Inner Secret T Shirt Company produces and sells one product. The following information pertains to each of the company’s first three years of operations:

Variable costs per unit:     

Manufacturing:     

Direct materials   $   26

Direct labor   $   18

Variable manufacturing overhead   $   5

Variable selling and administrative   $   1

Fixed costs per year:     

Fixed manufacturing overhead   $   540,000

Fixed selling and administrative expenses   $   100,000

During its first year of operations, O’Brien produced 94,000 units and sold 75,000 units. During its second year of operations, it produced 83,000 units and sold 97,000 units. In its third year, O’Brien produced 82,000 units and sold 77,000 units. The selling price of the company’s product is $80 per unit.

Required:

1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

Inner Secret T Shirt Company produces and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 93,000 units and sold 73,000 units. During its second year of operations, it produced 80,000 units and sold 95,000 units. In its third year, O’Brien produced 89,000 units and sold 84,000 units. The selling price of the company’s product is $73 per unit.

3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 99,000 units and sold 76,000 units. During its second year of operations, it produced 81,000 units and sold 99,000 units. In its third year, O’Brien produced 84,000 units and sold 79,000 units. The selling price of the company’s product is $71 per unit.

Required:

1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $ 30 Direct labor $ 16 Variable manufacturing overhead $ 4 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 550,000 Fixed selling and administrative expenses $ 140,000 During its first year of operations, O’Brien produced 97,000 units and sold 70,000 units. During its second year of operations, it produced 80,000 units and sold 102,000 units. In its third year, O’Brien produced 86,000 units and sold 81,000 units. The selling price of the company’s product is $79 per unit.

3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 93,000 units and sold 77,000 units. During its second year of operations, it produced 78,000 units and sold 89,000 units. In its third year, O’Brien produced 84,000 units and sold 79,000 units. The selling price of the company’s product is $78 per unit.

Required:

1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 97,000 units and sold 70,000 units. During its second year of operations, it produced 80,000 units and sold 102,000 units. In its third year, O’Brien produced 86,000 units and sold 81,000 units. The selling price of the company’s product is $79 per unit.

3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 91,000 units and sold 74,000 units. During its second year of operations, it produced 80,000 units and sold 92,000 units. In its third year, O’Brien produced 87,000 units and sold 82,000 units. The selling price of the company’s product is $72 per unit.

Case 6-29 Part-3

3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

1. Consider a market for mid-size sedan with two players, Toyota and Kia.

Each company can set either high price (say $30,000) or low price (say $25,000) for their signature mid-size sedan model. The summary of the game is provided by a 2x2 matrix below. The first number in each payoff box is for Kia and the second number is for Toyota.

(a) Identify the Nash Equilibrium (N.E.) outcome.

(b) Based on the N.E. from part (a), would you say that the players are satisfied with the N.E. outcome? Why or why not?

Suppose now that both Toyota and Kia adopts a “Price Matching Policy” (i.e. Lowest Price Guaranteed). For example, Kia will match Toyota’s price if Toyota sets price lower than Kia.

(c) How would this “Price matching policy” change the payoffs? Fill in the matrix below.

(d) What would be the new Nash Equilibrium given that the players adopts this “Price Matching Policy”. (Obviously, your answer to part (d) would be based on your answer from part (c)).

You are auditing Pell grants provided to students at six state universities. The Pell grant program is a federal financial aid program for college students. The maximum grant a student can receive during a school year is $3,125, with a maximum of $1,041.67 per semester and summer session. The amount of a grant depends on financial need (need) and the number of credits taken (status). Students cannot receive a grant at two different schools during the same school term. You have obtained a file of grants for the current school year (available as Excel file pellA.XLS on the Blackboard site for the course ) that contains the following information:

SSN            Social Security number

Last            Student’s last name

First           Student’s first name

Middle       Student’s middle name or initial

School       School—coded 1 to 6

Term            Coded 1 to 3:

1—Fall Semester

2—Spring Semester

3—Summer Semester

Need*         Financial need—coded 1 to 5:

1: 100% of allowable grant

2: 75%

3: 50%

4: 25%

5: 0%

Status*      Credits taken—coded 1 to 4:

1: 100%     12 or more credits

2: 75%         9 to 11 credits

3: 50%        6 to 8 credits

4: 25%           3 to 5 credits

5: 0%             1 to 2 credits

Amount     Amount of grant for the term

Computation of grant: $3,125 / 3 * Need *Status

For a full-time student with maximum need:

$3,125 / 3 * 100% * 100% = $1,041.67

For a student with a code 3 need taking 9 credits:

$3,125 / 3 * 50% * 75% = $390.63

*Hint: To convert the NEED codes to the proper decimal value, use the expression: (1 - 0.25*(NEED − 1)). The same conversion can be used for STATUS codes.

1. Develop an audit program to identify potential fraud.

2. Use ACL to perform the steps in your audit program.

Your audit program to identify potential fraud.

A report on your findings including additional steps you would take to determine if fraud actually occurred.

Appropriate ACL printouts properly indexed with comments written on the printouts to explain the printout and its implications. Do not print out the entire grant file. Extract only the items of significance.

1. Which of the following statements are true about short selling?

Check all that apply:

The investor involved in short selling anticipates that the share price will fall.

Short selling is the sale of a security that is not owned by the seller.

The investor involved in short selling anticipates that the share price will increase.

Short selling means that an investor purchases securities using funds borrowed from her broker.

Short sellers borrow securities and sell them immediately.

2. The price of Apple stock is currently $104.79 and you decide to sell short 500 shares. The inital margin is 60%.

a. How much money do you have to contribute at least to the account?

b. If the price rises to $116.98, what is the new percentage margin?

c. If the broker's maintenance margin is 30%, what is the maximum value the stock price can take before you are issued a margin call?

3. You sell 780 shares of stock short at a price of $39.65. The initial margin requirement is 50% and the maintenance margin is 20%.

a. How much money do you have to add to the account to meet the inital margin requirement?

b. At what price will you first receive a margin call?