Variable Costs, Contribution Margin, Contribution Margin Ratio
Super-Tees Company plans to sell 10,000 T-shirts at $24 each in the coming year. Product costs include:
Direct materials per T-shirt $8.40
Direct labor per T-shirt $1.68
Variable overhead per T-shirt $0.72
Total fixed factory overhead $40,000
Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $15,000.
Required:
1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to
three decimal places (express the ratio as a decimal rather than a
percentage).
a. Variable product cost per unit $
b. Total variable cost per unit $
c. Contribution margin per unit $
d. Contribution margin ratio
e. Total fixed expense for the year $
2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.
Super-Tees Company
Contribution-Margin-Based Operating Income Statement
For the Coming Year
Total Per Unit
$ $
$ $
$
3. What if the per unit selling expense increased from $1.20 to
$2.55? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to
four decimal places (express the ratio as a decimal rather than a
percentage):
a. Variable product cost per unit $
b. Total variable cost per unit $
c. Contribution margin per unit $
d. Contribution margin ratio
e. Total fixed expense for the year $
In: Accounting
1. The total book value of WTC’s equity is $13 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 9%. The firm’s bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 6%, and the firm’s tax rate is 40%. What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC=
2. Micro Spinoffs Inc. issued 20-year debt a year ago at par value with a coupon rate of 5%, paid annually. Today, the debt is selling at $1,140. If the firm’s tax bracket is 35%, what is its percentage cost of debt? Assume a face value of $1,000. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
3. Pangbourne Whitchurch has preferred stock outstanding. The stock pays a dividend of $12 per share, and sells for $80. The corporate tax rate is 35%. What is the percentage cost of the preferred stock? (Enter your answer as a whole percent.) Cost of preferred stock =
4. Reactive Power Generation has the following capital structure. Its corporate tax rate is 40%.
| Security | Market Value | Required Rate of Return |
||||
| Debt | $ | 30 | million | 4 | % | |
| Preferred stock | 30 | million | 6 | |||
| Common stock | 40 | million | 10 | |||
What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
In: Finance
Ignacio, Inc., had after-tax operating income last year of $1,198,000. Three sources of financing were used by the company: $1 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $11 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent.
Required:
1. Calculate the after-tax cost of each method of financing. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ".044".
| Mortgage bonds | _______ |
| Unsecured bonds | _______ |
| Common stock | _______ |
2. Calculate the weighted average cost of capital for Ignacio, Inc. Round intermediate calculations to four decimal places. Round your final answer to four decimal places before converting to a percentage. For example, .06349 would be rounded to .0635 and entered as "6.35" percent.
____ %
Calculate the total dollar amount of capital employed for Ignacio, Inc.
$ ____
3. Calculate economic value added (EVA) for Ignacio, Inc., for last year. If the EVA is negative, enter your answer as a negative amount.
$ _____
Is the company creating or destroying wealth?
(CREATING/DESTROYING)
4. What if Ignacio, Inc., had common stock which was less risky than other stocks and commanded a risk premium of 5 percent? How would that affect the weighted average cost of capital?
(HIGHER/LOWER/UNAFFECTED)
What is the new EVA? In your calculations, round weighted average percentage cost of capital to four decimal places. If the EVA is negative, enter your answer as a negative amount.
$ ______
In: Accounting
Ignacio, Inc., had after-tax operating income last year of $1,195,500. Three sources of financing were used by the company: $1 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $11 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent.
Required:
1. Calculate the after-tax cost of each method of financing. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ".044".
| Mortgage bonds | |
| Unsecured bonds | |
| Common stock |
2. Calculate the weighted average cost of capital for Ignacio, Inc. Round intermediate calculations to four decimal places. Round your final answer to four decimal places before converting to a percentage. For example, .06349 would be rounded to .0635 and entered as "6.35" percent.
%
Calculate the total dollar amount of capital employed for Ignacio, Inc.
$
3. Calculate economic value added (EVA) for Ignacio, Inc., for last year. If the EVA is negative, enter your answer as a negative amount.
$
Is the company creating or destroying wealth?
