ANSWSER ALL QUESTIONS***
In: Economics
Consider a monopolist facing the following situation:
Quantity 0 10 20 30 40 50 60 70
Price $50 $45 $40 $35 $30 $25 $20 $15
Marginal Revenue $40 $35 $25 $15 $2.5 $2.5 $15
Total Cost $100 $370 $700 $960 $1120 $1225 $1650 $2250
Marginal Cost $27 $35 $26 $16 $11 $43 $60
Average Total Cost $37 $35 $32 $28 $25 $28 $32
A. Graph the following: Demand Curve Marginal Revenue Curve Marginal Cost Curve Average Total Cost Curve
B. Identify the profit maximization point for the monopolist. What are the price and quantities that will maximize profit? What is the total profit received at this point?
C. Suppose you were the regulator of this monopoly and you wished to set price and quantity at the perfectly competitive price and quantity, what would those values be?
D. Compare the results you got in B with the results in C.
In: Economics