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.

Calculate the fixed overhead spending and volume variances. Explain the meaning of the volume variance to the manager of Laughlin.

Calculate the variable overhead spending and efficiency variances. Is the spending variance the same as the direct materials price variance? If not, explain how it differs.

1a. Derive government spending and tax multiplier in the Keynesian-cross model using calculus

1b. Consider the model of Keynesian cross with fixed planned investment expenditure, government spending and taxes. Assume that consumption function is given by C=a+mpc*(Y-T), where the parameter a >0 is called autonomous consumption, and the marginal propensity to consume satisfies 0< mpc <1. Compute equilibrium output (income) as a function of parameters (a and mpc) and exogenous variables. How does equilibrium output depend on a? mpc? Government spending? Taxes?

1c. Suppose that the real interest rate is 2% and expected inflation rate is 4%. What does Fisher equation predict nominal interest rate t

Montpelier, a small town in Ohio, earns $75 million and spends $46.5 million. If their income falls to $67 million, they will spend $41 million. Full employment is achieved when income is $79 million.

1. Calculate the average propensity to consume when Montpelier earns $75 million
2. Calculate the average propensity to save when Montpelier earns $75 million
3. Calculate the marginal propensity to consume when income falls from $75 million to $67 million
4. Calculate the spending multiplier for Montpelier
5. Is Montpelier in a recessionary or inflationary period?
6. If the government wants to change their spending level to get Montpelier to reach full employment, how much will they have to adjust their spending when Montpelier is earning $67 million

The economy is in a recession. A congresswoman suggests increasing spending to stimulate aggregate demand but also at the same time raising taxes to pay for the increased spending. Her suggestion to combine higher government expenditures with higher taxes is: a. The worst possible combination of tax and expenditure changes. b. The best possible combination of tax and expenditure changes. c. A mediocre and contradictory combination of tax and expenditure changes. d. None of the above. After selecting your responses to both questions explain your answers in detail, use economic terms (aggregate-spending, production, income, employment...What are the economic consequences, how would they influence the four major sectors (C+I+G+Xn) and Real GDP.

You have just graduated from The a College and is making a budget presentation to a group of students. In your presentation you are required to prepare the cash budget for Neann Ltd for the first quarter of 2011.
The following information is to be used in the preparation of the budget.
a) The directors have agreed at a special meeting to inject additional capital into the business of $60million dollars in February 2011.
b) The business expects to receive interest income of $40million in March 2011.
c) Twenty percent (20%) of the company’s sales represents cash sales and the remainder is received 3 months later. The following sales are expected:

                       $million
October 2010    80
November 2010 40
December 2010 50
January 2011     30
February 2011    45
March 2011         50

d) Neann is expected to receive dividend of $6million at the end of January 2011
e) The following overheads are to be incurred on a monthly basis
                                $million
Factory Insurance           5
Factory Depreciation    1.5
Indirect wages               2
Indirect Materials          0.5

f) Neann plans to purchase equipment costing $12million in January 2011.
g) The directors of Neann are expected to declare a dividend of $18million in March 2011
h) At the December 2010 board meeting the directors plan to sign off on the renovation of the executive suite, the directo’rs dining room and the board room. The contract is expected to cost $200million. The work is schedule to start in May 2011 but the first payment of $110million is to be made in February 2011.
i) Three of the directors are to purchase 5 series BMW from Stewarts Motors costing $17million each. The payment is to be made in March 2011.
j) It is expected that the sale of two trucks owned by Neann will be finalized in February 2011. The sale proceeds of $10 million is to be received in March 2011.
k) The Company must maintain a minimum cash balance of $10 million
l) All borrowing occurs at the end of a month and all repayments occur at the end of the month following the loan taken.
m) Interest is paid only at the time of repayment of principal. The interest rate is 10% per year.
n)    The cash balance at the end of December 2010 was $10million    

Required:
a) Prepare a debtors collection schedule for the quarter
b) Prepare a cash budget for the quarter with a total columns ending March 31,2011     

Sky Kitchens is the second largest airline caterer in the United States, providing nearly all the meals for passengers of three major airlines and several smaller commuter airlines. As part of a total quality management (TQM) program, its largest airline client, Continental Airlines, has recently met with representatives of Sky Kitchens to discuss a customer satisfaction program that it is planning to implement. Continental plans to interview a sample of its customers four times a year. In the survey, it intends to ask customers to rate the quality of meals provided on a 1–10 scale, where 1 means poor and 10 means excellent. It has just completed a benchmark study of 1,000 customers. In that study, meals received an average rating of 8.7 on the 10-point scale, with a standard deviation of 1.65. Continental has indicated that it wants Sky Kitchens to guarantee a level of satisfaction of 8.5 in the first quarterly survey, to be conducted in three months. For its quarterly surveys, Continental plans to use a sample size of 500. In the new contract with Sky Kitchens, Continental wants to include a clause that will penalize Sky Kitchens $50,000 for each one-tenth of a point it falls below an average of 8.5 on the next survey’s satisfaction scale.

1. What is the 99.74% confidence interval (CI) for the true satisfaction level based on the benchmark survey?

2. What is the 99% confidence interval (CI) for the true satisfaction level based on the benchmark survey?

3. What is the 95.44% CI for the true satisfaction level based on the benchmark survey?

4. What is the 95% CI for the true satisfaction level based on the benchmark survey?

5. As Sky Kitchens, what do you think of Continental’s requirement for a level of satisfaction of 8.5 in the first quarter survey?

