In: Accounting
Starfax, Inc., manufactures a small part that is widely used in various electronic products such as home computers. Results for the first three years of operations were as follows (absorption costing basis):
| Year 1 | Year 2 | Year 3 | ||||||||
| Sales | $ | 1,000,000 | $ | 800,000 | $ | 1,000,000 | ||||
| Cost of goods sold | 740,000 | 520,000 | 785,000 | |||||||
| Gross margin | 260,000 | 280,000 | 215,000 | |||||||
| Selling and administrative expenses | 230,000 | 200,000 | 230,000 | |||||||
| Net operating income (loss) | $ | 30,000 | $ | 60,000 | $ | (15,000 | ) | |||
In the latter part of Year 2, a competitor went out of business and in the process dumped a large number of units on the market. As a result, Starfox's sales dropped by 20% during Year 2 even though production increased during the year. Management had expected sales to remain constant at 50,000 units; the increased production was designed to provide the company with a buffer of protection against unexpected spurts in demand. By the start of Year 3, management could see that it had excess inventory and that spurts in demand were unlikely. To reduce the excessive inventories, Starfax cut back production during Year 3, as shown below:
| Year 1 | Year 2 | Year 3 | |
| Production in units | 50,000 | 60,000 | 40,000 |
| Sales in units | 50,000 | 40,000 | 50,000 |
Additional information about the company follows:
The company’s plant is highly automated. Variable manufacturing expenses (direct materials, direct labor, and variable manufacturing overhead) total only $4.00 per unit and fixed manufacturing overhead expenses total $540,000 per year.
A new fixed manufacturing overhead rate is computed each year based that year's actual fixed manufacturing overhead costs divided by the actual number of units produced.
Variable selling and administrative expenses were $3 per unit sold in each year. Fixed selling and administrative expenses totaled $80,000 per year.
The company uses 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.)
Starfox's management can’t understand why profits doubled during Year 2 when sales dropped by 20% and why a loss was incurred during Year 3 when sales recovered to previous levels.
Required:
1. Prepare a contribution format variable costing income statement for each year.
2. Refer to the absorption costing income statements above.
a. Compute the unit product cost in each year under absorption costing. Show how much of this cost is variable and how much is fixed.
b. Reconcile the variable costing and absorption costing net operating income figures for each year.
5b. If Lean Production had been used during Year 2 and Year 3, what would the company’s net operating income (or loss) have been in each year under absorption costing?
In: Accounting
Starfax, Inc., manufactures a small part that is widely used in various electronic products such as home computers. Results for the first three years of operations were as follows (absorption costing basis):
| Year 1 | Year 2 | Year 3 | ||||||||
| Sales | $ | 1,040,000 | $ | 936,000 | $ | 1,040,000 | ||||
| Cost of goods sold | 880,000 | 720,000 | 924,000 | |||||||
| Gross margin | 160,000 | 216,000 | 116,000 | |||||||
| Selling and administrative expenses | 150,000 | 142,000 | 150,000 | |||||||
| Net operating income (loss) | $ | 10,000 | $ | 20,000 | $ | (34,000 | ) | |||
In the latter part of Year 2, a competitor went out of business and in the process dumped a large number of units on the market. As a result, Starfax’s sales dropped by 10% during Year 2 even though production increased during the year. Management had expected sales to remain constant at 40,000 units; the increased production was designed to provide the company with a buffer of protection against unexpected spurts in demand. By the start of Year 3, management could see that it had excess inventory and that spurts in demand were unlikely. To reduce the excessive inventories, Starfax cut back production during Year 3, as shown below:
| Year 1 | Year 2 | Year 3 | |
| Production in units | 40,000 | 45,000 | 36,000 |
| Sales in units | 40,000 | 36,000 | 40,000 |
Additional information about the company follows:
The company’s plant is highly automated. Variable manufacturing expenses (direct materials, direct labor, and variable manufacturing overhead) total only $4.00 per unit, and fixed manufacturing overhead expenses total $720,000 per year.
A new fixed manufacturing overhead rate is computed each year based that year's actual fixed manufacturing overhead costs divided by the actual number of units produced.
Variable selling and administrative expenses were $2 per unit sold in each year. Fixed selling and administrative expenses totaled $70,000 per year.
The company uses 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.)
Starfax’s management can’t understand why profits doubled during Year 2 when sales dropped by 10% and why a loss was incurred during Year 3 when sales recovered to previous levels.
Required:
1. Prepare a contribution format variable costing income statement for each year.
2. Refer to the absorption costing income statements above.
a. Compute the unit product cost in each year under absorption costing. Show how much of this cost is variable and how much is fixed.
b. Reconcile the variable costing and absorption costing net operating income figures for each year.
