Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate
Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:
| Budgeted Volume (Units) |
Direct Labor Hours Per Unit |
Price Per Unit |
Direct Materials Per Unit |
|||||
| Pistons | 12,000 | 0.20 | $56 | $27 | ||||
| Valves | 22,000 | 0.15 | 14 | 4 | ||||
| Cams | 1,000 | 0.30 | 75 | 32 | ||||
The estimated direct labor rate is $32 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Elliott Engines is $168,000.
If required, round all per unit answers to the nearest cent.
a. Determine the plantwide factory overhead
rate.
$ per dlh
b. Determine the factory overhead and direct labor cost per unit for each product.
| Direct Labor Hours Per Unit |
Factory Overhead Cost Per Unit |
Direct Labor Cost Per Unit |
|
| Pistons | dlh | $ | $ |
| Valves | dlh | $ | $ |
| Cams | dlh | $ | $ |
c. Use the information above to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place. Enter all amounts as positive numbers, except for a negative gross profit/gross profit percentage of sales.
| Elliot Engines Inc. | |||
| Product Line Budgeted Gross Profit Reports | |||
| For the Year Ended December 31, 20Y2 | |||
| Pistons | Valves | Cams | |
| $ | $ | $ | |
| Product Costs | |||
| $ | $ | $ | |
| Total Product Costs | $ | $ | $ |
| Gross profit | $ | $ | $ |
| Gross profit percentage of sales | % | % | % |
d. What does the report in (c) indicate to you?
Valves have the gross profit as a percent of sales. Valves may require a price or cost to manufacture in order to achieve the same profitability as the other two products.
In: Accounting
Management from Global Shippers Inc, an international shipping business, is in the process of assessing the choice between two different cost structures for the business. Option A has relatively higher variable costs per unit shipped but lower annual fixed costs, while Option B has the opposite—relatively lower variable costs in its cost structure but higher fixed costs. Assume that delivery selling prices per unit are constant. The table below contains critical information in making the decision:
|
Cost Information |
Option A |
Option B |
|---|---|---|
|
Delivery price (revenue) per shipment |
$100 |
$100 |
|
Variable cost per shipment delivered |
$85 |
$60 |
|
Contribution Margin per unit |
$15 |
$40 |
|
Fixed costs (annual) |
$1,200,000 |
$4,500,000 |
Management wants you to write a professional report, answering the
following questions:
Questions
1) What is the break-even point, in terms of volume (i.e., number of shipments per year), for Option A? Option B?
(2) How many shipments would have to be made under Option A to produce operating income of $30,000 for an annual period?
(3) How many shipments per year would have to be made under Option A to produce an operating margin equal to 9% of sales revenue?
(4) How many shipments are required under Option B to produce net income of $180,000 per year, given a corporate tax rate of 40%?
(5) Assume that for the coming year total fixed costs are expected to increase by 15% for each of the two options. What is the new break-even point, in terms of number of shipments, for each option? By what percentage did the break-even point change for each case? How do these figures compare to the percentage increase in budgeted fixed costs?
(6) Assume an average income-tax rate of 20%. What volume (number of shipments) would be needed to generate net income of 5% of revenue for each option?
(7) Which option do you think is the more profitable one for this business? Explain.
(8) Which option do you consider to be more risky to the business? Explain (calculate degree of operating leverage to help answer this question).
In: Accounting
You work as an analyst for an institution located in Riyadh, Kingdom of Saudi Arabia (or KSA).
The Saudi Arabia’s Monetary Authority, KSA’s Central Bank, has recently released a report on the regulation of the quantity of money in the country for the upcoming Year 2021.
In answering the questions that follow: show all relevant formulas and calculations. Keep two decimal points.
As part of the report, Saudi’s Central Bank created a reference value for money growth between 2020 and 2021, according to which they expect real growth to stay between -4.2% and -6.3%, inflation rate to be between 3.9% and 5.8%, and velocity growth to range between -1.8% and -3.1%.
Using the averages for the figures provided above, calculate KSA’s estimated money growth rate. (2 points)
Suppose that the Central Bank’s report also states that between 2019 and 2020, due to the anticipated inflation in the MENA region brought on by 2020, the Saudi Arabian Monetary Authority is planning to DECREASE the country’s ‘M2’ from SR 230 billion to SR 205 billion (SR = Saudi Riyal).
According to the report, between 2020 and 2021, the KSA’s measure of velocity is expected to stay constant at 3.25.
Using the Quantity Theory of Money, calculate the percentage change in the KSA’s nominal GDP. (1.5 points)
*** Note: Question 4(b) is not related to Question 4(a).
The report states that, due to the anticipated deflation in the MENA region brought on by EXPO 2020, between 2020 and 2021, the Saudi Consumer Price Index is expected to DECREASE from 185 to 155.
