Assume that Atlas Sporting Goods Inc. has $810,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 12 percent, but with a high-liquidity plan the return will be 9 percent. If the firm goes with a short-term financing plan, the financing costs on the $810,000 will be 6 percent, and with a long-term financing plan the financing costs on the $810,000 will be 7 percent.

a. Compute the anticipated return after financing costs with the most aggressive asset-financing mix.

b. Compute the anticipated return after financing costs with the most conservative asset-financing mix.

c. Compute the anticipated return after financing costs with the two moderate approaches to the asset-financing mix.

d. If the firm used the most aggressive asset-financing mix described in part a and had the anticipated return you computed for part a, what would earnings per share be if the tax rate on the anticipated return was 30 percent and there were 20,000 shares outstanding? (Round your answer to 2 decimal places.)

e-1. Now assume the most conservative asset-financing mix described in part b will be utilized. The tax rate will be 30 percent. Also assume there will only be 5,000 shares outstanding. What will earnings per share be? (Round your answer to 2 decimal places.)

e-2. Would the conservative mix have higher or lower earnings per share than the aggressive mix?

• Lower

• Higher

Moonbeam Company manufactures toasters. For the first 8 months of 2020, the company reported the following operating results while operating at 75% of plant capacity: Sales (350,000 units) $4,379,000 Cost of goods sold: 2,605,000 Gross profit 1,774,000 Operating expenses 839,600 Net income $934,400 Cost of goods sold was 72% variable and 28% fixed; operating expenses were 82% variable and 18% fixed. In September, Moonbeam receives a special order for 19,100 toasters at $7.99 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $2,900 of shipping costs but no increase in fixed costs. (a) Prepare an incremental analysis for the special order. (b) Should Moonbeam accept the special order?

Wholesale of electronic chips receives products from two factories, factory A provides 60%
Of the goods and Factory B supplies 40% of the goods.
From past experience it is known that 20% of the chips of plant A are defective.
It is also known that 50% of all defective chips are supplied by plant B.

A. What percentage of Factory B's chips are defective?

B. What is the probability that a chip that is found to be in good condition is supplied by plant B?
third

C. One after the other, screws supplied from Factory B are sampled. What is the span and variance of the number of chips
That they will have to check until the first invalid is found?

D. Sample 100 chips at random, what is the probability that at least 36 of them are normal chips
Provided by Factory B?

Southern Rim Parts estimates its manufacturing overhead to be $418,500 and its direct labor costs to be $930,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $52,000 for Job 301, $77,000 for Job 302, and $110,000 for Job 303. For the year, actual manufacturing overhead was $464,000 and total direct labor cost was $847,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predetermined rates.

Overhead applied in each of the inventory accounts is as follows:

Required:

Prepare an entry to prorate the under- or overapplied overhead.

Record the allocation of over- or underapplied overhead

Parker Manufacturers produces can openers. For the first six months of 2011, the company reported the following operating results while operating at 80% of plant capacity.

Sales                                                   $4,000,000

Cost of goods sold                              2,500,000

Gross profit                                           1,500,000

Operating expenses                            1,000,000

Net income                                         $   500,000

Cost of goods sold was 70% variable and 30% fixed. Operating expenses were 70% variable and 30% fixed. In September 2011, Parker Manufacturers receives a special order for 15,000 can openers at $7.50 from a foreign company. The can openers normally sell for $8.00. Acceptance of the special order would result in $5,000 of shipping costs but no increase in fixed operating expenses.

Instructions

Prepare an incremental analysis for the special order.

In the Illustrative Case in this chapter, payroll transactions for Brookins Company were analyzed, journalized, and posted for the third quarter of the fiscal year. In this problem, you are to record the payroll transactions for the last quarter of the firm's fiscal year. The last quarter begins on April 1, 20--.

The following are the account balances forwarded as of June 1:
(1) Union Due Payable: $275.00
(2) Employees SIT Payable: $651.80
(3) FICA Taxes Payable - OASDI: $2,101.18
(4) FICA Taxes Payable - HI: $491.42
(5) Employees FIT Payable: $1,846.00
(6) FUTA Taxes Payable: $348.54
(7) SUTA Taxes Payable: $764.30
(8) Cash: $23,605.29
(9) Wages and Salaries: $104,590.00
(10) Payroll Taxes: $10,352.53

Note: The SUTA tax rate is 2.3%.

