Problem 7-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2]
Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 29 |
| Direct labor | $ | 21 |
| Variable manufacturing overhead | $ | 5 |
| Variable selling and administrative | $ | 1 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 330,000 |
| Fixed selling and administrative expenses | $ | 150,000 |
During its first year of operations, Haas produced 60,000 units and sold 60,000 units. During its second year of operations, it produced 75,000 units and sold 50,000 units. In its third year, Haas produced 40,000 units and sold 65,000 units. The selling price of the company’s product is $64 per unit.
Required:
2. Assume the company uses variable costing:
b. Prepare an income statement for Year 1, Year 2, and Year 3.
Prepare an income statement for Year 1, Year 2, and Year 3. Assume the company uses variable costing.
In: Accounting
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned
The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:
| Current Year | Previous Year | |||
| Accounts payable | $744,000 | $198,000 | ||
| Current maturities of serial bonds payable | 460,000 | 460,000 | ||
| Serial bonds payable, 10% | 1,890,000 | 2,350,000 | ||
| Common stock, $1 par value | 90,000 | 110,000 | ||
| Paid-in capital in excess of par | 970,000 | 980,000 | ||
| Retained earnings | 3,360,000 | 2,670,000 | ||
The income before income tax was $564,000 and $493,500 for the current and previous years, respectively.
a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.
| Current year | |
| Previous year |
b. Determine the times interest earned ratio for both years. Round to one decimal place.
| Current year | |
| Previous year |
c. The ratio of liabilities to stockholders' equity has and the times interest earned ratio has from the previous year. These results are the combined result of a income before income taxes and interest expense in the current year compared to the previous year.
In: Accounting
A Belgium subsidiary's beginning and ending trial balances appear below:
|
Dr (Cr) |
|
January 1 |
December 31 |
|
|
Cash, receivables |
€ 1,500 |
€ 1,200 |
|
Inventories |
3,000 |
3,500 |
|
Plant & equipment, net |
30,000 |
39,000 |
|
Liabilities |
(18,500) |
(27,200) |
|
Capital stock |
(4,000) |
(4,000) |
|
Retained earnings, beginning |
(12,000) |
(12,000) |
|
Sales revenue |
-- |
(15,000) |
|
Cost of sales |
9,500 |
|
|
Out-of-pocket selling & administrative expenses |
-- |
4,000 |
|
Depreciation expense |
-- |
1,000 |
|
Total |
€ 0 |
€ 0 |
Exchange rates ($/€) are:
|
Beginning of year |
$1.25 |
|
Average for year |
1.22 |
|
End of year |
1.20 |
The subsidiary was acquired at the beginning of the year. Its
sales, inventory purchases, and out-of-pocket selling and
administrative expenses occurred evenly during the year. Equipment
was purchased for €10,000 when the exchange rate was $1.23.
Depreciation for the year includes €200 related to the equipment
purchased during the year. The ending inventory was purchased at
the end of the year, and the beginning inventory was purchased at
the end of the previous year.
If the subsidiary's functional currency is the U.S. dollar,
what is the remeasurement gain or loss for the year?
Select one:
A. $ 810 loss
B. $2,020 loss
C. $1,130 gain
D. $1,030 gain
In: Accounting
Rosie Dry Cleaning was started on January 1, Year 1. It
experienced the following events during its first two years of
operation:
Events Affecting Year 1
Provided $25,990 of cleaning services on account.
Collected $20,792 cash from accounts receivable.
Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.
Events Affecting Year 2
Wrote off a $195 account receivable that was determined to be uncollectible.
Provided $30,330 of cleaning services on account.
Collected $26,842 cash from accounts receivable.
Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.
Required
a. Record the events for Year 1 and Year 2 in
T-accounts.
b. Determine the following amounts:
(1) Net income for Year 1.
(2) Net cash flow from operating activities for Year 1.
(3) Balance of accounts receivable at the end of Year 1.
(4) Net realizable value of accounts receivable
at the end of Year 1.
c. Repeat Requirements b for the Year 2 accounting period.
