Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 27 |
| Direct labor | $ | 12 |
| Variable manufacturing overhead | $ | 4 |
| Variable selling and administrative | $ | 3 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 240,000 |
| Fixed selling and administrative expenses | $ | 60,000 |
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $58 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.
In: Accounting
Exercise 10-20A Effective interest amortization of a bond discount LO
On January 1, Year 1, Parker Company issued bonds with a face
value of $58,000, a stated rate of interest of 7 percent, and a
five-year term to maturity. Interest is payable in cash on December
31 of each year. The effective rate of interest was 9 percent at
the time the bonds were issued. The bonds sold for $53,488. Parker
used the effective interest rate method to amortize the bond
discount. (Round your intermediate calculations and final
answers to the nearest whole dollar amount.)
Required
a. Prepare an amortization table.
|
b. What is the carrying value that would appear
on the Year 4 balance sheet?
c. What is the interest expense that would appear
on the Year 4 income statement?
d. What is the amount of cash outflow for interest
that would appear in the operating activities section of the Year 4
statement of cash flows?
|
In: Accounting
Exercise 6-9 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 22 |
| Direct labor | $ | 14 |
| Variable manufacturing overhead | $ | 4 |
| Variable selling and administrative | $ | 3 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 400,000 |
| Fixed selling and administrative expenses | $ | 70,000 |
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $53 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.
In: Accounting
Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 21 |
| Direct labor | $ | 11 |
| Variable manufacturing overhead | $ | 4 |
| Variable selling and administrative | $ | 3 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 320,000 |
| Fixed selling and administrative expenses | $ | 70,000 |
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $57 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.
In: Accounting
X Company is considering a new processor that costs $150,000. Shipping and setup costs for the new processor are estimated to be $15,000. X’s working capital requirement is expected to increase by $17,000 when the new processor begins operation and is expected to be fully recoverable at the end of the project. The new processor’s useful life is expected to be 5 years and its salvage value at that point is estimated to be $60,000. The new processor is being depreciated using a 5-year ACRS life. Assume a tax rate of 35% and a cost of capital of 12%.
Estimated incremental revenues and incremental cash operating expenses for the new processor before tax for each year are shown in the table below.
Q1. What is the cost of the initial outlay?
Q2. Given the initial outlay for the new processor, assume the following yearly incremental after-tax cash flows (below) . Assume a cost of capital of 12%. What is the NPV of the Project?
| Year 1 | $40,000 |
| Year 2 | $40,000 |
| Year 3 | $50,000 |
| Year 4 | $55,000 |
| Year 5 | $100,000 |
Q3. Given the initial outlay for the new processor, assume the following yearly incremental cash flows (below). Assume a cost of capital of 12%. What is the IRR of the Project?
| Year 1 | $45,000 |
| Year 2 | $45,000 |
| Year 3 | $50,000 |
| Year 4 | $50,000 |
| Year 5 | $105,000 |
In: Finance
Calculate the NPV for the following investment with 6 years life time assuming a discount rate of 20% per year:
The investor is a Non-integrated petroleum company
Total producible oil in the reserve is estimated to be 2,400,000 barrels
Production rate will be 400,000 barrels of oil per year from year 1 to year 6
Mineral rights acquisition cost for the property will be $1,600,000 at time zero
Intangible drilling cost (IDC) is expected to be $7,000,000 at time zero
Tangible equipment cost is $4,000,000 at time zero
Working capital of $1,500,000 also at time zero
Equipment depreciation will be based on MACRS 5-years life depreciation starting from year 1 to year 6 (use the rates in table A-1 for 5-years half-year convention)
The production selling price is assumed $50 per barrel which has 10% escalation each year beginning in year 2
Operating cost is $1,500,000 annually with escalation rate of 10% beginning in year 2
Income tax is 35%
Royalty is 15%
Note: for depletion cost calculation you can amortize the Mineral rights acquisition cost equally over 6 years. For this problem, you can assume that if the firm has negative income in a given year, then the income tax will also be negative. Thus, you should have a negative number for the income tax in Year 0.
In: Economics
Exercise 6-9 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 25 |
| Direct labor | $ | 17 |
| Variable manufacturing overhead | $ | 2 |
| Variable selling and administrative | $ | 1 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 400,000 |
| Fixed selling and administrative expenses | $ | 80,000 |
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $51 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.
In: Accounting
Exercise 7-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2, LO7-3]
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 25 |
| Direct labor | $ | 15 |
| Variable manufacturing overhead | $ | 5 |
| Variable selling and administrative | $ | 4 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 400,000 |
| Fixed selling and administrative expenses | $ | 70,000 |
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $82 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.
In: Accounting
| The following events occurred at Jack Company during its first year of business: | ||||||||||||||
| a. | To establish the company, the two owners contributed a total of $60,000 in exchange for common stock. | |||||||||||||
| b. | Grooming service revenue for the first year amounted to $175,000, of which $50,000 was on account. | |||||||||||||
| c. | Customers owe $15,000 at the end of the year from the services provided on account. | |||||||||||||
| d. | At the beginning of the year, a storage building was rented. The company was required to sign a three-year lease for $15,000 per year and make a $3,000 refundable security deposit. The first year’s lease payment and the security deposit were paid at the beginning of the year. | |||||||||||||
| e. | At the beginning of the year, the company purchased a patent at a cost of $120,000 for a revolutionary system to be used for dog grooming. The patent is expected to be useful for ten years. The company paid 20% down in cash and signed a four-year note at the bank for the remainder. | |||||||||||||
| f. | Operating expenses, including amortization of the patent and rent on the storage building noted in (d) and (e) above, totaled $90,000 for the first year. No expenses were accrued or unpaid at the end of the year. | |||||||||||||
| g. | The company declared and paid a $20,000 cash
dividend at the end of the first year.
|
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In: Accounting
The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs:
| Year | Machine A | Machine B | ||
| 0 | $47,000 | $57,000 | ||
| 1 | 11,400 | 10,800 | ||
| 2 | 11,400 | 10,800 | ||
| 3 | 11,400 | + replace | 10,800 | |
| 4 | 10,800 | + replace | ||
These costs are expressed in real terms. Suppose that technological
change is expected to reduce costs by 10% per year. There will be
new machines in year 1 that cost 10% less to buy and operate than A
and B. In year 2, there will be a second crop of new machines
incorporating a further 10% reduction, and so on.
Suppose you are Borstal’s financial manager. If you had to buy one
or the other machine and rent it to the production manager for that
machine’s economic life, what annual rental payment would you have
to charge at the end of the first year and how would this alter in
subsequent years given the expected technological changes? Assume a
10% real discount rate and ignore taxes. (Do not round
intermediate calculations. Enter your answers as a positive value
rounded to 2 decimal places.)
Machine A
Year 1 rent:?
Year 2 rent:?
Year 3 rent:?
Machine B
Year 1 rent:?
Year 2 rent:?
Year 3 rent:?
Year 4 rent:?
In: Finance