2. Cost-Volume-Profit (CVP) 40 points
a. Assignment Question on Cost Volume Profit (CVP)
MMC Nutri Company is a small family fast food restaurant that opened in 2015, serving tropical cuisine to its mainly Afro-American, Asian and African customers. Because of its hot ingredients, few others patronize the food.
This business serves its popular dish Jollof rice, fish or meat stew, and rice flour porridge, as a meal for $9 a serving. Its variable cost per serving is $4.10 and its monthly fixed cost is $4,600 a month. On average, the business sells 60 servings a day, opened every day except Sunday. The highly religious owner takes Sunday off, as a rest day.
During this 2020 year of COVID-19 pandemic, average sales has dropped significantly. In June of this year, the federal government gave a lump sum financial assistance of $10,000 to the business, during a six weeks lockdown. Since then, current sales has dropped by 60% of its pre-COVID level, despite the introduction of take-away opportunity. The business optimistically estimates that sales will slowly increase to a maximum of 80% of pre-COVID level, for the rest of this year.
The owner is considering closing the business, due to uncertainty and depletion of personal savings to finance its operations, and has commissioned you to give advice, based on your knowledge of accounting.
The business is also exploring an available option of a $6,000 investment in machinery that will be used for 5 years and will reduce variable cost by $0.30 a unit. Sales price/unit will not change.
What will be your overall advice to this owner? Justify each option with analysis based on CVP.
(Points will be awarded for trend of thought and the application of CVP principles. There is no one answer.) 30 points
b. Assignment on Plant-wide Overhead Absorption
Basic Construction Company won a bid to build a gym between January and March 2020. The actual manufacturing overhead for the completed construction was $128,610. On December, 2019, before the start of the construction, the company decided to set an annual overhead rate of $875,000 for all jobs during 2020, to be absorbed by direct labor hours. The actual direct labor hours used for this job was 49,000, and the direct machine hours used was 12,700. The annual direct labor hours estimated for 2020 by the company was 350,000 DLH. Provided there is over or under absorbed overhead, considered not significant, prepare the journal entry to close the manufacturing overhead account, at the end of the contract. 10 points
In: Accounting
A 30-year old wants to make a saving plan to meet the following three goals:
§ First Goal: To save $150,000 in 5 years for the down payment to purchase a house, which is estimated to be $600,000. At that time, she will borrow the rest by taking a 30-year fixed rate mortgage at an APR of 5.5% for the house purchase.
§ Second Goal: To retire in 35 years, that is, when she is 65. By that time the money she saves during the 35 years, is able to generate $18,000 each month for 20 years of retirement living. Assume she will withdraw the $18,000 at the beginning of each month.
§ Third Goal: To leave $1,000,000 to her children, which is expected to occur at the end of her 20-year retirement life.
She thinks she can save $3000 at the end of each month in the following 5 years. Then she will need to withdraw $150,000 from her account for the down payment to buy a house. After then, she will continue saving $X dollars each month while paying the monthly mortgage payment until she retires at the age 65. She will pay off the mortgage loan when she retires.
Assume she can earn 10% EAR before she retires and 6.5% EAR on her money after she retires.
Q4. What is the monthly interest rate she can earn before she retires ?
Q5. What is the monthly interest rate she can earn after she retires ?
Q6. What is the total saving required on the day she retires to support her Goal I and Goal II ?
Q7. After withdrawing the $150,000 for down payment five years later, how much is left in her account?
Q8. To achieve the three goals, how much must she save at the end of each MONTH after she purchases the house until she retires?
Q9. What is her monthly mortgage payment?
Q10. If the inflation rate is 3% each year, what is the purchasing power of $18,000 after 35 years (the time when she retires)?
In: Finance
As a recently hired accountant for a small business, SMC, Inc., you are provided with last year’s balance sheet, income statement, and post-closing trial balance to familiarize yourself with the business.
SMC, Inc.
Balance sheet
December 31, 2019
|
Assets |
$34,500 |
|
Cash |
$25,000 |
|
Accounts receivable |
$10,000 |
|
Supplies |
$200 |
|
Total assets |
$69,700 |
Liabilities and stockholders equity
|
Liabilities: |
|
|
Accounts payable |
$12,000 |
|
Salaries payable |
$1,000 |
|
Income taxes payable |
$3,675 |
|
Total liabilities |
$16,675 |
|
Stockholders equity: |
|
|
Capital stock (10,000 shares outstanding) |
$25,000 |
|
Retained earnings |
$28,025 |
|
Total stockholders equity |
$53,025 |
|
Total liabilities and stockholders equity |
$69,700 |
SMC, Inc.
Income statement
For the year ended December 31, 2019
|
Sales revenue |
$110,000 |
|
Rent revenue |
$1,000 |
|
Total revenue |
$111,000 |
|
Less cost of goods sold |
$60,000 |
|
Gross profit |
$51,000 |
|
Less operating expense: |
|
|
Supplies expense |
$400 |
|
Salaries expense |
$22,000 |
|
Miscellaneous expense |
$4,100 $26,500 |
|
Income before taxes |
$24,500 |
|
Less Income taxes |
$3,675 |
|
Net income |
$20,825 |
|
Earnings per share ($20,825/10,000 shares) |
$2.08 |
SMC, Inc.
