Gloucester Ltd. manufactures specialized valves. For the first six months of 2002 the company reported the following operating results.

Fixed costs included in cost of goods sold in the period were $800,000; fixed costs included in selling and administrative expenses were $60,000.

Gloucester recently received a special order from an overseas industrial customer, Brewery Supply Industries (BIS), for 9,000 brewery valves at a price of $36.50 each. Accepting the order would increase variable selling and administrative expenses by $0.75 per unit because of additional shipping costs, but it would not increase fixed costs or any other unit variable costs.

Assume that Gloucester currently has just sufficient excess capacity to fill this one-time order which will take 6 months to fill.

Ignore income taxes.

Required

1. Moira Keating, VP Sales, wants to know how profitable this special order would be. Prepare a financial analysis of this order for Ms Keating.

2. Ms Keating has some additional questions regarding the BIS order:

1. What is the break-even selling price per unit?
2. What selling price would be required to produce a contribution margin of $6.00 per unit?

C. Identify and briefly justify what you would consider to be the two most important factors that are not directly financial and that management should consider in making its decision?

D. Ms Keating, VP Sales, is still unsure about the wisdom of accepting the BIS order. She has asked you to prepare a full report dealing with all the relevant issues and make a recommendation to her as to whether Gloucester Ltd. Should accept this order. Justify your conclusion, citing all relevant factors, quantitative and qualitative, including those that have been raised in your answers above.

Enron Corporation's 2001 third-quarter 10-Q report disclosed the following transaction with LJM2, a nonconsolidated special purpose entity (SPE) that was formed by Enron: In June 2000, LJM2 purchased dark fiber optic cable from Enron for a purchase price of $100 million. LJM2 paid Enron $30 million in cash and the balance in an interest bearing note for $70 million. Enron recognized $67 million in pretax earnings in 2000 related to the asset sale. Pursuant to a marketing agreement with LJM2, Enron was compensated for marketing the fiber to others and providing operation and maintenance services to LJM2 with respect to the fiber. LJM2 sold a portion of the fiber to industry participants for $40 million, which resulted in Enron recognizing agency fee revenue of $20.3 million. As investigations later discovered Enron controlled LJM2 in many ways. The FASB ASC now requires the consolidation of SPEs (variable interest entities) that are essentially controlled by their primary beneficiary. By selling goods to SPEs that it controlled but did not consolidate, did Enron overstate its earnings? What effect does consolidation have on the financial reporting for transactions between a firm and its controlled entities?

Scholastic Furniture, Inc. manufactures a variety of desks, chairs, tables, and shelf units that are sold to public school systems throughout the Midwest. The controller of the company’s Desk Division is currently preparing a budget for the second quarter of the year. The following sales forecast has been made by the division’s sales manager.

Each desk-and-chair set requires 10 board feet of pine planks and 1.5 hours of direct labor. Each set sells for $50. Pine planks cost $.50 per board foot, and the division ends each month with enough wood to cover 10 percent of the next month’s production requirements. The division incurs a cost of $20 per hour for direct-labor wages and fringe benefits. The division ends each month with enough finished-goods inventory to cover 20 percent of the next month’s sales.

Required:

Complete the following budget schedules.

1. Sales budget.

2. Production budget (in sets).

3. Raw-material purchases.

4. Direct-labor budget.

Question

Bonia Corporation Bhd has posted positive earnings in FY17 including its latest fourth quarter ending June 30, 2017, but analysts are unsure if the company’s strategy to move into higher margin products will pay off. The company is mainly involved in the manufacturing and retailing of luxury leather goods, apparel, accessories as well as licensed international brands such as Braun Buffel.

To improve its earnings potential, Bonia has adjusted its pricing strategy by introducing higher-margin products, reducing discounts given out to customers as well as adjusting the prices for new product ranges, in particular for the Bonia and Braun Buffel brands. But will this be enough to sustain its profit record? Analysts say it could be a tough road ahead for Bonia.

Assume that you are one of the analysts and Bonia has approached you to assist them. What would be your recommendations? You are required to obtain as much information as possible on the status and forecast about the industry from the internet or any other sources. You may use Porter’s Five Forces model to help you in the analysis before you make your recommendations.

Enron Corporation's 2001 third-quarter 10-Q report disclosed the following transaction with LJM2, a nonconsolidated special purpose entity (SPE) that was formed by Enron:

In June 2000, LJM2 purchased dark fiber optic cable from Enron for a purchase price of $100 million. LJM2 paid Enron $30 million in cash and the balance in an interest bearing note for $70 million. Enron recognized $67 million in pretax earnings in 2000 related to the asset sale. Pursuant to a marketing agreement with LJM2, Enron was compensated for marketing the fiber to others and providing operation and maintenance services to LJM2 with respect to the fiber. LJM2 sold a portion of the fiber to industry participants for $40 million, which resulted in Enron recognizing agency fee revenue of $20.3 million.

As investigations later discovered Enron controlled LJM2 in many ways.

The FASB ASC now requires the consolidation of SPEs (variable interest entities) that are essentially controlled by their primary beneficiary.

By selling goods to SPEs that it controlled but did not consolidate, did Enron overstate its earnings? What effect does consolidation have on the financial reporting for transactions between a firm and its controlled entities?

Please answer All

Which of the following would not shift the demand curve of golf balls?

