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
Firm W has the opportunity to invest $150,000 in a new venture. The projected cash flows from the venture are as follows.
| Year 0 | Year 1 | Year 2 | Year 3 | |||||
| Initial investment | $ | (150,000) | ||||||
| After-tax cash flow | $ | 5,000 | $ | 8,000 | $ | 10,000 | ||
| Return of investment | 150,000 | |||||||
| Net cash flow | $ | (150,000) | $ | 5,000 | $ | 8,000 | $ | 160,000 |
a-1. Complete the below table to calculate NPV. Assume Firm W uses a 6 percent discount rate.
Complete the below table to calculate NPV. Assume Firm W uses a 6 percent discount rate. (Cash outflows and negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)
|
b-1. Complete the below table to calculate NPV. Assume Firm W uses a 3 percent discount rate.
Complete the below table to calculate NPV. Assume Firm W uses a 3 percent discount rate. (Cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)
|
In: Accounting
| The risk-free rate is 4.6 percent. Stock A has a beta = 1.2 and Stock B has a |
| beta = 1. Stock A has a required return of 12.1 percent. What is Stock B’s |
| required return? |
Group of answer choices
11.05%
10.85%
10.95%
11.15%
11.25%
| You observe the following yield curve for Treasury securities: |
| Maturity Yield |
| 1 Year 3.20% |
| 2 Years 4.40% |
| 3 Years 5.20% |
| 4 Years 5.40% |
| 5 Years 7.40% |
| Assume that the pure expectations hypothesis holds. What does the market expect will be |
| the yield on 3-year securities, 2 year from today? |
Group of answer choices
9.30%
9.20%
9.00%
9.10%
9.40%
| One-year government bonds yield 5.5 percent and 3-year government bonds yield 5.1 percent. |
| Assume that the expectations theory holds. What does the market believe the rate on 2-year |
| government bonds will be one year from today? |
Group of answer choices
4.80%
4.60%
4.70%
4.90%
5.00%
| The real risk-free rate of interest is 2 percent. Inflation is expected to be 4 percent this |
| coming year, jump to 6 percent next year, and increase to 7 percent the year after (Year 3). |
| According to the expectations theory, what should be the interest rate on 2-year, risk-free |
| securities today? |
Group of answer choices
6.60%
6.70%
6.80%
7.00%
6.90%
In: Finance
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 | $ | 30 |
| Direct labor | $ | 14 |
| Variable manufacturing overhead | $ | 6 |
| Variable selling and administrative | $ | 5 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 240,000 |
| Fixed selling and administrative expenses | $ | 90,000 |
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 $55 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
On January 1, New York Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $1, PV of $1, FVA of $1, and PVA of $1)
| 1. |
In transaction (a), determine the present value of the debt. |
| 2-a. |
In transaction (b), what single sum amount must the company deposit on January 1, of this year
|
| 3. |
In transaction (c), determine the present value of this obligation. |
| 4-a. |
In transaction (d), what is the amount of each of the equal annual payments that will be paid on the note? |
| 4-b. |
What is the total amount of interest expense that will be incurred? |
In: Accounting
Barber and Atkins are partners in an accounting firm and share net income and loss equally. Barber's beginning partnership capital balance for the current year is $213,000, and Atkins' beginning partnership capital balance for the current year is $237,000. The partnership had net income of $175,000 for the year. Barber withdrew $76,000 during the year and Atkins withdrew $60,000. What is Barber's return on equity?
Multiple Choice
20.0%
40.0%
41.1%
39.0%
37.9%
Barber and Atkins are partners in an accounting firm and share net income and loss equally. Barber's beginning partnership capital balance for the current year is $312,000, and Atkins' beginning partnership capital balance for the current year is $290,000. The partnership had net income of $199,000 for the year. Barber withdrew $113,000 during the year and Atkins withdrew $93,000. What is Atkins's return on equity?
Multiple Choice
33.6%
32.7%
34.3%
33.9%
17.0%
Barber and Atkins are partners in an accounting firm and share net income and loss equally. Barber's beginning partnership capital balance for the current year is $368,000, and Atkins' beginning partnership capital balance for the current year is $176,000. The partnership had net income of $342,000 for the year. Barber withdrew $91,000 during the year and Atkins withdrew $28,000. What is Barber's ending equity?
Multiple Choice
$539,000
$619,000
$256,000
$448,000
$710,000
In: Accounting
On January 1, Boston Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)
Borrowed $117,600 for eight years. Will pay $7,300 interest at the end of each year and repay the $117,600 at the end of the 8th year.
Established a plant remodeling fund of $491,950 to be available at the end of Year 9. A single sum that will grow to $491,950 will be deposited on January 1 of this year.
Agreed to pay a severance package to a discharged employee. The company will pay $76,300 at the end of the first year, $113,800 at the end of the second year, and $151,300 at the end of the third year.
Purchased a $176,500 machine on January 1 of this year for $35,300 cash. A five-year note is signed for the balance. The note will be paid in five equal year-end payments starting on December 31 of this year.
1. In transaction (a), determine the present value of the debt
2-a. In transaction (b), what single sum amount must the company deposit on January 1 of this year?
2-b. What is the total amount of interest revenue that will be earned?
3. In transaction (c), determine the present value of this obligation.
4-a. In transaction (d), what is the amount of each of the equal annual payments that will be paid on the note?
4-b. What is the total amount of interest expense that will be incurred?
In: Accounting