In the chain ratio method of estimating demand, a base number is multiplied by a chain of adjusting percentages. The upper limit of market demand is called market potential. The % market that willing and able to buy is available market under the current conditions.
ZIVAGO sells HDTV and a recent marketing research survey found
the following information: Number of US households: 230,000
Access to HD Internet = 65% of the households.
Among the households with access to HD internet, 33% of households are willing and able to buy HDTV. Each household can buy one HDTV. Average price: $ 500
ZIVAGO wants to get 5% of the available market in the first year.
Use the chain ratio method to estimate (in units and $)
a. Potential market for HD TV
b. Available market and first-year sales forecast for ZIVAGO in units
In: Economics
In: Economics
A company is going public at $20 and will use the ticker XYZ. The underwriters will charge a 7 percent spread. The company is issuing 16 million shares, and insiders will continue to hold an additional 32 million shares that will not be part of the IPO. The company will also pay $2.5 million of audit fees, $3.5 million of legal fees, and $900,000 of printing fees. The stock closes the first day at $23. What are the total costs of going public for XYZ as a percentage of the total pre-cost equity value? In calculating the pre-cost equity value, use the closing price of the stock at the end of the first day as the pre-cost equity value. Include underpricing in the calculation of the total costs of the offering. Do not round intermediate calculations. Round your answer to two decimal places.
In: Finance
Drugs-R-Us, Inc., produces equipment for manufacturing drugs. The costs of manufacturing and marketing this equipment at the company's normal volume of 3,000 units per month are shown in Exhibit 1.
EXHIBIT 1 - Costs per Unit for Equipment
Unit manufacturing costs:
Variable materials $200
Variable labor 300
Variable overhead 150
Fixed overhead 240
Total unit manufacturing costs $ 890
Unit marketing costs:
Variable $100
Fixed 280
Total unit marketing costs $ 380
Total unit costs $1,270
The following questions refer only to the data given above. Unless otherwise stated, assume there is no connection between the situations described in the questions; each is to be treated independently. Unless otherwise stated, a regular selling price of $1,580 per unit should be assumed. Ignore income taxes and other costs that are not mentioned in Exhibit 1 or in the question.
1. What is the contribution margin per unit and in total for the equipment? What does this mean?
2. What is the breakeven volume in units? In sales dollars?
3. Market research estimates that monthly equipment production could be increased to 3,500 units which is well within production capacity limitations, if the price were cut from $1,580 to $1,400 per unit. Assuming the cost behavior patterns implied by the data in Exhibit 1 are correct, would you recommend that this action be taken? What would be the impact on monthly sales, costs, and income?
4. Drugs-R-Us has an opportunity to enter a foreign market in which price competition is keen. An attraction of the foreign market is that demand there is greatest when demand in the domestic market is quite low; thus, idle production facilities could be used without affecting domestic business. Unlike many foreign markets there are no government restrictions. An order for 1,000 units is being sought at a below-normal price in order to enter this market. Additional shipping and handling costs for this order will amount to $150 per unit, while the cost of obtaining the contract (marketing costs) will be $8,000 in addition to the normal variable marketing costs. Domestic business would be unaffected by this order. What is the minimum (e.g. breakeven) unit price Drugs-R-Us should consider for this order of 1,000 units?
| Per Unit | Total | Relevant??? | ||
| Variable Costs | Materials | $ 200 | $ 200,000 | |
| Labor | $ 300 | $ 300,000 | ||
| Overhead | $ 150 | $ 150,000 | ||
| Marketing | $ 100 | $ 100,000 | ||
| Shipping | $ 150 | $ 150,000 | ||
| Fixed Costs | Mfg OH | $ 240 | $ 240,000 | |
| Marketing | $ 280 | $ 280,000 | ||
| Contract | $ 8000 | $ 8,000 |
How can I fill out the Relevant???
5. An inventory of 230 units of equipment remains in the stockroom. These must be sold through regular channels at reduced prices or the inventory will soon be valueless. What is the minimum price that would be acceptable for selling these units?
Any price > variable cost of selling/marketing the units
I need answer only for number 4 and 5
In: Accounting
Drugs-R-Us, Inc., produces equipment for manufacturing drugs. The costs of manufacturing and marketing this equipment at the company's normal volume of 3,000 units per month are shown in Exhibit 1.
EXHIBIT 1 - Costs per Unit for Equipment
Unit manufacturing costs:
Variable materials $200
Variable labor 300
Variable overhead 150
Fixed overhead 240
Total unit manufacturing costs $ 890
Unit marketing costs:
Variable $100
Fixed 280
Total unit marketing costs $ 380
Total unit costs $1,270
The following questions refer only to the data given above. Unless otherwise stated, assume there is no connection between the situations described in the questions; each is to be treated independently. Unless otherwise stated, a regular selling price of $1,580 per unit should be assumed. Ignore income taxes and other costs that are not mentioned in Exhibit 1 or in the question.
