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Clark and Shiffer LLP perform activities related to e-commerce consulting and information systems in Vancouver, British Columbia. The firm, which bills $168 per hour for services performed, is in a very tight local labor market and is having difficulty finding quality help for its overworked professional staff. The cost per hour for professional staff time is $78. Selected information follows. |
| • |
Billable hours to clients for the year totaled 8,800, consisting
of: information systems services, |
| • |
Administrative cost of $423,760 was (and continues to be) allocated to both services based on billable hours. These costs consist of staff support, $225,480; in-house computing, $159,000; and miscellaneous office charges, $39,280. |
|
A recent analysis of staff support costs found a correlation with the number of clients served. In-house computing and miscellaneous office charges varied directly with the number of computer hours logged and number of client transactions, respectively. A tabulation revealed the following data: |
| E-Commerce Consulting |
Information Systems Services |
Total | |||
| Number of clients | 85 | 265 | 350 | ||
| Number of computer hours | 2,380 | 3,880 | 6,260 | ||
| Number of client transactions | 860 | 760 | 1,620 | ||
| Required: |
| 2. |
Assume that the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. Determine the profitability of the firm’s e-commerce and information systems activities, expressing your answer both in dollars and as a percentage of activity revenue. (Do not round intermediate calculations. Round "Profitability" to 2 decimal places.) |
| 3. |
Using activity-based costing, determine the profitability of the firm’s e-commerce and information systems activities, expressing your answer both in dollars and as a percentage of activity revenue. |
In: Accounting
Long-Term Performance Report
Nabors Company had actual quality costs for the year ended June 30, 20x5, as given below.
| Prevention costs: | |
| Prototype inspection | $ 220,000 |
| Vendor certification | 440,000 |
| Total prevention costs | $ 660,000 |
| Appraisal costs: | |
| Process acceptance | $ 235,000 |
| Test labor | 280,000 |
| Total Appraisal costs | $ 515,000 |
| Internal failure costs: | |
| Retesting | $ 147,500 |
| Rework | 295,000 |
| Total internal failure costs | $ 442,500 |
| External failure costs: | |
| Recalls | $ 392,000 |
| Product liability | 408,250 |
| Total external failure costs | $ 800,250 |
| Total quality costs | $2,417,750 |
At the zero-defect state, Nabors expects to spend $275,000 on quality engineering, $55,000 on vendor certification, and $75,000 on packaging inspection. Assume sales to be $2,200,000.
Required:
1. Prepare a long-range performance report for 20x5. Enter all answers as positive amounts. If the budget variance amount is unfavorable select "Unfavorable" in the last column of the table. Select "Favorable" if it is favorable. Round percentage answers to two decimal places, if rounding is required. For example, 5.789% would be entered as "5.79". Enter "0" as the target cost amount if there would be no cost at the zero-defect state.
| Nabors Company | ||||
| Long-Range Performance Report | ||||
| For the Year Ended June 30, 20x5 | ||||
| Actual Costs | Target Costs | Budget Variance | Favorable; or Unfavorable | |
| Prevention costs: | ||||
| $ | $ | $ | ||
| Total prevention costs | $ | $ | $ | |
| Appraisal costs: | ||||
| $ | $ | $ | ||
| Total appraisal costs | $ | $ | $ | |
| Internal failure costs: | ||||
| $ | $ | |||
| Total internal failure costs | $ | $ | ||
| External failure costs: | ||||
| $ | $ | |||
| Total external failure costs | $ | $ | ||
| Total quality costs | $ | $ | $ | |
| Percentage of sales | % | % | % | |
In: Accounting
Nabors Company had actual quality costs for the year ended June 30, 20x5, as given below.
| Prevention costs: | |
| Prototype inspection | $ 280,000 |
| Vendor certification | 560,000 |
| Total prevention costs | $ 840,000 |
| Appraisal costs: | |
| Process acceptance | $ 295,000 |
| Test labor | 340,000 |
| Total Appraisal costs | $ 635,000 |
| Internal failure costs: | |
| Retesting | $ 177,500 |
| Rework | 355,000 |
| Total internal failure costs | $ 532,500 |
| External failure costs: | |
| Recalls | $ 245,500 |
| Product liability | 545,000 |
| Total external failure costs | $ 790,500 |
| Total quality costs | $2,798,000 |
At the zero-defect state, Nabors expects to spend $350,000 on quality engineering, $70,000 on vendor certification, and $60,000 on packaging inspection. Assume sales to be $2,500,000.
