Break-even analysis and customer lifetime value
Based on the information show below:
|
Costs |
Make Option |
Buy Option |
|
Fixed Cost |
$100,000 |
$10,000 |
|
Variable Cost |
$10 |
$20 |
In: Operations Management
Here are comparative statement data for Duke Company and Lord Company, two competitors. All balance sheet data are as of December 31, 2020, and December 31, 2019.
Duke Company | Lord Company | |||||||
|---|---|---|---|---|---|---|---|---|
2020 | 2019 | 2020 | 2019 | |||||
| Net sales | $1,878,000 | $559,000 | ||||||
| Cost of goods sold | 1,100,508 | 296,829 | ||||||
| Operating expenses | 261,042 | 79,937 | ||||||
| Interest expense | 9,390 | 4,472 | ||||||
| Income tax expense | 54,462 | 6,149 | ||||||
| Current assets | 329,000 | $312,100 | 83,200 | $78,300 | ||||
| Plant assets (net) | 519,900 | 501,200 | 139,800 | 124,200 | ||||
| Current liabilities | 65,400 | 74,800 | 34,200 | 29,600 | ||||
| Long-term liabilities | 108,800 | 90,400 | 30,200 | 26,000 | ||||
| Common stock, $10 par | 499,500 | 499,500 | 120,500 | 120,500 | ||||
| Retained earnings | 175,200 | 148,600 | 38,100 | 26,400 | ||||
(a)
Prepare a vertical analysis of the 2020 income statement data for Duke Company and Lord Company. (Round percentages to 1 decimal place, e.g. 12.1%.)
Condensed Income Statement | |||||||
|---|---|---|---|---|---|---|---|
Duke Company | Lord Company | ||||||
Dollars | Percent | Dollars | Percent | ||||
select an income statement item Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | $enter a dollar amount | enter a percentage number rounded to 1 decimal place % | $enter a dollar amount | enter a percentage number rounded to 1 decimal place % | |||
select an income statement item Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | enter a dollar amount | enter a percentage number rounded to 1 decimal place % | enter a dollar amount | enter a percentage number rounded to 1 decimal place % | |||
select a summarizing line for the first part Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | enter a total amount for the first part | enter total percentages rounded to 1 decimal place % | enter a total amount for the first part | enter total percentages rounded to 1 decimal place % | |||
select an income statement item Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | enter a dollar amount | enter a percentage number rounded to 1 decimal place % | enter a dollar amount | enter a percentage number rounded to 1 decimal place % | |||
select a summarizing line for the second part Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | enter a total amount for the second part | enter total percentages rounded to 1 decimal place % | enter a total amount for the second part | enter total percentages rounded to 1 decimal place % | |||
select an opening name for the third part Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | |||||||
select an income statement item Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | enter a dollar amount | enter a percentage number rounded to 1 decimal place % | enter a dollar amount | enter a percentage number rounded to 1 decimal place % | |||
select a summarizing line for the third part Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | enter a total amount for all three parts | enter total percentages rounded to 1 decimal place % | enter a total amount for all three parts | enter total percentages rounded to 1 decimal place % | |||
select an income statement item Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | enter a dollar amount | enter a percentage number rounded to 1 decimal place % | enter a dollar amount | enter a percentage number rounded to 1 decimal place % | |||
select a closing name for this statement Cost of Goods SoldDividendsExpensesGross ProfitIncome Before Income TaxesIncome From OperationsIncome Tax ExpenseInterest ExpenseNet Income / (Loss)Net SalesOperating ExpensesOther Expenses and LossesRevenuesTotal ExpensesTotal Revenues | $enter a total net income or loss amount | enter total percentages rounded to 1 decimal place % | $enter a total net income or loss amount | enter total percentages rounded to 1 decimal place % | |||
In: Accounting
Periodic Inventory by Three Methods; Cost of Merchandise Sold
The units of an item available for sale during the year were as follows:
| Jan. 1 | Inventory | 50 units @ $110 |
| Mar. 10 | Purchase | 60 units @ $122 |
| Aug. 30 | Purchase | 20 units @ $130 |
| Dec. 12 | Purchase | 70 units @ $134 |
There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used.
Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar.
| Cost of Merchandise Inventory and Cost of Merchandise Sold | ||
| Inventory Method | Merchandise Inventory | Merchandise Sold |
| First-in, first-out (FIFO) | $ | $ |
| Last-in, first-out (LIFO) | ||
| Weighted average cost | ||
Note that this exercise uses the periodic inventory system. FIFO means that the first units purchased are assumed to be the first to be sold. Therefore, ending inventory costs for the period are calculated by taking the number of items remaining in the physical inventory times the most recent purchase price. If the number of items in last purchase layer is less than the number in ending inventory, the balance of the ending inventory items must be recorded at the second most recent purchase cost. The cost of merchandise sold for the period can be calculated by subtracting the ending inventory from the total cost of goods available for sale.