1. Market research estimates that monthly equipment production could be increased to 3,500 units which is well within production capacity limitations, if the price were cut from $1,580 to $1,400 per unit. Assuming the cost behavior patterns implied by the data in Exhibit 1 are correct, would you recommend that this action be taken? What would be the impact on monthly sales, costs, and income?
2. Drugs-R-Us has an opportunity to enter a foreign market in which price competition is keen. An attraction of the foreign market is that demand there is greatest when demand in the domestic market is quite low; thus, idle production facilities could be used without affecting domestic business. Unlike many foreign markets there are no government restrictions. An order for 1,000 units is being sought at a below-normal price in order to enter this market. Additional shipping and handling costs for this order will amount to $150 per unit, while the cost of obtaining the contract (marketing costs) will be $8,000 in addition to the normal variable marketing costs. Domestic business would be unaffected by this order. What is the minimum (e.g. breakeven) unit price Drugs-R-Us should consider for this order of 1,000 units?
| Per Unit | Total | Relevant??? | ||
| Variable Costs | Materials | $ 200 | $ 200,000 | |
| Labor | $ 300 | $ 300,000 | ||
| Overhead | $ 150 | $ 150,000 | ||
| Marketing | $ 100 | $ 100,000 | ||
| Shipping | $ 150 | $ 150,000 | ||
| Fixed Costs | Mfg OH | $ 240 | $ 240,000 | |
| Marketing | $ 280 | $ 280,000 | ||
| Contract | $ 8000 | $ 8,000 |
How can I fill out the Relevant???
How can I distinguish between relevant cost and irrelevant cost?
3. An inventory of 230 units of equipment remains in the stockroom. These must be sold through regular channels at reduced prices or the inventory will soon be valueless. What is the minimum price that would be acceptable for selling these units?
Any price > variable cost of selling/marketing the units
In: Accounting
|
Assume that Limitless Labs, Inc., offers three basic drug-testing services for professional athletes. Here are its prices and costs: |
|
Price per Unit |
Variable Cost per Unit |
Units
Sold per Year |
|||||
| Basic | $ | 620 | $ | 180 | 850 | ||
| Retest | 950 | 500 | 100 | ||||
| Vital | 4,360 | 2,980 | 50 | ||||
|
Variable costs include the labor costs of the medical technicians at the lab. Fixed costs of $450,000 per year include building and equipment costs and the costs of administration. A basic "unit" is a routine drug test administered. A retest is given if there is concern about the results of the first test, particularly if the test indicates that the athlete has taken drugs that are on the banned drug list. Retests are not done by the laboratory that performed the basic test. A "vital" test is the laboratory's code for a high-profile case. This might be a test of a famous athlete and/or a test that might be challenged in court. The laboratory does extra work and uses expensive expert technicians to ensure the accuracy of vital drug tests. Limitless Labs is subject to a 40 percent tax rate. |
| Required: |
| (a) | How much will Limitless Labs earn each year after taxes? |
| (b) | Assuming the above sales mix is the same at the break-even point, at what sales revenue does Limitless Labs break even? (Do not round your intermediate calculation.) |
| (c) | At what sales revenue will the company earn $192,000 per year after taxes assuming the above sales mix? (Do not round your intermediate calculation.) |
| (d-1) |
Limitless Labs is considering becoming more specialized in retests and vital cases. What would be the company's break-even revenues per year if the number of retests increased to 400 per year and the number of vital tests increased to 200 per year, while the number of basic tests dropped to 100 per year? With this change in product mix, the company would increase fixed costs to $480,000 per year. What would be the effect of this change in product mix on Limitless Labs's earnings after taxes per year? |
In: Accounting
|
Price per Unit |
Variable Cost per Unit |
Units Sold per Year |
||||||
| Basic | $ | 700 | $ | 220 | 700 | |||
| Retest | 1,050 | 580 | 200 | |||||
| Vital | 4,600 | 3,100 | 100 | |||||
|
Variable costs include the labor costs of the medical technicians at the lab. Fixed costs of $490,000 per year include building and equipment costs and the costs of administration. A basic "unit" is a routine drug test administered. A retest is given if there is concern about the results of the first test, particularly if the test indicates that the athlete has taken drugs that are on the banned drug list. Retests are not done by the laboratory that performed the basic test. A "vital" test is the laboratory's code for a high-profile case. This might be a test of a famous athlete and/or a test that might be challenged in court. The laboratory does extra work and uses expensive expert technicians to ensure the accuracy of vital drug tests. Limitless Labs is subject to a 20 percent tax rate. |
||||||||
|
a. How much will Limitless Labs earn each year after taxes? b. Assuming the above sales mix is the same at the break-even point, at what sales revenue does Limitless Labs break even? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.) c. At what sales revenue will the company earn $200,000 per year after taxes assuming the above sales mix? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.) d-1. Limitless Labs is considering becoming more specialized in retests and vital cases. Assume the number of retests increased to 500 per year and the number of vital tests increased to 250 per year, while the number of basic tests dropped to 100 per year? With this change in product mix, the company would increase fixed costs to $520,000 per year. What would be the effect of this change in product mix on Limitless Labs's earnings after taxes per year? d-2. If the laboratory's managers seek to maximize the company's after-tax earnings, would this change be a good idea? |
In: Accounting
1. Bixler obtained an option on a building he believed was suitable for use by a corporation he and two other men were organizing. After the corporation was successfully promoted, Bixler met with the Board of Directors who agreed to acquire the property for $200,000. Bixler deeded the building to the corporation and the corporation began business in it. Bixler's option contract called for the payment of only $155,000 for the building and he purchased it for that price. When the directors later learned that Bixler paid only $155,000, they demanded the return of Bixler's $45,000 profit. Bixler refused, claiming the building was worth far more than $200,000 both when he secured the option and when he deeded it to the corporation. Assuming that these statements are true, will he have to repay the $45,000? Fully explain.