Required:
1. Prepare a long-range performance report for 20x5. Enter all answers as positive amounts. If the budget variance amount is unfavorable select "Unfavorable" in the last column of the table. Select "Favorable" if it is favorable. Round percentage answers to two decimal places, if rounding is required. For example, 5.789% would be entered as "5.79". Enter "0" as the target cost amount if there would be no cost at the zero-defect state.
| Nabors Company | ||||
| Long-Range Performance Report | ||||
| For the Year Ended June 30, 20x5 | ||||
| Actual Costs | Target Costs | Budget Variance | Favorable; or Unfavorable | |
| Prevention costs: | ||||
| $ | $ | $ | ||
| Total prevention costs | $ | $ | $ | |
| Appraisal costs: | ||||
| $ | $ | $ | ||
| Total appraisal costs | $ | $ | $ | |
| Internal failure costs: | ||||
| $ | $ | |||
| Total internal failure costs | $ | $ | ||
| External failure costs: | ||||
| $ | $ | |||
| Total external failure costs | $ | $ | ||
| Total quality costs | $ | $ | $ | |
| Percentage of sales | % | % | % | |
2. Why are quality costs still present for the
zero-defect state?
In: Accounting
Problem 6-21A Segment Reporting and Decision Making [LO6-4]
| Vulcan Company’s contribution format income statement for June is given below: |
|
Vulcan Company Income Statement For the Month Ended June 30 |
||||
| Sales | $ | 900,000 | ||
| Variable expenses | 400,000 | |||
| Contribution margin | 500,000 | |||
| Fixed expenses | 475,000 | |||
| Net operating income | $ | 25,000 | ||
|
Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: |
| a. |
The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded $400,000 in sales and $160,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $176,000 and $140,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories. |
| b. |
The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $140,000 and $260,000, respectively, in the Northern territory during June. Variable expenses are 27% of the selling price for Paks and 47% for Tibs. Cost records show that $67,200 of the Northern Territory’s fixed expenses are traceable to Paks and $57,200 to Tibs, with the remainder common to the two products. |
| Required: |
| 1a. |
Prepare contribution format segmented income statements for the total company broken down between sales territories. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3)) |
| 1b. |
Prepare contribution format segmented income statements for the Northern Territory broken down by product line. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3)) |
In: Accounting
E10-5 Calculating Return on Investment, Residual Income, Determining Effect of Changes in Sales, Expenses, Invested Assets, Hurdle Rate on Each [LO 10-4, 10-5]
Solano Company has sales of $780,000, cost of goods sold of
$510,000, other operating expenses of $38,000, average invested
assets of $2,300,000, and a hurdle rate of 12 percent.
Required:
1. Determine Solano’s return on investment (ROI),
investment turnover, profit margin, and residual income.
(Do not round your intermediate calculations. Enter your
ROI and Profit Margin percentage answer to the nearest 2 decimal
places, (i.e., 0.1234 should be entered as 12.34%). Round your
Investment Turnover answer to 4 decimal places.)
|
2. Several possible changes that Solano could face
in the upcoming year follow. Determine each scenario’s impact on
Solano’s ROI and residual income. (Note: Treat each scenario
independently.) (Enter your ROI percentage answers to 2
decimal places, (i.e., 0.1234 should be entered as
12.34%.))
a. Company sales and cost of
goods sold increase by 30 percent.
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b. Operating expenses decrease by
$12,000.
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c. Operating expenses increase by 10
percent.
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d. Average invested assets increase by $440,000.
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e. Solano changes its hurdle rate to 18 percent.
| Return on Investment | % | |
| Residual Income (Loss) |
In: Accounting
66. Shawnee Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $15,000. Which of the following statements is true with respect to these additions?
a. $30,000 should be debited to the Land account.
b. $15,000 should be debited to Land Improvements.
c. $45,000 should be debited to the Land account.
d. $45,000 should be debited to Land Improvements.
88. A company purchased factory equipment on April 1, 2008 for $64,000. It is estimated that the equipment will have an $8,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2008 is
a. $6,400.
b. $5,600.
c. $4,200.
d. $4,800.
89. A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 5-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is
a. 20%.
b. 25%.
c. 40%.
d. 4%.
90. The declining-balance method of depreciation produces
a. a decreasing depreciation expense each period.
b. an increasing depreciation expense each period.
c. a declining percentage rate each period.
d. a constant amount of depreciation expense each period.
91. A company purchased factory equipment for $250,000. It is estimated that the equipment will have a $25,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be
a. $100,000.
b. $60,000.
c. $90,000.
d. $43,200.
In: Accounting
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 25% each of the last three years. He has computed the cost and revenue estimates for each product as follows:
| Product A | Product B | ||||
| Initial investment: | |||||
| Cost of equipment (zero salvage value) | $ | 340,000 | $ | 540,000 | |
| Annual revenues and costs: | |||||
| Sales revenues | $ | 390,000 | $ | 490,000 | |
| Variable expenses | $ | 176,000 | $ | 226,000 | |
| Depreciation expense | $ | 68,000 | $ | 108,000 | |
| Fixed out-of-pocket operating costs | $ | 84,000 | $ | 64,000 | |
The company’s discount rate is 18%.
Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor using tables.
Required:
1. Calculate the payback period for each product. (Round your answers to 2 decimal places.)
2. Calculate the net present value for each product. (Round discount factor(s) to 3 decimal places.)
3. Calculate the internal rate of return for each product. (Round percentage answers to 1 decimal place. i.e. 0.1234 should be considered as 12.3% and round discount factor(s) to 3 decimal places.)
