Rudolph Corporation is an oil well service company that measures its output by the number of wells
serviced. The company has provided the following fixed and variable cost estimates that it uses for
budgeting purposes.
Fixed Element per Month
Variable Element per Well Serviced
Revenue
$
4,500
Employee salaries and wages
$
47,400
$
1,200
Servicing materials
$
700
Other expenses
$
29,500
When the company prepared its planning budget at the beginning of July, it assumed that 34 wells
would have been serviced. However, 36 wells were actually serviced during July. The activity
variance for revenue for July would have been:
a. $10,800 U.
b. $9,000 F.
c. $9,000 U.
d. $10,800 F.

Use the following information for the next two questions. You are creating a cash flow project for your new venture, CBD IPA, a cannabis-infused beer and have made the following assumptions for the business:

• First year sales of 10,000 cans, rising by 10% each year
• Price per unit of $4.00 each, rising by 2% per year
• Operating expense equals first year sales revenue and rises 10% per year

1. What is the projected sales revenue of CBD IPA in year 3 (6 points)?

1. What is the operating income of CBD IPA in Year 4 (6 points)?

1. Define the profitability index and explain how it may be used a criterion for determining whether to pursue an investment or project (8 points).

Exercise 4-2 Income statement format; single step and multiple step [LO4-1, 4-5]

The following is a partial trial balance for the Green Star Corporation as of December 31, 2018:

100,000 shares of common stock were outstanding throughout 2018.

Required:
1. Prepare a single-step income statement for 2018, including EPS disclosures.
2. Prepare a multiple-step income statement for 2018, including EPS disclosures.
  

1. The following information describes the demand schedule for the market for a particular good. Use this information to determine the price elasticity of demand with a price change from $3,000 to $3,300. Show your work.

Suppose that you are the owner of the firm that produces this good and that you currently charge $3,000 per unit. Your closest competitors charge $3300 for an identical product. Describe how you can use the information about elasticity to determine whether or not to increase your prices.

1. Compute the total revenue under both price schemes. What happens to your total revenue if you decide to increase prices? Show your work.

The risk associated with client revenues is that they are overstated. Which of the following are true with respect to the risk of overstatement of revenues (select all that apply)

A) An effective internal control that management may implement is using bills of lading to ensure that sales occurring after year end are appropriately excluded at period end.

B) Auditors can effectively determine whether a particular sale is valid by using analytical review for revenue to test for the assertion of occurrence.

C) Auditors can either perform test of details or substantive analytical review or a combination of both in testing the assertion of occurrence for revenues.

D) Management uses analytical review as an internal control to test for the occurrence of revenue in addition to looking at invoices, bills of lading and other shipping documents as their internal control.

1–11. Research Case—GASB. (LO1-1) Access the Governmental Accounting Standards Board website at www.GASB.org. Find the GASB White Paper on “Why Governmental Accounting and Financial Reporting Is—and Should Be—Different.” There are numerous differences between governments and for-profits in the accounting and reporting of financial transactions. Two accounting and reporting differences between governments and for-profit organizations relate to capital assets and major revenue sources. Using the information in the White Paper and your knowledge from your financial accounting courses (refer to a financial accounting textbook or the FASB website [www.FASB.org] if you need a refresher), discuss why there are accounting and reporting differences related to capital assets and the organizations' major revenue sources (sales and property tax revenues).

. You are considering the following project. What is the expected cash flow for the last year (year 3)? This cash flow includes operating cash flow and terminal cash flow.

Project life: 3 years

Equipment:

Cost: $20,000

Economic life: 3 years

Salvage value: $4,000

Initial investment in net working capital: $2,000

Revenue: $13,000 in year 1, with a nominal growth rate of 6% per year

Fixed cost: $3,000 in year 1

Variable cost: 30% of revenue

Corporate tax rate (T): 40%

WACC for the project: 10%

This project does not create incidental effect.

Select one:

a. $12,459.31

b. $12,315.76

c. $12,492.91

d. $12,470.09

e. $12,334.09

The (short-run) production function for ACME Widgets is given byQ= 50K0(L−10)2/3, where Q is the weekly output of widgets, L is the weekly labor input,measured in $1000s, and K0 is the fixed level of capital input.

a. Compute the labor-elasticity of output, ηQ/L, as a function of L.

b. What is the labor-elasticity of output when labor input is $45000 a week?

c. Suppose that ACME hires two additional widget polishers, at a combined cost of $1500 a week. Use your answer to part b. to estimate the resulting percentage change in output.

d. Can the answers above be used to estimate the change in ACME’s weekly revenue? If so, what is the resulting change in revenue? If not, explain why not.