Falkirk Ltd. produces a single product, the Thingme. Last year it sold 100,000 units with the following results: Sales $2,500,000 Variable Costs $1,000,000 Fixed costs $ 400,000 Operating income before taxes. $ 1,100,000 In an effort to improve the quality of its product, Falkirk is considering replacing one of its component parts, which costs $2 per unit, with an improved component which will cost $3 per unit. It will also have to purchase a new piece of equipment in order to change their production process. It will cost $120,000 and will have an expected useful life of 5 years. At the end of the 5 years, it will be obsolete and will be sold for $20,000. The company depreciates all of its assets using the straight-line method. The corporate tax rate is 30%. REQUIRED: SHOW ALL CALCULATIONS. ALL PARTS ARE INDEPENDENT. 1. Senior management expects that the new component will improve the Thingme’s quality. Would a 10% increase in number of units sold increase the overall profitability of Fakirk? 2. How many units would Falkirk have to sell, after it makes the changes noted above, to earn an after tax income of $575,000? 3. Calculate the margin of safety, in units, if the changes are made but there is no increase in number of units sold. Has the margin of safety improved or deteriorated from last year’s actual results? What does the margin of safety tell us? 4. If Falkirk does not change the selling price but makes the changes noted above, how many units would Falkirk have to sell to earn the same income after tax as last year?

Why is it important to identify the most appropriate cost drivers for a particular product?

A) so managers can identify the activities necessary to manufacture a product

B) so managers can control product costs better

C) so managers can predict product costs better and make better decisions

D) B and C

Answer:

Cost drivers are ________.

A) the different functions in the value chain

B) different types of functional areas in the firm

C) measures of activities that require the use of resources and thereby cause costs

D) different types of cost calculations

Answer:

Within the relevant range, the total amount of ________ cost changes in direct proportion to changes in the cost driver. Within the relevant range, the total amount of ________ cost does not change in direct proportion to changes in the cost driver.

A) fixed; variable

B) variable; fixed

C) step; mixed

D) mixed; step

Answer:

What happens when the cost-driver level increases within the relevant range?

A) Total fixed costs remain unchanged.

B) Fixed costs per unit of cost driver increase.

C) Total variable costs decrease.

D) Variable costs per unit of cost driver increase.

Answer:

Which of the following costs is a fixed cost?

A) cost of dairy ingredients used to produce ice cream

B) depreciation expense on factory building

C) fuel used by delivery trucks

D) labor wages of workers who mix dairy ingredients to make ice cream

Volmar Company had sales in 2020 of $1,602,000 on 53,400 units. Variable costs totalled $534,000, and fixed costs totalled $911,400.

A new raw material is available that will decrease the variable costs per unit by 20% (or $2.00). However, to process the new raw material, fixed operating costs will increase by $43,500. Management feel that one half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 10% increase in the number of units sold.

Prepare a CVP income statement for 2020: (Round per unit cost to 2 decimal places, e.g. 15.25.)

(a) Assuming the changes have not been made:

(b) Assuming that changes are made as described.

Compute the change in EVA for each of the cases below. ATC has an 8% cost of capital. [Theses are separate cases, not sequential or joint changes.]

a) SG&A/Rev changes to 7%

b)Receivable Days (Days Sales Outstanding) changes to 10 days

Please give a brief justification for the correct answer you select:

1. Macroeconomics is concerned with

1. Only long-run trends in economic activity.
2. Only short-run fluctuations in the business cycle.
3. Both long-run trends and short-term fluctuations in economic activity.
4. Only with changes in overall price level.

2. Which one of the following is not a reason for a country collecting national income statistics?

1. to calculate changes in the cost of living
2. to estimate the rate of economic growth
3. to calculate changes in the standard of living
4. to compare standards of living between countries

3. An example of a transfer payment is:
   1. An interest payment on a General Motors’ bond
   2. The added value of stock from the time it was bought to the time it was sold
   3. A Social Security retirement benefit
   4. The salary paid to a member of the armed forces

4. The service a baby-sitter performs when she stays at home with her baby brother

      while her parents are out and she is not paid for it, is excluded from the National

      Income because:

A)   This is a nonmarket transaction

B)    This is a nonproduction activity

C)   This is a noninvestment transaction

D) Double counting would be involved

5. Which of the following represents a leakage from the circular flow?
   1. Exports
   2. Investment
   3. Interest paid on bank loans
   4. Imports

6. Which of the following would NOT be counted in 2003’s GDP?

1. The value of a 2001 car you purchase from a car dealer in 2003.
2. The 2003 salary of a used car salesperson.
3. The commissions earned by a real estate agent in selling houses built prior to 2003.
4. The value of a computer manufactured in 2003 but not sold in 2003.