Note that this exercise uses the periodic inventory system. LIFO means the last units purchased are assumed to be the first to be sold. Therefore the ending inventory for the period is made up of the earliest costs from the period (the beginning inventory). If the number of units in the ending inventory is greater than the units in the beginning inventory, the excess units will be recorded at the next oldest cost associated with the first purchase. The cost of merchandise sold for the period can be calculated by subtracting the ending inventory from the total cost of goods available for sale.
Note that this exercise uses the periodic inventory system. Average unit cost means the average unit cost of all available units purchased is applied to the number of units sold and those in ending inventory. Therefore, you must first obtain a unit cost by dividing the total cost of all units available for sale by the number of units available for sale. Then multiply the number of items remaining in the physical inventory times this unit cost. The cost of merchandise sold for the period can be calculated by subtracting the ending inventory from the total cost of goods available for sale.
In: Accounting
Cook Farm Supply Company manufactures and sells a pesticide
called Snare. The following data are available for preparing
budgets for Snare for the first 2 quarters of 2020.
| 1. | Sales: quarter 1, 28,400 bags; quarter 2, 43,800 bags. Selling price is $61 per bag. | |
| 2. | Direct materials: each bag of Snare requires 4 pounds of Gumm at a cost of $3.80 per pound and 6 pounds of Tarr at $1.50 per pound. | |
| 3. | Desired inventory levels: |
|
Type of Inventory |
January 1 |
April 1 |
July 1 |
|||
|---|---|---|---|---|---|---|
| Snare (bags) | 8,500 | 12,100 | 18,100 | |||
| Gumm (pounds) | 9,300 | 10,500 | 13,100 | |||
| Tarr (pounds) | 14,200 | 20,100 | 25,100 |
| 4. | Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour. | |
| 5. | Selling and administrative expenses are expected to be 15% of sales plus $177,000 per quarter. | |
| 6. | Interest expense is $100,000. | |
| 7. | Income taxes are expected to be 30% of income before income taxes. |
Your assistant has prepared two budgets: (1) the manufacturing
overhead budget shows expected costs to be 125% of direct labor
cost, and (2) the direct materials budget for Tarr shows the cost
of Tarr purchases to be $301,000 in quarter 1 and $427,500 in
quarter 2.
(Note: Do not prepare the manufacturing overhead budget or
the direct materials budget for Tarr.)
Prepare the sales budget.
|
COOK FARM SUPPLY COMPANY |
||||||
|---|---|---|---|---|---|---|
|
Quarter |
Six |
|||||
|
1 |
2 |
|||||
|
Expected unit sales |
enter a number of units |
enter a number of units |
enter a number of units |
|||
|
Unit selling price |
$enter a dollar amount |
$enter a dollar amount |
$enter a dollar amount |
|||
|
Total sales |
$enter a total dollar amount |
$enter a total dollar amount |
$enter a total dollar amount |
|||
Prepare the production budget.
|
COOK FARM SUPPLY COMPANY |
||||||
|---|---|---|---|---|---|---|
|
Quarter |
Six |
|||||
|
1 |
2 |
|||||
|
select an opening production budget itemRequired Production UnitsDesired Ending Finished Goods UnitsDirect Materials per UnitBeginning Direct MaterialsTotal Pounds Needed for ProductionTotal Cost of Direct Materials PurchasesDesired Ending Direct MaterialsTotal Required UnitsTotal Materials RequiredExpected Unit SalesDirect Materials PurchasesCost per PoundDirect Labor Time per UnitTotal Direct Labor CostTotal Required Direct Labor HoursBeginning Finished Goods UnitsDirect Labor Cost per Hour Beginning Direct MaterialsBeginning Finished Goods UnitsCost per PoundDesired Ending Direct MaterialsDesired Ending Finished Goods UnitsDirect Labor Cost per HourDirect Labor Time per UnitDirect Materials per UnitDirect Materials PurchasesExpected Unit SalesRequired Production UnitsTotal Cost of Direct Materials PurchasesTotal Direct Labor CostTotal Materials RequiredTotal Pounds Needed for ProductionTotal Required Direct Labor HoursTotal Required Units |
enter a number of units |
enter a number of units |
||||
| enter a number of units | enter a number of units | |||||
|
enter a total number of units for the first part |
enter a total number of units for the first part |
|||||
| enter a number of units | enter a number of units | |||||
| enter a total number of units | enter a total number of units | enter a total number of units | ||||
Prepare the direct materials budget
|
COOK FARM SUPPLY COMPANY |
||||||
|---|---|---|---|---|---|---|
|
Quarter |
Six |
|||||
|
enter a number of units |
enter a number of units |
|||||
|