4. Calculate the project profitability index for each product. (Round discount factor(s) to 3 decimal places. Round your answers to 2 decimal places.)
5. Calculate the simple rate of return for each product. (Round percentage answers to 1 decimal place. i.e. 0.1234 should be considered as 12.3%.)
6a. For each measure, identify whether Product A or Product B is preferred.
In: Accounting
Long-Term Performance Report
Nabors Company had actual quality costs for the year ended June 30, 20x5, as given below.
| Prevention costs: | |
| Prototype inspection | $ 400,000 |
| Vendor certification | 800,000 |
| Total prevention costs | $ 1,200,000 |
| Appraisal costs: | |
| Process acceptance | $ 415,000 |
| Test labor | 460,000 |
| Total Appraisal costs | $ 875,000 |
| Internal failure costs: | |
| Retesting | $ 237,500 |
| Rework | 475,000 |
| Total internal failure costs | $ 712,500 |
| External failure costs: | |
| Recalls | $ 253,750 |
| Product liability | 581,750 |
| Total external failure costs | $ 835,500 |
| Total quality costs | $3,623,000 |
At the zero-defect state, Nabors expects to spend $500,000 on quality engineering, $100,000 on vendor certification, and $65,000 on packaging inspection. Assume sales to be $2,400,000.
Required:
1. Prepare a long-range performance report for 20x5. Enter all answers as positive amounts. If the budget variance amount is unfavorable select "Unfavorable" in the last column of the table. Select "Favorable" if it is favorable. Round percentage answers to two decimal places, if rounding is required. For example, 5.789% would be entered as "5.79". Enter "0" as the target cost amount if there would be no cost at the zero-defect state.
| Nabors Company | ||||
| Long-Range Performance Report | ||||
| For the Year Ended June 30, 20x5 | ||||
| Actual Costs | Target Costs | Budget Variance | Favorable; or Unfavorable | |
| Prevention costs: | ||||
| $ | $ | $ | ||
| Total prevention costs | $ | $ | $ | |
| Appraisal costs: | ||||
| $ | $ | $ | ||
| Total appraisal costs | $ | $ | $ | |
| Internal failure costs: | ||||
| $ | $ | |||
| Total internal failure costs | $ | $ | ||
| External failure costs: | ||||
| $ | $ | |||
| Total external failure costs | $ | $ | ||
| Total quality costs | $ | $ | $ | |
| Percentage of sales | % | % | % | |
2. Why are quality costs still present for the
zero-defect state?
In: Accounting
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows:
| Product A | Product B | ||||
| Initial investment: | |||||
| Cost of equipment (zero salvage value) | $ | 370,000 | $ | 570,000 | |
| Annual revenues and costs: | |||||
| Sales revenues | $ | 400,000 | $ | 480,000 | |
| Variable expenses | $ | 182,000 | $ | 214,000 | |
| Depreciation expense | $ | 74,000 | $ | 114,000 | |
| Fixed out-of-pocket operating costs | $ | 88,000 | $ | 68,000 | |
The company’s discount rate is 20%.
I have solved the following:
1. Calculate the payback period for each product. - Product A = 2.85 Product B = 2.88
2. Calculate the net present value for each product. - Product A = $18,830 Product B = $22,218
Having trouble trying to solve these:
3. Calculate the internal rate of return for each product. (Round percentage answers to 1 decimal place. i.e. 0.1234 should be considered as 12.3% and round discount factor(s) to 3 decimal places.)
4. Calculate the project profitability index for each product. (Round discount factor(s) to 3 decimal places. Round your answers to 2 decimal places.)
5. Calculate the simple rate of return for each product. (Round percentage answers to 1 decimal place. i.e. 0.1234 should be considered as 12.3%.)
6a. For each measure, identify whether Product A or Product B is preferred.
In: Accounting
Your company is estimating its WACC. Its target capital structure is 30 percent debt, 10 percent preferred stock, and 60 percent common equity. Its bonds have an 8 percent coupon, paid quarterly, a current maturity of 15 years, and sell for $895. The firm could sell, at par, $100 preferred stock which pays $10 annual dividend, but flotation costs of 5 percent would be incurred if the company will issue new preferred stocks. This company’s beta is 1.3, the risk-free rate is 8 percent, and the market risk premium is 7 percent. This is a constant-growth firm and it just paid a dividend of $1.00, sells for $30.00 per share, and has a growth rate of 6 percent. The firm's policy is to use a risk premium of 5 percentage points when using the bond-yield-plus- risk-premium method to find cost of equity. The company will incur 7% floatation cost if issuing new common stocks. The firm's marginal tax rate is 40 percent.
1. What is the component cost of debt?
2. What is the cost of new preferred stock?
3. What is the cost of common stock using the CAPM approach?
4. What is the cost of common stock using the DCF approach
5. What is cost of common stock using the bond-yield-plus-risk-premium approach?
6. What is current WACC (use CAPM)? What is the WACC if the company will issue new preferred stocks and new common stocks?
In: Finance