Destroying
4. What if Ignacio,
Inc., had common stock which was less risky than other stocks and
commanded a risk premium of 5 percent? How would that affect the
weighted average cost of capital?
Lower
What is the new EVA? In your calculations, round weighted average percentage cost of capital to four decimal places. If the EVA is negative, enter your answer as a negative amount.
$
In: Accounting
Super-Tees Company plans to sell 11,000 T-shirts at $24 each in the coming year. Product costs include:
| Direct materials per T-shirt | $8.40 |
| Direct labor per T-shirt | $1.68 |
| Variable overhead per T-shirt | $0.72 |
| Total fixed factory overhead | $41,000 |
Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $15,000.
1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to
three decimal places (express the ratio as a decimal rather than a
percentage).
| a. Variable product cost per unit | $ |
| b. Total variable cost per unit | $ |
| c. Contribution margin per unit | $ |
| d. Contribution margin ratio | |
| e. Total fixed expense for the year | $ |
2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.
| Super-Tees Company | ||
| Contribution-Margin-Based Operating Income Statement | ||
| For the Coming Year | ||
| Total | Per Unit | |
| $ | $ | |
| $ | $ | |
| $ | ||
3. What if the per
unit selling expense increased from $1.20 to $2.55? Calculate new
values for the following:
Round dollar amounts to the nearest cent and round ratio values to
four decimal places (express the ratio as a decimal rather than a
percentage):
| a. Variable product cost per unit | $ |
| b. Total variable cost per unit | $ |
| c. Contribution margin per unit | $ |
| d. Contribution margin ratio | |
| e. Total fixed expense for the year | $ |
In: Accounting
Ignacio, Inc., had after-tax operating income last year of $1,197,000. Three sources of financing were used by the company: $2 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $9 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent.
Required:
1. Calculate the after-tax cost of each method of financing. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ".044".
| Mortgage bonds | |
| Unsecured bonds | |
| Common stock |
2. Calculate the weighted average cost of capital for Ignacio, Inc. Round intermediate calculations to four decimal places. Round your final answer to four decimal places before converting to a percentage. For example, .06349 would be rounded to .0635 and entered as "6.35" percent.
___________%
Calculate the total dollar amount of capital employed for Ignacio, Inc.
$___________
3. Calculate economic value added (EVA) for Ignacio, Inc., for last year. If the EVA is negative, enter your answer as a negative amount.
$ ___________
Is the company creating or destroying wealth?
Destroying
4.
What if Ignacio, Inc., had common stock
which was less risky than other stocks and commanded a risk premium
of 5 percent? How would that affect the weighted average cost of
capital?
Lower
What is the new EVA? In your calculations, round weighted average percentage cost of capital to four decimal places. If the EVA is negative, enter your answer as a negative amount.
$ ____________
In: Accounting
Variable Costs, Contribution Margin, Contribution Margin Ratio
Super-Tees Company plans to sell 13,000 T-shirts at $24 each in the coming year. Product costs include:
| Direct materials per T-shirt | $8.40 |
| Direct labor per T-shirt | $1.68 |
| Variable overhead per T-shirt | $0.72 |
| Total fixed factory overhead | $45,000 |
Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $13,000.
Required:
1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to
three decimal places (express the ratio as a decimal rather than a
percentage).
| a. Variable product cost per unit | $ |
| b. Total variable cost per unit | $ |
| c. Contribution margin per unit | $ |
| d. Contribution margin ratio | |
| e. Total fixed expense for the year | $ |
2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.