select an itemDirect Materials PurchasesExpected Unit SalesTotal Required UnitsDirect Materials per UnitTotal Materials RequiredBeginning Finished Goods UnitsTotal Pounds Needed for ProductionDesired Ending Direct Materials (Pounds)Total Required Direct Labor HoursBeginning Direct Materials (Pounds)Total Cost of Direct Materials PurchasesDesired Ending Finished Goods UnitsDirect Labor Time (Hours) per UnitTotal Direct Labor CostCost per PoundDirect Labor Cost per HourUnits to be Produced Beginning Direct Materials (Pounds)Beginning Finished Goods UnitsCost per PoundDesired Ending Direct Materials (Pounds)Desired Ending Finished Goods UnitsDirect Labor Cost per HourDirect Labor Time (Hours) per UnitDirect Materials per UnitDirect Materials PurchasesExpected Unit SalesTotal Cost of Direct Materials PurchasesTotal Direct Labor CostTotal Materials RequiredTotal Pounds Needed for ProductionTotal Required Direct Labor HoursTotal Required UnitsUnits to be Produced |
enter the amount of pounds | enter the amount of pounds | ||||
| enter a total amount of pounds for the first part | enter a total amount of pounds for the first part | |||||
| enter the amount of pounds | enter the amount of pounds | |||||
| enter a total amount of pounds for the second part | enter a total amount of pounds for the second part | |||||
| enter the amount of pounds | enter the amount of pounds | |||||
| enter a total amount of pounds for the third part | enter a total amount of pounds for the third part | |||||
| $enter a total dollar amount | $enter a total dollar amount | $enter a total dollar amount | ||||
Prepare the direct labor budget
Prepare the selling and administrative expense budget.
Prepare the budgeted multiple-step income statement for the first 6 months
In: Accounting
Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May of the current year. The company expected to operate the department at 100% of normal capacity of 8,400 hours.
|
TIGER EQUIPMENT INC. |
|
Factory Overhead Cost Budget-Welding Department |
|
For the Month Ended May 31 |
|
1 |
Variable costs: |
||
|
2 |
Indirect factory wages |
$30,240.00 |
|
|
3 |
Power and light |
20,160.00 |
|
|
4 |
Indirect materials |
16,800.00 |
|
|
5 |
Total variable cost |
$67,200.00 |
|
|
6 |
Fixed costs: |
||
|
7 |
Supervisory salaries |
$20,000.00 |
|
|
8 |
Depreciation of plant and equipment |
36,200.00 |
|
|
9 |
Insurance and property taxes |
15,200.00 |
|
|
10 |
Total fixed cost |
71,400.00 |
|
|
11 |
Total factory overhead cost |
$138,600.00 |
During May, the department operated at 8,860 standard hours. The factory overhead costs incurred were indirect factory wages, $32,400; power and light, $21,000; indirect materials, $18,250; supervisory salaries, $20,000; depreciation of plant and equipment, $36,200; and insurance and property taxes, $15,200.
Required:
| Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 8,860 hours. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Enter all variances as positive amounts. |
In: Accounting
Dr. Eger is a physician who operates on two different types of patients. He has been pressing the HOS for more operating-room time. HOS is busy and would have to turn away other surgeons if it complies. Eger claims that he has become so efficient lately that HOS cannot afford to refuse him. As evidence of his improved efficiency, he points out that in August he operated on 18 patients. The total cost of treating the patients was $129,100. In September he operated on 18 patients. The total cost of treating the patients was only $127,000. According to Dr. Eger, he has generated a total savings of $2,100. Your investigation determines that in August he treated seven Type X patients with an average cost of $4,300 and 11 type Y patients with an average cost of $9,000. In September, he treated eight Type X patients and ten Type Y patients. Costs in September for his patients were $5,000 for Type X and $8,700 for Type Y. Although the August cost for Type X patients had risen, Eger points out that costs for the higher-volume, higher-cost type Y patients had fallen. Develop a case-mix variance and a cost variance so we can better understand the impact on HOS of the changes in Dr. Eger’s practice from August to September. What other information would be of interest in this particular case?
In: Accounting
Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. It annually produces 70,000 units of EX300 and 13,500 units of TX500. The company’s conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:
| EX300 | TX500 | Total | |||||||
| Direct materials | $ | 376,325 | $ | 172,550 | $ | 548,875 | |||
| Direct labor | $ | 130,000 | $ | 47,500 | $ | 177,500 | |||
The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below:
| Activity | ||||||||||||
| Activity Cost Pool (and Activity Measure) |
Manufacturing Overhead |
EX300 | TX500 | Total | ||||||||
| Machining (machine-hours) | $ | 175,875 | 100,000 | 67,500 | 167,500 | |||||||
| Setups (setup hours) | 262,500 | 125 | 400 | 525 | ||||||||
| Product-level (number of products) | 202,400 | 1 | 1 | 2 | ||||||||
| General factory (direct labor dollars) | 86,975 | $ | 130,000 | $ | 47,500 | $ | 177,500 | |||||
| Total manufacturing overhead cost | $ | 727,750 | ||||||||||
Required:
1-a. Compute the plantwide overhead rate that would be used in the company’s conventional cost system.