5b. If Lean Production had been used during Year 2 and Year 3, what would the company’s net operating income (or loss) have been in each year under absorption costing?
In: Accounting
Starfax, Inc., manufactures a small part that is widely used in various electronic products such as home computers. Results for the first three years of operations were as follows (absorption costing basis):
| Year 1 | Year 2 | Year 3 | ||||||||
| Sales | $ | 1,250,000 | $ | 1,040,000 | $ | 1,250,000 | ||||
| Cost of goods sold | 910,000 | 680,000 | 1,007,500 | |||||||
| Gross margin | 340,000 | 360,000 | 242,500 | |||||||
| Selling and administrative expenses | 280,000 | 240,000 | 280,000 | |||||||
| Net operating income (loss) | $ | 60,000 | $ | 120,000 | $ | (37,500 | ) | |||
In the latter part of Year 2, a competitor went out of business and in the process dumped a large number of units on the market. As a result, Starfax’s sales dropped by 20% during Year 2 even though production increased during the year. Management had expected sales to remain constant at 50,000 units; the increased production was designed to provide the company with a buffer of protection against unexpected spurts in demand. By the start of Year 3, management could see that it had excess inventory and that spurts in demand were unlikely. To reduce the excessive inventories, Starfax cut back production during Year 3, as shown below:
| Year 1 | Year 2 | Year 3 | |
| Production in units | 50,000 | 55,000 | 40,000 |
| Sales in units | 50,000 | 40,000 | 50,000 |
Additional information about the company follows:
The company’s plant is highly automated. Variable manufacturing expenses (direct materials, direct labor, and variable manufacturing overhead) total only $5.00 per unit, and fixed manufacturing overhead expenses total $660,000 per year.
A new fixed manufacturing overhead rate is computed each year based that year's actual fixed manufacturing overhead costs divided by the actual number of units produced.
Variable selling and administrative expenses were $4 per unit sold in each year. Fixed selling and administrative expenses totaled $80,000 per year.
The company uses 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.)
Starfax’s management can’t understand why profits doubled during Year 2 when sales dropped by 20% and why a loss was incurred during Year 3 when sales recovered to previous levels.
Required:
1. Prepare a variable costing income statement for each year.
2. Refer to the absorption costing income statements above.
a. Compute the unit product cost in each year under absorption costing. Show how much of this cost is variable and how much is fixed.
b. Reconcile the variable costing and absorption costing net operating income figures for each year.
5b. If Lean Production had been used during Year 2 and Year 3, what would the company’s net operating income (or loss) have been in each year under absorption costing?
In: Accounting
It costs $70,000 to buy a food truck, which will produce the following incremental after-tax cash inflows: Year 1, $19,000; Year 2, $21,000; Year 3, $22,000; Year 4, $23,000. What is the payback period?
In: Finance
A manager of an insurance company’s bond trading desk holds the following portfolio: 3 year maturity 15% 8 year maturity 40% 10 year maturity 30% 12 year maturity 15% What is the duration of this portfolio?
In: Finance
What is the present value of a $100-payment, 100-year annuity due if the interest rate is 14% per year? What is the future value of a $50-payment, 50-year annuity due if the interest rate is 9% per year?
In: Finance
Payback Period is
Initial Cash Outlay = $-100.
Cash Inflow Year 1 = +60.
Cash Inflow Year 2 = +9.
Cash Inflow Year 3 = +60.
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1 year. |
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2.52 years. |
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3 years. |
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never. |
In: Finance
A baseball player is offered a 5-year contract that pays him the following amounts:
Year 1: $1.10 million
Year 2: $1.52 million
Year 3: $2.14 million
Year 4: $2.63 million
Year 5: $3.41 million
Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the contract, the baseball player asks his agent to negotiate a contract that has a present value of $1.85 million more than that which has been offered. Moreover, the player wants to receive his payments in the form of a 5-year ANNUITY DUE. All cash flows are discounted at 10.00 percent. If the team were to agree to the player's terms, what would be the player's annual salary (in millions of dollars)? (Express answer in millions. $1,000,000 would be 1.00)
In: Finance
Use Annualized Worth to determine best choice between these three. I = 6% Show your work.
A Planning horizon 10 years. Initial Cost 50,000 annual maintenance costs 5000 annual revenue 40,000 salvage value 15000,
B Planning horizon 8 years. Initial Cost 75000
annual maintenance cost first year 5000 each year increases by 500.
Annual revenue first year 35000 each year increases 1000.
Salvage value 18000.
C Planning horizon 12 years Initial cost 90,000
Annual maintenance cost first year 4000 each year increases 3000
Annual Revenue first year 65000 each year decreases 2000.
Salvage value 16000
In: Economics