4. The amount of contributions that must be paid into the state unemployment compensation fund on or before August 1 is $_________________

Valuing Inventory and Recording Entries Using Relative Sales Value Method Arizona Developers purchased for cash and subdivided a tract of land that cost $837,000. The subdivisions were divided on the following basis.

10% used for streets, alleys, and parks

50% divided into 100 lots selling at $4,000 each

30% divided into 200 lots selling at $3,000 each

10% divided into 100 lots selling at $2,000 each

a. Prepare the entry for the purchase of the lots. Use the relative sales value method to allocate the total cost of $837,000 to the three categories of lots. Assume a perpetual inventory system.

b. During the final month of the year, the paving was completed (included in the $837,000 cost) and several sales occurred. Inventory remaining at the first year-end was: 18 of the $4,000 lots; 20 of the $3,000 lots; and 6 of the $2,000 lots.

1) Compute the valuation of inventory at the first year-end. Inventory

2) Prepare the entry for sales and cost of goods sold for each category of lots 1, 2 and 3 separately. Assume cash sales.

Absorption vs. Variable

Operating income is one of the most important items reported by a company. Depending on the decision-making needs of management, operating income can be determined using absorption costing or variable costing.

Select whether the following characteristics are most often associated with absorption costing or variable costing.

Feedback

Review the differences between absorption and variable costing, and how each type of costing is used in the organization and for management processes.

Absorption Statement

Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold.

Variable Statement

Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin.

Manufacturing Decisions

Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful.

All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs.

The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company’s capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy the company’s owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter "0".

1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels.

2. What is the change in operating income from producing 10,000 additional units under absorption costing?

$

3. What is the change in operating income from producing 10,000 additional units under variable costing?

$

Lean Principles

Bright Night, Inc., manufactures light bulbs. Its purchasing policy requires that the purchasing agents place each quarter’s purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest bidder receives the order for the next quarter (90 working days).

To make its bulb products, Bright Night requires 61,200 pounds of glass per quarter. Bright Night received two glass bids for the third quarter, as follows:

• Central Glass Company: $23.00 per pound of glass. Delivery schedule: 61,200 (680 lbs. x 90 days) pounds at the beginning of July to last for 3 months.
• Ithaca Glass Company: $23.15 per pound of glass. Delivery schedule: 680 pounds per working day (90 days in the quarter).

Bright Night accepted Central Glass Company’s bid because it was the low-cost bid.

1. A manufacturing company gets quotes from each supplier and allocates the purchase order to the company which quotes the lowest price with the expected quality. Is this process effective in long run? Identify reason that supports the answer.

1. Yes
2. No

b

Reason:

1. The policy is effective as it lowers the cost of purchase.
2. The policy considers the quoted price and the quality of the product is ignored.
3. The policy of the company is not practically viable as it is not building long-term relationships with its suppliers. The reputation of the company may be affected.
4. Supplier relationships are not required as the products are purchased for the quarter alone.

c

2. A manufacturing company gets quotes from each supplier and allocates the purchase order to the company which quotes the lowest price with the expected quality. Are there any additional costs that are involved in bulk purchase for the quarter? Identify reason that supports the answer.

1. Yes
2. No

a

Reason:

1. The cost of storage, obsolescence, material management and wastages are ignored in this concept.
2. The cost of storage, obsolescence, material management and wastages are included in the purchase cost computation.
3. The cost related to quality can be compensated as the price of the material is low.
4. The responsibility of the manager is to get the lowest bid for the product and all other information is irrelevant.

a

3. Considering only inventory financing costs, what is the additional cost per pound of Central Glass Company’s bid if the annual cost of money is 8%? (Hint: Determine the average value of glass inventory held for the quarter and multiply by the quarterly interest charge, then divide by the number of pounds.) Round to the nearest cent.
$ per lb.