Problem 06-2A Variable costing income statement and conversion to absorption costing income LO P2, P3

Trez Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for this year follows.

  
Additional Information

1. Selling and administrative expenses consist of $350,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses.
2. The company's product cost of $25 per unit is computed as follows.

Required:
1. Prepare an income statement for the company under variable costing.
2. Fill in the blanks.

A simplified economy is specified as follows:

A. Goods market, all values C, I, G and NX values are in billions of C$:

Consumption Expenditure: C = 150 + 0.8(Y-T)Investment Expenditure: I = 1,300 - 420iGovernment Expenditure: G = 340Lump-sum Constant Taxes: T = 340Exports: 90Imports: 10

B. Money market, all M^d values are in billions of C$:

Interest Rate: i = 0.09 or 9%Money Demand: M^d = 780 - 1,900i

Note: Please keep your answers accurate to two decimal places.

a) Given the above information, solve for the following: the equilibrium Y, the money supply M, the consumption expenditure C, and the investment expenditure I.

Y = 0M = 0C = 0I = 0

Now suppose there is an impending federal election, and the government promises to use fiscal policies to stimulate the economy.

b) Find the value of the goods market multiplier.

Goods market multiplier = 0

c) Let G rise to 420. Solve for the new equilibrium Y and C.

Y = 0C = 0

d) Demonstrate how the increase in G affects the economy through the multiplier. Use three rounds of effects to demonstrate the multiplier effects. Let the first round be related to health care spending, the second round related to clothing, and the third round related to food.

Round 1 -> As the government wants to spend $1 (or $1 billion)

on health care, it demands the production of health care equipment

such as hospitals, medicine, equipment, etc. to be built and sold to

the government. So as ΔG = 1, the production ΔY =

0

. This Y is the

income to the nurses, doctors, construction workers, etc.

Round 2 -> As the nurses receive their new income of Y =

0

, theyspend

0

% of this $

0

on clothing ->

0

cents worth of clothing wouldbe produced, or ΔY =

0

-> this

0

cents would be the income of the

workers involved in making the clothing.

Round 3 -> As the clothing workers receive their new income of

Y =

0

, they spend

0

% of this

0

cents on food -> (

0

)(

0

) =

0

or

0

cents worth of food would be produced, or ΔY =

0

-> this would

be the new income to the food workers.

e) Now consider monetary policies only. Suppose the BOC wants to drop the i to 0.04 or 4%, with G still at $340. Solve for the new I and the ΔI compared to when i = 0.09. Given the multiplier, how much would you expect Y to rise by?

I = 0Change in I = 0Change in Y = 0

f) Given the changes in (e), find the equilibrium Y, the money supply M, the consumption expenditure C, and the investment expenditure I.

Y = 0M = 0C = 0I = 0

g) Complete the following statement to demonstrate how the drop in i affects the money supply, then I, then Y, then C.

As i decreases -> ΔM (Select One) -> ΔI (Select One) -> ΔY (Select One) -> ΔC (Select One)

Suppose that you are a member of the Board of Governors of the Federal Reserve System and the economy is experiencing an 8 percent inflation rate. Unemployment is at the full-employment level and the target interest rate is currently 4 percent.

a. If the economy is experiencing a sharp rise in inflation, as a member of the Board of Governors, you would recommend

• decreasing the federal funds rate.

• setting the federal funds rate equal to the discount rate.

• setting the federal funds rate equal to zero.

• increasing the federal funds rate.

b. To lower the inflation rate to 4 percent, you recommend contracting the supply

• increasing the reserve ratio, the IOER rate, or the discount rate, or selling bonds.

• decreasing the reserve ratio, increasing the IOER rate or the discount rate, or buying bonds.

• increasing the reserve ratio, decreasing the IOER rate or the discount rate, or selling bonds.

• decreasing the reserve ratio, the IOER rate, or the discount rate, or buying bonds.

c. The recommendations you provided above would

• reduce the lending ability of the banking system, decrease the real interest rate, and increase investment spending, aggregate demand, and inflation.

• increase the lending ability of the banking system, decrease the real interest rate, and increase investment spending, aggregate demand, and inflation.

• reduce the lending ability of the banking system, increase the real interest rate, and reduce investment spending, aggregate demand, and inflation.

• increase the lending ability of the banking system, decrease the real interest rate, and reduce investment spending, aggregate demand, and inflation.

Sharp Company manufactures a product for which the following standards have been set:

During March, the company purchased direct materials at a cost of $45,210, all of which were used in the production of 2,500 units of product. In addition, 4,100 direct labor-hours were worked on the product during the month. The cost of this labor time was $30,750. The following variances have been computed for the month:

Required:

1. For direct materials:

a. Compute the actual cost per foot of materials for March.

b. Compute the price variance and the spending variance.

2. For direct labor:

a. Compute the standard direct labor rate per hour.

b. Compute the standard hours allowed for the month’s production.

c. Compute the standard hours allowed per unit of product.

For direct materials, compute the price variance and the spending variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

A popular online retail website was interested in consumer spending during the holiday shopping weekend after Thanksgiving. They collect data on a random sample of 400 shoppers, particularly noting how much money each shopper spent. The following histogram was constructed using the data:

The retailer determines that this sample had an average of $84.71 with a standard deviation of $46.87.