2. Quinn, Constance and Zak are recent college graduates who want to form a corporation to manufacture and sell personal computers. Constance tells them that she will set in motion the formation of their corporation. Constance first makes a contract with Oliver for the purchase of a parcel of land for $25,000. Oliver does not know of the prospective corporate formation at the time the contract is signed. Constance then makes a contract with Maddock to build a small plant on the property being purchased. Maddock's contract is conditional on the corporation's formation. Constance secures all the necessary subscription agreements and capitalization, and she files the articles of incorporation. A charter is issued. Is the newly formed corporation or Constance (or both) liable on the contracts with Oliver and Maddock, assuming that there are no other relevant facts? Fully explain.
3. A company has 500 shares of no-par common and 100 shares of 5% preferred, $100 par value shares. In 2012, it had $8,000 that it could have legally distributed, but it chose not to. In 2013, $9,000 was available in additional funds, but once again the Board was cautious and declared no dividends. Finally at the end of 2014, when $10,000 remained, the Board decided that it was time to reward the shareholders. If the company decides to make the full amount ($27,000) available for dividends, how much does each share of preferred get? How much does each share of common get?
In: Finance
Cheyenne Corporation was organized on January 1, 2017. It is authorized to issue 9,500 shares of 8%, $100 par value preferred stock, and 516,800 shares of no-par common stock with a stated value of $1 per share. The following stock transactions were completed during the first year. Jan. 10 Issued 80,020 shares of common stock for cash at $7 per share. Mar. 1 Issued 5,750 shares of preferred stock for cash at $111 per share. Apr. 1 Issued 24,660 shares of common stock for land. The asking price of the land was $91,520; the fair value of the land was $80,020. May 1 Issued 80,020 shares of common stock for cash at $9 per share. Aug. 1 Issued 9,500 shares of common stock to attorneys in payment of their bill of $49,100 for services rendered in helping the company organize. Sept. 1 Issued 9,500 shares of common stock for cash at $11 per share. Nov. 1 Issued 970 shares of preferred stock for cash at $115 per share. Prepare the journal entries to record the above transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit choose a transaction date enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount
In: Finance
QUESTION 12
Boomerang company sells a product at $100 per unit that has unit variable costs of $30. The company's break-even sales point in sales dollars is $150,000. How much profit will the company make if it sells 4,000 units?
| A. |
$70,000 |
|
| B. |
$120,000 |
|
| C. |
$175,000 |
|
| D. |
$215,000 |
8.71 points
QUESTION 13
During its first year of operations, Buzz Lightyear Company paid $35,000 for direct materials and $70,000 in wages for production workers. Lease payments, utility costs, and depreciation on factory equipment totaled $25,000. General, selling, and administrative expenses were $30,000. The average cost to produce one unit was $3.00. How many units were produced during the period?
| A. |
38,455 units |
|
| B. |
56,000 units |
|
| C. |
40,000 units |
|
| D. |
43,333 units |
8.71 points
QUESTION 14
Bootfall Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit. The company sells the product for a sales price of $20 per unit. Fixed costs are $20,000. The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit. The investment is expected to increase fixed costs by $15,000. After the new investment is made, how many units must be sold to break even?
| A. |
4,375 units |
|
| B. |
7,000 units |
|
| C. |
2,917 units |
|
| D. |
4,000 units |
In: Accounting