A.    an increase in the price of golf clubs.

B.     a decrease in the popularity of golf.

C.     an increase in the number of golfers.

D.    an expected increase in the price of golf balls.

E.     a decrease in the price of golf balls.

Given that the price of a shirt decreased (in 2008) from $35.00 per shirt with 40 thousand shirts demanded and (in 2009) to $25.00 per shirt with 80 thousand shirts demanded. Using the midpoint formula, calculate the price elasticity of demand for shirts.

A.    |0.10|

B.     |-0.20|

C.     |1.0|

D.    |-2.0|

E.     |-0.05|

Factors that affect a product’s price elasticity of demand are

A.    availability of close substitutes.

B.     passage of time.

C.     necessity versus luxury.

D.    definition of the market.

E.     All of the above are correct.

For most consumers, a snack food such as potato chips has a price elasticity of demand that is

A.    unitary elastic.

B.     perfectly inelastic.

C.     extremely elastic, almost perfectly elastic.

D.    All of the above are correct.

E.     None of the above are correct.

When the price of a taco falls by 10%, the quantity of pizza demanded decreases by 5%. The cross elasticity of demand for pizza with respect to the price of a taco demonstrates that tacos and pizza are

A.    substitute goods.

B.     complementary goods.

C.     factors of production.

D.    intermediate goods.

E.     cannot be determined with the given information.

1. Study the following statements. Evaluate whether these statements are TRUE or FALSE [10 X 0.5 = 5 points]

1. In liberal economic theories, political power is equated with wealth.
2. The idea of “embedded liberalism” advocates a compromise between meeting domestic economic objectives and openness to international trade and investment.
3. A key tenet of economic nationalism is that the economic well-being of individuals is subordinate to the goal of state-building and the interests of the state.
4. Inclusive club goods are referred to as those goods that are characterized by lack of exclusion and lack of jointness.
5. Institutions are key instruments for resolving enforcement, distribution, and assurance problems in the international political economy.
6. According to the Heckscher-Ohlin model (The Factor Endowment Model), each country tends to import those items whose production requires intensive use of domestically scarce factors.
7. We expect a class conflict to arise in an economy that is rich in labor and capital but poor in land.
8. The Most-Favored nation Principle (MFN) requires a GATT (and subsequently the WTO) member to extend all member states the benefits of any agreement it might reach with any other state.
9. The World Trade Organization (WTO) was created after the end of the Tokyo Round of negotiations.
10. A customs union refers to an agreement that allows countries to remove tariffs and non-tariff barriers (NTBs) to the free movement of goods and services between them.

Question 2 [10] TRUE/FALSE QUESTIONS Consider the following list of statements. Each statement is either true or false. You must read each statement carefully and then select the option that you believe is correct as your answer. Write down only the question number and next to the number either “True” or “False”. 2.1. The level or rate of unemployment is a stock concept, that is, it is measured at a particular date. 2.2. The consumer price index (CPI) is an index of the prices of a representative “basket” of consumer goods and services. The CPI thus represents the cost of the “shopping basket” of goods and services of a typical or average South African household. 2.3. A policy in respect of the level and composition of government spending, taxation and borrowing is called fiscal policy. 2.4. When the dollar appreciates (i.e. when the rand depreciates), imports from the United States become more expensive (in rand) in South Africa and South African exports to the United States become cheaper (in dollars) in that country, ceteris paribus. This will tend to dampen imports and stimulate exports (i.e. to improve the balance on the South African current account). 2.5. The way in which changes in the monetary sector are transmitted to the rest of the economy is called the financial transmission mechanism. 2.6. Monetary and fiscal policy (sometimes collectively called supply management) can be expansionary or contractionary. 2.7. Demand-pull inflation occurs when the aggregate supply of goods and services increases while aggregate demand remains unchanged. 2.8. Frictional unemployment (sometimes also called search unemployment) arises because it takes time to find a job or to move from one job to another. 2.9. The Phillips curve was originally regarded as a clear indication that unemployment and inflation could be traded off against each other. In other words, a lower inflation rate could be achieved by trading it off against, or exchanging it, for greater unemployment. 2.10. One complete cycle has four elements: a trough, an upswing or expansion (often called a boom), a peak and a downswing or contraction (often called a recession).

Situation:

Birch Industries has borrowed the maximum amount available from its bank to finance the purchase of inventory under a short-term line of credit. The CFO and your boss, Susie Perkins takes you to lunch to explain a strategy called a product financing arrangement that would enable Birch Industries to obtain the necessary cash to purchase additional supplies of merchandise. Susie believes it is an ide al way to structure a transaction to meet Birch Industries financial needs. On April 1, 2015, the first day of the company’s second quarter, Susie plans to sell $200,000 of inventory to Grime Corporation for $300,000. Susie explained that Grime will pay us immediately and then we will agree to repurchase the merchandise in two months for $300,000 plus 8%APR and an $5,000 fee for storing the inventory. Susie conveyed that she had checked with Grime’s CFO and he has agreed to the arrangement, if we decide to move forward. Susie concludes that not only will we obtain the needed financing, but the second quarter pre-tax profits will increase by $95,000, the gross profit on the sale less the $5,000 storage fee.

As the assistant CFO, Susie has asked you to research the issue and make sure we will be following appropriate reporting standards.

How do I write a journal entry for the below?:

In the present case seller has made arrangement of repurchase of material after two months to finance its working capital requirement. he has failed to fulfil all the conditions sited above, so in this case, sales revenue could not be recognised & future obligation of $ 300,000 will be shown as liability. material of 200,000 will be shown as asset in form of "Material issued on Loan".