Post-closing trial balance
|
Cash |
$34,500 |
|
Accounts receivable |
$25,000 |
|
Inventory |
$10,000 |
|
Supplies |
$200 |
|
Accounts payable |
$12,000 |
|
Salaries payable |
$1,000 |
|
Income taxes payable |
$3,675 |
|
Common stock |
$25,000 |
|
Retained earnings |
$28,025 |
|
Totals |
$69,700. $69,700 |
You are also given the following Information that summarizes the business activity for the current year, 2020.
A. Issued 10,000 additional shares of common stock for $60,000 cash on January 1st.
B. Borrowed $25,000 on March 1, 2020, from Downtown Bank as a long-term loan. The interest rate on the loan is 4% and interest for the year is payable on January 1, 2021.
C. Paid $12,000 cash on April 1 to lease a building for one year.
D. Received $6,000 on May 1 from a tenant for one years rent.
E. Paid $4,200 on June 1 for a one year Insurance policy.
F. Purchased $3,500 of supplies for cash on June 15th
G. Purchased inventory for $125,000 on account on July 1.
H. August 1, sold inventory for $185,000 on account; cost of the merchandise sold was $120,000.
I. Collected $145,000 cash from customers accounts receivable on August 20th.
J. September 1, paid $95,000 cash for inventories purchased earlier during the year.
K. September 20th paid $34,000 for sales reps salaries, including $1,000 owed at the beginning of 2020.
L. Dividends for $9,500 were paid on October 20th.
M. The income taxes payable for the year of 2019 were paid on November 15th.
N. For adjusting entries, all prepaid expense are initially recorded as assets, and all unearned revenues are initially recorded as liabilities (this is just informational)
O. At year-end, $1,050 worth of supplies are on hand.
P. At year- end, an additional $9,500 of sales salaries are owed, but have not yet been paid.
Q. Prepare and adjusting entry to recognize the taxes owed for 2020. The corporate tax rate is 21% of the income before income taxes.
You are asked to do the following:
Journal entries
T accounts
Adjusting entires
Adjusting trial balance
In: Accounting
In: Accounting
In: Accounting
A softball is hit over a third baseman’s head with speed v0 and at an angle θ from the horizontal. Immediately after the ball is hit, the third baseman turns around and runs straight back at a constant velocity V = 7.000 m/s, for a time t = 2.000 s. He then catches the ball at the same height at which it left the bat. The third baseman was initially L = 18.00 m from the location where the ball was hit at home plate.
a. Find v0. Use g = 9.807 m/s2 for the magnitude of the acceleration due to gravity.
b. Find the angle θ in degrees.
c. Find a vector expression for the velocity v of the softball 0.1 s before the ball is caught.
d. Find a vector expression for the position r of the softball 0.1 s before the ball is caught.
In: Physics
In: Finance
A clinical trial was conducted to test the effectiveness of a drug for treating insomnia in older subjects. Before treatment, 18 subjects had a mean wake time of 103.0 min. After treatment, the 18 subjects had a mean wake time of 78.4 min and a standard deviation of 20.7 min. Assume that the 18 sample values appear to be from a normally distributed population and construct a 95 % confidence interval estimate of the mean wake time for a population with drug treatments. What does the result suggest about the mean wake time of 103.0 min before the treatment? Does the drug appear to be effective? Construct the 95 % confidence interval estimate of the mean wake time for a population with the treatment. nothing minless than muless thannothing min (Round to one decimal place as needed.)
In: Statistics and Probability
Altoona Technologies, Inc. has three divisions. Altoona has a desired rate of return of 11.0 percent. The operating assets and income for each division are as follows:
| Divisions | Operating Assets | Operating Income | |||||
| Printer | $ | 740,000 | $ | 115,440 | |||
| Copier | 1,010,000 | 101,000 | |||||
| Fax | 560,000 | 72,800 | |||||
| Total | $ | 2,310,000 | $ | 289,240 | |||
Altoona headquarters has $140,000 of additional cash to invest in one of its divisions. The division managers have identified investment opportunities that are expected to yield the following ROIs:
| Expected ROIs for | ||
| Divisions | Additional Investments | |
| Printer | 12.5 | % |
| Copier | 11.5 | % |
| Fax | 10.5 | % |
Required
g. Calculate the residual income:
(1) At the corporate (headquarters) level before the additional investment.
(2) At the division level before the additional investment.
(3) At the investment level.
(4) At the division level after the additional investment.
In: Accounting
A clinical trial was conducted to test the effectiveness of a drug for treating insomnia in older subjects. Before treatment,
13
subjects had a mean wake time of
103.0
min. After treatment, the
13
subjects had a mean wake time of
97.9
min and a standard deviation of
21.8
min. Assume that the
13
sample values appear to be from a normally distributed population and construct a
95%
confidence interval estimate of the mean wake time for a population with drug treatments. What does the result suggest about the mean wake time of
103.0
min before the treatment? Does the drug appear to be effective?
Construct the
95%
confidence interval estimate of the mean wake time for a population with the treatment.
minless than<muμless than<
min
(Round to one decimal place as needed.)
In: Statistics and Probability