| Super-Tees Company | ||
| Contribution-Margin-Based Operating Income Statement | ||
| For the Coming Year | ||
| Total | Per Unit | |
| $ | $ | |
| $ | $ | |
| $ | ||
3. What if the per
unit selling expense increased from $1.20 to $2.55? Calculate new
values for the following:
Round dollar amounts to the nearest cent and round ratio values to
four decimal places (express the ratio as a decimal rather than a
percentage):
| a. Variable product cost per unit | $ |
| b. Total variable cost per unit | $ |
| c. Contribution margin per unit | $ |
| d. Contribution margin ratio | |
| e. Total fixed expense for the year | $ |
In: Accounting
Wolsey Industries Inc. expects to maintain the same inventories at the end of 20Y3 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:
|
1 |
Estimated Fixed Cost |
Estimated Variable Cost (per unit sold) |
|
|
2 |
Production costs: |
||
|
3 |
Direct materials |
— |
$56.00 |
|
4 |
Direct labor |
— |
34.00 |
|
5 |
Factory overhead |
$188,000.00 |
20.00 |
|
6 |
Selling expenses: |
||
|
7 |
Sales salaries and commissions |
102,000.00 |
6.00 |
|
8 |
Advertising |
39,000.00 |
— |
|
9 |
Travel |
12,000.00 |
— |
|
10 |
Miscellaneous selling expense |
7,400.00 |
1.00 |
|
11 |
Administrative expenses: |
||
|
12 |
Office and officers’ salaries |
141,200.00 |
— |
|
13 |
Supplies |
8,000.00 |
2.00 |
|
14 |
Miscellaneous administrative expense |
13,600.00 |
1.00 |
|
15 |
Total |
$511,200.00 |
$120.00 |
It is expected that 21,300 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 25,825 units.
2. What is the expected contribution margin ratio?
3. Determine the break-even sales in units and dollars. Round your answers to the nearest whole number.
| Units | units |
| Dollars | $ |
4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$
5. What is the expected margin of safety in dollars and as a percentage of sales? If applicable, use amounts previously computed and then round your answers to the nearest whole number.
| Dollars | $ |
| Percentage |
6. Determine the operating leverage. Round to one decimal place.
In: Accounting
Ignacio, Inc., had after-tax operating income last year of $1,198,500. Three sources of financing were used by the company: $2 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $10 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 3 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent.
Required:
1. Calculate the after-tax cost of each method of financing. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ".044".
| Mortgage bonds | |
| Unsecured bonds | |
| Common stock |
2. Calculate the weighted average cost of capital for Ignacio, Inc. Round intermediate calculations to four decimal places. Round your final answer to four decimal places before converting to a percentage. For example, .06349 would be rounded to .0635 and entered as "6.35" percent.
%
Calculate the total dollar amount of capital employed for Ignacio, Inc.
$
3. Calculate economic value added (EVA) for Ignacio, Inc., for last year. If the EVA is negative, enter your answer as a negative amount.
$
Is the company creating or destroying wealth?
Destroying
4. What if Ignacio,
Inc., had common stock which was less risky than other stocks and
commanded a risk premium of 5 percent? How would that affect the
weighted average cost of capital?
What is the new EVA? In your calculations, round weighted average percentage cost of capital to four decimal places. If the EVA is negative, enter your answer as a negative amount.
$
In: Accounting
Variable Costs, Contribution Margin, Contribution Margin Ratio
Super-Tees Company plans to sell 13,000 T-shirts at $16 each in the coming year. Product costs include:
| Direct materials per T-shirt | $5.60 |
| Direct labor per T-shirt | $1.12 |
| Variable overhead per T-shirt | $0.48 |
| Total fixed factory overhead | $45,000 |
Variable selling expense is the redemption of a coupon, which averages $0.80 per T-shirt; fixed selling and administrative expenses total $14,000.
Required:
1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to
three decimal places (express the ratio as a decimal rather than a
percentage).
| a. Variable product cost per unit | $ |
| b. Total variable cost per unit | $ |
| c. Contribution margin per unit | $ |
| d. Contribution margin ratio | |
| e. Total fixed expense for the year | $ |
2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.
| Super-Tees Company | ||
| Contribution-Margin-Based Operating Income Statement | ||
| For the Coming Year | ||
| Total | Per Unit | |
| $ | $ | |
| $ | $ | |
| $ | ||
3. What if the per
unit selling expense increased from $0.80 to $1.75? Calculate new
values for the following:
Round dollar amounts to the nearest cent and round ratio values to
four decimal places (express the ratio as a decimal rather than a
percentage):
| a. Variable product cost per unit | $ |
| b. Total variable cost per unit | $ |
| c. Contribution margin per unit | $ |
| d. Contribution margin ratio | |
| e. Total fixed expense for the year | $ |
In: Accounting