1. (1 point) What is the best point estimate for the true mean amount of money spent by all shoppers at this website during the weekend after Thanksgiving?
2. (3 points) Are the conditions for constructing a confidence interval satisfied? Be sure to comment on each condition individually.
3. (3 points) Find the margin of error for a 98% confidence interval estimate for the true mean spending.
4. (2 points) Construct a 98% confidence interval estimate for the true mean spending.
5. (1 point) Interpret the interval in the context of the data. Your answer should reference what “98% confidence” means and how the two endpoints of the interval relate to the estimate.
6. (2 points) Last year, shoppers spent an average of $82.24 on this website. The company uses their sample data to claim that the average consumer spending has increased this year. Based on the confidence interval, is this claim justified? Why or why not?
7. (1 point) Without doing any calculation, explain why a 95% confidence interval would be a narrower interval than the one you computed in part (d).
8. (2 points) How would the confidence interval be affected if the sample was of size 800 instead of 400? Explain briefly without calculating the new confidence interval.

Based on the information provided for a one-year project, answer the following questions.

PV =$100,000     AC =$60,000     BAC=$125,000    ETC = $100,000

1. If 75% of the Planned Value was completed to date, what is the Earned Value of the work completed (round to nearest whole number)?

2. What is the Cost Variance (round to nearest whole number)?

3. What is the Schedule Variance (round to nearest whole number)?

4. What is the Cost Performance Index (round to 2 decimals)?

5. What is the Schedule Performance Index (round to 2 decimals)?

6. How is the project progressing in terms of schedule (ahead, behind or on-schedule) and budget (under, over or on-budget)?

7. If spending remains the same as the current rate to date, what is the Estimate at Completion for this project (round to nearest whole number)?

8. If spending varies from current rate to date, what is the Estimate at Completion for this project (round to nearest whole number)?

9. If spending remains the same as the current rate to date, what is the Variance at Completion (round to nearest whole number)?

10. What is the % of the Project Complete (round to nearest whole %)?

11. What is the % of budget spent (round to nearest whole %)?

12. What is the To-Complete Performance Index required to achieve the original budget plan (round to 2 decimals)?
    
    
13. Is the To-Complete Performance Index required to achieve the original budget plan harder, easier or the same as the efficiency performance to date?

14. What is the To-Complete Performance Index required to achieve the revised budget plan if spending is the same as the current rate to date (round to 2 decimals)?

15. Is the To-Complete Performance Index required to achieve the revised budget plan harder, easier or the same as the efficiency performance to date?

The cloudy afternoon mirrored the mood of the conference of division managers. Claude Meyer, assistant to the controller for Hunt Manufacturing, wore one of the gloomy faces that were just emerging from the conference room. “Wow, I knew it was bad, but not that bad,” Claude thought to himself. “I don’t look forward to sharing those numbers with shareholders.”

The numbers he discussed with himself were fourth-quarter losses which more than offset the profits of the first three quarters. Everyone had known for some time that poor sales forecasts and production delays had wreaked havoc on the bottom line, but most were caught off guard by the severity of damage.

Later that night he sat alone in his office, scanning and rescanning the preliminary financial statements on his computer monitor. Suddenly his mood brightened. “This may work,” he said aloud, though no one could hear. Fifteen minutes later he congratulated himself, “Yes!”

The next day he eagerly explained his plan to Susan Barr, controller of Hunt for the last six years. The plan involved $300 million in convertible bonds issued three years earlier.

Meyer: By swapping stock for the bonds, we can eliminate a substantial liability from the balance sheet, wipe out most of our interest expense, and reduce our loss. In fact, the book value of the bonds is significantly more than the market value of the stock we’d issue. I think we can produce a profit.

Barr: But Claude, our bondholders are not inclined to convert the bonds.

Meyer: Right. But, the bonds are callable. As of this year, we can call the bonds at a call premium of 1%. Given the choice of accepting that redemption price or converting to stock, they’ll all convert. We won’t have to pay a cent. And, since no cash will be paid, we won’t pay taxes either.

1. What would be the impact of following up on Claude’s plan? Who would be affected if the plan is implemented? Who would benefit? Who would be injured? Consider people or related parties both inside and outside of the company.

2. Do you perceive an ethical dilemma? Use at least one of “The Ethical Guidelines”.

3. Should Susan follow Claude’s suggestion? Why or why not?

Selected financial information gathered from the Matador Corporation follows:

Using only the data presented, which of the following statements is most correct?

A. Leverage has declined.

B. Return on equity has improved.

C. Gross profit margin has improved.

Assume you are a member of the New York City Council prior to the COVID 19 crisis. The Council is considering placing an excise tax on the following goods

1. Gasoline
2. Hot dogs
3. Tickets to an extremely popular Broadway show
4. Salt

After hearing that you studied Economics at Ramapo College, the City Council members ask you to select the products that would result in the most efficient tax policy. You recommend...

Group of answer choices

A.1, 2 and 3

B.1, 2, 3 and 4

C.1 only

D.1 and 3

Group of answer choices

Dept. 3; $430,000

Dept. 1; $255,000

Dept. 2; $110,000

Dept. 3; $240,000

Dept. 2; $156,500