6. Assume that the upcoming 1st -quarter satisfaction survey shows anaverage rating of 8.4 on satisfaction with meals. Assume that the population standard deviation is1.65. Compute the 99% CI for the true satisfaction level based on the 1st-quarter survey. As Sky Kitchens, what is the best way to present and interpret the resulting CI?

7. If you were negotiating for Sky Kitchens, how would you respond to Continental regarding the penalty clause? Is there a better or more reasonable way to revise it

Required information

[The following information applies to the questions displayed below.]

Web Wizard, Inc., has provided information technology services for several years. For the first two months of the current year, the company has used the percentage of credit sales method to estimate bad debts. At the end of the first quarter, the company switched to the aging of accounts receivable method. The company entered into the following partial list of transactions during the first quarter.

1. During January, the company provided services for $35,000 on credit.
2. On January 31, the company estimated bad debts using 2 percent of credit sales.
3. On February 4, the company collected $17,500 of accounts receivable.
4. On February 15, the company wrote off a $100 account receivable.
5. During February, the company provided services for $25,000 on credit.
6. On February 28, the company estimated bad debts using 2 percent of credit sales.
7. On March 1, the company loaned $3,000 to an employee, who signed a 6% note, due in 6 months.
8. On March 15, the company collected $100 on the account written off one month earlier.
9. On March 31, the company accrued interest earned on the note.
10. On March 31, the company adjusted for uncollectible accounts, based on an aging analysis (below). Allowance for Doubtful Accounts has an unadjusted credit balance of $1,150.

Required:

1. For items (a)–(j), analyze the transaction to determine effects on specific financial statement accounts and the overall accounting equation. (Enter any decreases to Assets, Liabilities, or Stockholders Equity with a minus sign. Do not round intermediate calculations.)

Web Wizard, Inc., has provided information technology services for several years. For the first two months of the current year, the company has used the percentage of credit sales method to estimate bad debts. At the end of the first quarter, the company switched to the aging of accounts receivable method. The company entered into the following partial list of transactions during the first quarter. During January, the company provided services for $41,000 on credit. On January 31, the company estimated bad debts using 2 percent of credit sales. On February 4, the company collected $20,500 of accounts receivable. On February 15, the company wrote off a $150 account receivable. During February, the company provided services for $31,000 on credit. On February 28, the company estimated bad debts using 2 percent of credit sales. On March 1, the company loaned $2,600 to an employee, who signed a 6% note, due in 6 months. On March 15, the company collected $150 on the account written off one month earlier. On March 31, the company accrued interest earned on the note. On March 31, the company adjusted for uncollectible accounts, based on an aging analysis (below). Allowance for Doubtful Accounts has an unadjusted credit balance of $1,210. Number of Days Unpaid Customer Total 0–30 31–60 61–90 Over 90 Alabama Tourism $ 230 $ 110 $ 90 $ 30 Bayside Bungalows 410 $ 410 Others (not shown to save space) 17,400 6,900 8,500 1,100 900 Xciting Xcursions 390 390 Total Accounts Receivable $ 18,430 $ 7,400 $ 8,590 $ 1,130 $ 1,310 Estimated Uncollectible (%) 3 % 10 % 20 % 30 % PA8-4 Part 1 Required: For items (a)–(j), analyze the transaction to determine effects on specific financial statement accounts and the overall accounting equation. (Enter any decreases to Assets, Liabilities, or Stockholders Equity with a minus sign. Do not round intermediate calculations.

Web Wizard, Inc., has provided information technology services for several years. For the first two months of the current year, the company has used the percentage of credit sales method to estimate bad debts. At the end of the first quarter, the company switched to the aging of accounts receivable method. The company entered into the following partial list of transactions during the first quarter.

1. During January, the company provided services for $40,000 on credit.
2. On January 31, the company estimated bad debts using 1 percent of credit sales.
3. On February 4, the company collected $20,000 of accounts receivable.
4. On February 15, the company wrote off a $100 account receivable.
5. During February, the company provided services for $30,000 on credit.
6. On February 28, the company estimated bad debts using 1 percent of credit sales.
7. On March 1, the company loaned $2,400 to an employee, who signed a 6% note, due in 6 months.
8. On March 15, the company collected $100 on the account written off one month earlier.
9. On March 31, the company accrued interest earned on the note.
10. On March 31, the company adjusted for uncollectible accounts, based on an aging analysis (below). Allowance for Doubtful Accounts has an unadjusted credit balance of $1,200.

Required:

1. For items (a)–(j), analyze the transaction to determine effects on specific financial statement accounts and the overall accounting equation. (Enter any decreases to Assets, Liabilities, or Stockholders Equity with a minus sign. Do not round intermediate calculations.)

Utilization of a Constraint

Flying High only has so much space on the plane for seating.  The airline can charge $900 for a first class ticket while it can only charge $300 for an economy ticket.  The contribution margin on each are $600 and $150 respectively.  The big difference is that a first class seat takes up 30 square feet while an economy seat only takes up 12 square feet.  If the airline has only 1,650 square feet for seating and a demand of 35 first class tickets and 90 economy seats, how many of each type of seat should they design in the plane?

Sell or Process Further

Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $375,000 per quarter. For financial reporting purposes, the company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:

Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:

What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? AND Based on your analysis, which product or products should be sold at the split-off point and which product or products should be processed further?