Using Fisher’s Equation, determine the impact of this change on the level of the nation’s real GDP. (1.5 points)
*** Note: Question 4(c) is a continuation from Question 4(b) and is not related to Question 4(a).
BECN 250 – Money and Banking – Formulas
CPI = Cost of Basket in Current YearCost of Basket in Base Year × 100%
GDP deflator= Nominal GDPReal GDP
Inflation rate 1= New CPI - Old CPIOld CPI ×100% = New Cost of Basket - Old Cost of BasketOld Cost of Basket × 100%
Percentage change = New - OldOld ×100%
% Δ M + % Δ V = % Δ P + % Δ Y = % Δ Nominal GDP
Money growth + Velocity growth = Inflation + Real growth
In: Economics
Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate
Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:
| Budgeted Volume (Units) |
Direct Labor Hours Per Unit |
Price Per Unit |
Direct Materials Per Unit |
|||||
| Pistons | 12,000 | 0.30 | $46 | $22 | ||||
| Valves | 18,000 | 0.15 | 11 | 4 | ||||
| Cams | 4,000 | 0.20 | 61 | 26 | ||||
The estimated direct labor rate is $26 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Elliott Engines is $269,800.
If required, round all per unit answers to the nearest cent.
a. Determine the plantwide factory overhead
rate.
$ per dlh
b. Determine the factory overhead and direct labor cost per unit for each product.
| Direct Labor Hours Per Unit |
Factory Overhead Cost Per Unit |
Direct Labor Cost Per Unit |
|
| Pistons | dlh | $ | $ |
| Valves | dlh | $ | $ |
| Cams | dlh | $ | $ |
Feedback
c. Use the information above to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place. Enter all amounts as positive numbers, except for a negative gross profit/gross profit percentage of sales.
| Elliot Engines Inc. | |||
| Product Line Budgeted Gross Profit Reports | |||
| For the Year Ended December 31, 20Y2 | |||
| Pistons | Valves | Cams | |
| $ | $ | $ | |
| Product Costs | |||
| $ | $ | $ | |
| Total Product Costs | $ | $ | $ |
| Gross profit | $ | $ | $ |
| Gross profit percentage of sales | % | % | % |
Feedback
d. What does the report in (c) indicate to you?
Valves have the lowest gross profit as a percent of sales. Valves may require a higher price or lower cost to manufacture in order to achieve the same profitability as the other two products.
In: Accounting
Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate
Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:
| Budgeted Volume (Units) |
Direct Labor Hours Per Unit |
Price Per Unit |
Direct Materials Per Unit |
|||||
| Pistons | 12,000 | 0.30 | $46 | $22 | ||||
| Valves | 18,000 | 0.15 | 11 | 4 | ||||
| Cams | 4,000 | 0.20 | 61 | 26 | ||||
The estimated direct labor rate is $26 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Elliott Engines is $269,800.
If required, round all per unit answers to the nearest cent.
a. Determine the plantwide factory overhead
rate.
$ per dlh
b. Determine the factory overhead and direct labor cost per unit for each product.
| Direct Labor Hours Per Unit |
Factory Overhead Cost Per Unit |
Direct Labor Cost Per Unit |
|
| Pistons | dlh | $ | $ |
| Valves | dlh | $ | $ |
| Cams | dlh | $ | $ |
Feedback
c. Use the information above to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place. Enter all amounts as positive numbers, except for a negative gross profit/gross profit percentage of sales.
| Elliot Engines Inc. | |||
| Product Line Budgeted Gross Profit Reports | |||
| For the Year Ended December 31, 20Y2 | |||
| Pistons | Valves | Cams | |
| $ | $ | $ | |
| Product Costs | |||
| $ | $ | $ | |
| Total Product Costs | $ | $ | $ |
| Gross profit | $ | $ | $ |
| Gross profit percentage of sales | % | % | % |
Feedback
d. What does the report in (c) indicate to you?
Valves have the lowest gross profit as a percent of sales. Valves may require a higher price or lower cost to manufacture in order to achieve the same profitability as the other two products.
In: Accounting
Smith Construction, Inc. is expected to pay a $2.78 dividend next year. The dividend is expected to grow by 4% each year for the next three years. After that the company will never pay another dividend ever again. If your required return on the stock investment is 10%, what should the stock sell for today?
Group of answer choices
In: Finance
Rao Construction recently reported $28.00 million of sales, $12.60 million of operating costs other than depreciation, and $3.00 million of depreciation. It had $8.50 million of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 25%. What was Rao's operating income, or EBIT, in millions?
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In: Finance
You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $10.2 million today and $5.2 million in one year. The government will pay you $20.5 million in one year upon the building's completion. Suppose the interest rate is 10.5%.
a. What is the NPV of this opportunity?
b. How can your firm turn this NPV into cash today?
In: Finance
You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $9.8 million today and $4.8 million in one year. The government will pay you $21.5 million in one year upon the building's completion. Suppose the interest rate is 10.8%.
a. What is the NPV of this opportunity?
b. How can your firm turn this NPV into cash today?
In: Finance
An insurance agent says the standard deviation of the total hospital charges for patients involved in a crash in which the vehicle struck a construction barricade is less than $4000. A random sample of 28 total hospital charges for patients involved in this type of crash has a standard deviation of $4900. At alpha equals 0.10α=0.10 can you support the agent's claim? Use the P-value method to test the claim.
In: Statistics and Probability