The new revenue recognition standard issue by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) will call for major changes in the way companies in the airline industry recognize revenue. Airlines may have to change how they account for loyalty status benefits, mileage credits, change fees, and breakage for tickets that expire unused. The American Institute of Certified Public Accountants (AICPA) has formed an airlines task force to address implementation issues of the new standard for the airline industry. Assume that you have been called upon to present an analysis of the impact of the new standard on Southwest Airlines.

Refer to Southwest’s (ticker symbol: LUV) current/most recent financial statements (10-K) and the accompanying notes to answer the following questions. The current/most recent financial statement can be found on https://www.sec.gov/edgar/searchedgar/companysearch.html. Search for the company in the ‘Fast Search’ box by using the ticker symbol provided above. In the list of results, find the latest filing labeled 10-K and select the ‘Documents’ link. On the next page, select the document of type ’10-K’ to open it.

A. For each of the following revenue categories, describe the current accounting, the likely changes (if any) that the new revenue recognition standard will require, and the potential impact of those changes on patterns of revenue recognition.

1) Flight Transportation (for tickets used and for ticket breakage)

2) Loyalty Program

3) Ancillary Services and Other Revenue

B. Identify any areas that will require more discretion and judgment and specify why.

Woo Ltd. recently conducted an extensive review of its accounting and reporting policies. The following accounting changes are an outgrowth of that review:

1. Woo acquired a machine at a cost of $400,000 in 2016. The machine has been depreciated on a straight-line basis with no residual value since it was acquired. During 2019, it was decided that the benefits from the machine would be consumed over a total of 13 years rather than the 20-year useful life now being used to depreciate its cost.

2. At the beginning of 2019, Woo changed its method of valuing inventory from the FIFO cost method to the weighted-average cost method. At December 31, 2018 and 2017, Woo’s inventories were as follow:

3. Woo‘s income tax rate is 20%.

4. Woo reports net income for 2019 and 2018 for the following amounts:

5. The retained earnings of Woo as at December 31, 2018 and 2017 before adjusting the     effect from the changes in inventory valuation method are as follow:

6. Dividends declared during 2019 and 2018 were $100,000 and $500,000, respectively.

Required:

1. Prepare the journal entries needed in 2019 related to each change.   

Prepare the statements of changes in equity (in part) for the year ended at 31 December 2019 after the adjustments (including comparative figure for 2018) in accordance with HKAS 8.      

1. Ammonia is initially at a temperature of -10° C and a specific volume of 0.07 m3/kg. The ammonia undergoes an isobaric expansion to a final specific volume of 0.22 m3/kg. Evaluate the specific work done on the ammonia in kJ/kg and the specific heat transfer to the ammonia in kJ/kg. Neglect changes in kinetic energy and potential energy.

2. Carbon dioxide is contained in a piston-cylinder assembly with an initial pressure and temperature of 8 lbf/in2 and 100° F, respectively. The carbon dioxide has a mass of 0.05 lb. The carbon dioxide is expanded isothermally to a final volume of 1 ft3. Model the carbon dioxide as an ideal gas with constant specific heats. Evaluate the specific heats at 100° F. Determine the amount of work done on the gas in Btu and the heat transfer to the gas in Btu. Neglect changes in kinetic energy and potential energy.

3. An ideal gas with constant specific heats undergoes a process from an initial pressure and specific volume of 80 kPa and 40 m3/kg to a final specific volume of 20 m3/kg. During the process, the hydrogen’s pressure and specific volume are related through the equation given below. In the equation, ?? and ?? are the initial pressure and specific volume of the hydrogen, respectively. Determine the specific work done on the gas in MJ/kg and the specific heat transfer to the gas in MJ/kg. The ideal gas has a molar mass of 2.0 kg/kmol and a specific heat at constant volume of 7.5 kJ/(kg∙K). Neglect changes in kinetic energy and potential energy.

   ? = ?? ⋅ [2 − (?/??)]

The following relates to the Lerner Index.

Which of the following statements is (are) true?

The inverse demand curve for a monopolist changes from

A) P = 75– 5 Q to
B) P = 50 – 5 Q

while the marginal cost of production remains unchanged at a constant $20. After the change in the demand curve, the price changes from _____ to _____ and the output changes from _____ to _____.

A monopolist that produces a computer software program packages has an inverse demand curve of P=150-5 Q and a marginal cost of 5 Q where P is the price per program package and Q is the number of software program package.

The firm earns a producer surplus that is ____ dollars higher as a monopolist versus if it were in a perfectly competitive market.