1-b. Using the plantwide rate, compute the unit product cost for each product.
2-a. Compute the activity rate for each activity cost pool.
2-b. Using the activity rates, compute the unit product cost for each product.
In: Accounting
A competitive firm uses two inputs, capital (?) and labour (?), to produce one output, (?). The price of capital, ??, is $1 per unit and the price of labor, ?? , is $1 per unit. The firm operates in competitive markets for outputs and inputs, so takes the prices as given. The production function is ?(?, ?) = 3? 0.25? 0.25. The maximum amount of output produced for a given amount of inputs is ? = ?(?, ?) units.
e) Draw the firm’s total cost function, average cost function, and marginal cost function on a diagram. Clearly label the axes, the curves, and any key points on the graph (eg., axis intercepts, curve intersections, and minimums) with the numbers specifying the exact prices and quantities at these points. What are the coordinates of the points where the average cost curve and marginal cost curve intersect with the total cost curve? [6 marks]
f) Does your graph indicate increasing, decreasing, or constant returns to scale? Explain. [1 mark] Hint: Think about the relationship between the total cost function and returns to scale.
g) Show the firm’s long-run supply function on your diagram and write a supply function for the firm. [2 marks]
h) Using your supply function, find the profit maximising quantity if the price of output ? = 4. What price would be needed for the firm to supply 18 units of output? [2 marks]
In: Economics
Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. It annually produces 60,000 units of EX300 and 12,500 units of TX500. The company’s conventional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:
| EX300 | TX500 | Total | |||||||
| Direct materials | $ | 366,325 | $ | 162,550 | $ | 528,875 | |||
| Direct labor | $ | 120,000 | $ | 42,500 | $ | 162,500 | |||
The company is considering implementing an activity-based costing system that distributes all of its manufacturing overhead to four activities as shown below:
| Activity | ||||||||||||
| Activity Cost Pool (and Activity Measure) |
Manufacturing Overhead |
EX300 | TX500 | Total | ||||||||
| Machining (machine-hours) | $ | 198,250 | 90,000 | 62,500 | 152,500 | |||||||
| Setups (setup hours) | 150,000 | 75 | 300 | 375 | ||||||||
| Product-level (number of products) | 100,250 | 1 | 1 | 2 | ||||||||
| General factory (direct labor dollars) | 60,125 | $ | 120,000 | $ | 42,500 | $ | 162,500 | |||||
| Total manufacturing overhead cost | $ | 508,625 | ||||||||||
Required:
1-a. Compute the plantwide overhead rate that would be used in the company’s conventional cost system.
1-b. Using the plantwide rate, compute the unit product cost for each product.
2-a. Compute the activity rate for each activity cost pool.
2-b. Using the activity rates, compute the unit product cost for each product.
In: Accounting
| Beginning finished goods inventory | $ | 14,500 | $ | 16,300 | |||||
| Beginning work in process inventory | 15,900 | 19,650 | |||||||
| Beginning raw materials inventory | 10,500 | 14,400 | |||||||
| Rental cost on factory equipment | 28,750 | 26,500 | |||||||
| Direct labor | 25,000 | 42,600 | |||||||
| Ending finished goods inventory | 20,000 | 13,000 | |||||||
| Ending work in process inventory | 23,500 | 19,600 | |||||||
| Ending raw materials inventory | 7,200 | 8,800 | |||||||
| Factory utilities | 9,150 | 12,250 | |||||||
| Factory supplies used | 11,500 | 5,400 | |||||||
| General and administrative expenses | 32,500 | 44,500 | |||||||
| Indirect labor | 2,350 | 7,960 | |||||||
| Repairs—Factory equipment | 6,140 | 2,600 | |||||||
| Raw materials purchases | 37,000 | 59,000 | |||||||
| Selling expenses | 62,800 | 58,600 | |||||||
| Sales | 213,030 | 340,010 | |||||||
| Cash | 29,000 | 15,700 | |||||||
| Factory equipment, net | 232,500 | 127,825 | |||||||
| Accounts receivable, net | 13,800 | 21,700 | |||||||
Required:
Complete the table to find the cost of goods manufactured for both Garcon Company and Pepper Company for the year ended December 31, 2017.
|
Complete the table to calculate the cost of goods sold for both Garcon Company and Pepper Company for the year ended December 31, 2017.
|
In: Accounting