In: Accounting
Inner Secret T Shirt Company produces and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $ 29 Direct labor $ 14 Variable manufacturing overhead $ 4 Variable selling and administrative $ 1 Fixed costs per year:
Fixed manufacturing overhead $ 570,000
Fixed selling and administrative expenses $ 170,000
During its first year of operations, O’Brien produced 92,000 units and sold 75,000 units.
During its second year of operations, it produced 84,000 units and sold 96,000 units.
In its third year, O’Brien produced 89,000 units and sold 84,000 units.
The selling price of the company’s product is $79 per unit.
4. Assume the company uses absorption costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
In: Accounting
Ratio of Liabilities to Stockholders' Equity and Times Interest Earned
The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:
| Current Year | Previous Year | |||
| Accounts payable | $260,000 | $224,000 | ||
| Current maturities of serial bonds payable | 340,000 | 340,000 | ||
| Serial bonds payable, 10% | 1,680,000 | 2,020,000 | ||
| Common stock, $1 par value | 70,000 | 100,000 | ||
| Paid-in capital in excess of par | 840,000 | 840,000 | ||
| Retained earnings | 2,890,000 | 2,290,000 | ||
The income before income tax was $666,600 and $583,300 for the current and previous years, respectively.
a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.
| Current year | |
| Previous year |
b. Determine the times interest earned ratio for both years. Round to one decimal place.
| Current year | |
| Previous year |
c. The ratio of liabilities to stockholders' equity has and the times interest earned ratio has from the previous year. These results are the combined result of a income before income taxes and interest expense in the current year compared to the previous year.
In: Accounting
O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $ 29 Direct labor $ 15 Variable manufacturing overhead $ 6 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 520,000 Fixed selling and administrative expenses $ 190,000 During its first year of operations, O’Brien produced 97,000 units and sold 72,000 units. During its second year of operations, it produced 81,000 units and sold 101,000 units. In its third year, O’Brien produced 84,000 units and sold 79,000 units. The selling price of the company’s product is $74 per unit. 2. Assume the company uses variable costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first): a. Compute the unit product cost for Year 1, Year 2, and Year 3. b. Prepare an income statement for Year 1, Year 2, and Year 3.
In: Accounting
O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $ 30 Direct labor $ 15 Variable manufacturing overhead $ 4 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 510,000 Fixed selling and administrative expenses $ 140,000 During its first year of operations, O’Brien produced 98,000 units and sold 74,000 units. During its second year of operations, it produced 82,000 units and sold 101,000 units. In its third year, O’Brien produced 81,000 units and sold 76,000 units. The selling price of the company’s product is $73 per unit. 3. Assume the company uses absorption costing and 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): a. Compute the unit product cost for Year 1, Year 2, and Year 3. b. Prepare an income statement for Year 1, Year 2, and Year 3.
In: Accounting
|
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $3 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,180,000 in annual sales, with costs of $855,000. The project requires an initial investment in net working capital of $400,000, and the fixed asset will have a market value of $260,000 at the end of the project. |
| If the tax rate is 30 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (MACRS schedule) (Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.) |
| Years | Cash Flow |
| Year 0 | $ |
| Year 1 | $ |
| Year 2 | $ |
| Year 3 | $ |
|
If the required return is 9 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) |
| NPV |
$ |
In: Finance
Inner Secret T Shirt Company produces and sells one product. The following information pertains to each of the company’s first three years of operations:
Variable costs per unit:
Manufacturing:
Direct materials $ 26
Direct labor $ 18
Variable manufacturing overhead $ 5
Variable selling and administrative $ 1
Fixed costs per year:
Fixed manufacturing overhead $ 540,000
Fixed selling and administrative expenses $ 100,000
During its first year of operations, O’Brien produced 94,000 units and sold 75,000 units. During its second year of operations, it produced 83,000 units and sold 97,000 units. In its third year, O’Brien produced 82,000 units and sold 77,000 units. The selling price of the company’s product is $80 per unit.
Required:
1. Assume the company uses variable costing and 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):
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
In: Accounting