Why are the terms direct cost and indirect cost independent of the terms fixed cost and variable cost? Give an example to illustrate.

What generally happens to the cost of debt, cost of equity, and cost of capital when a firm increases Debt and holds Equity constant?

Question 3:

Train Co. utilizes process costing for its main product, toy trains. Data relating to toy trains processed in Department 1, Moulding, during August are presented as follows:

* related to conversion costs

Materials are added at the beginning of the process in Department 1.

Costs in beginning work in process inventory were $250,000 of direct materials and conversion cost of $500,000. Costs added during the period were $390,000 for direct materials and conversion costs of $780,000.

The company uses the FIFO method of accounting for units.

Required:

a. Prepare a quantity schedule.
b. Compute the equivalent units for the period according to the FIFO method of accounting for units.
c. Calculate the cost per equivalent unit using the FIFO method. Round answer to two decimal places.

On November 15, 2020, a fire destroyed Youngstown Inc.’s warehouse where inventory is stored. It is estimated that $20,000 can be realized from sale of usable but damaged inventory. The accounting records concerning inventory reveal the following. Based on recent records, gross margin has averaged 35% of net sales.

a. Calculate the estimated loss of inventory using the gross profit method.
b. Assume instead that the markup is 35% of cost. Estimate the loss of inventory using the gross profit method.

• Do not round the gross profit percentage used in your calculations.
• Round your final answers below to the nearest dollar.

a. Estimated loss of inventory assuming a 35% markup on sales:

b. Estimated loss of inventory assuming a 35% markup on cost:

Pearce’s Cricket Farm issued a 20-year, 10% semiannual bond 2 years ago. The bond currently sells for 93% of its face value. The company’s tax rate is 35%.

Suppose the book value of the debt issue is $50 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 13 years left to maturity; the book value of this issue is $40 million and the bonds sell for 52% of par. Assume the par value of the bond is $1,000.

What is the company’s total book value of debt? (Enter the answer in dollars. Omit $ sign in your response.)

Total book value           $

What is the company’s total market value of debt? (Enter the answer in dollars. Omit $ sign in your response.)

Total market value           $

What is your best estimate of the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.)

Cost of debt             %

1. Consider the following information regarding Pink Tartan Inc.

Number of units produced                 1,000,000

Total fixed cost                                    $250,000

Per unit variable cost                          $0.32

Interest on outstanding debt              $400,000

Per unit selling price                           $3.80

1. Calculate the DOL, DFL, and DCL for Pink Tartan Inc. (4)
2. If the firm would like to double their EBIT, what percentage increase in sales would be needed? (3)
3. Pink Tartan Inc. has 1,000,000 shares outstanding currently selling in the market for $10. The firm is evaluating a new project that would require an initial investment of $2,400,000.

To raise the additional $2,400,000, the firm is considering two alternatives: (6)

1. Debt: sell $2,400,000 worth of bonds that would carry a 14% coupon rate.
2. Equity: sell $2,400,000 worth of new shares that would net the firm $16 per share.

What level of EBIT would yield the same EPS for the above alternatives? What EPS corresponds to this level of EBIT?

The Lucjia’s Café is a very popular restaurant in Skedattle Washingtoon. Below is an income statement for Lucjia’s Café the year ended December 31, 2011. Lucjia’s Café Income Statement For the year ended December 31, 2011 Revenues $2,098,400 Cost of Goods Sold, (all variable) 1,246,500 Gross Profit 851,900 Operating Expenses: Variable 222,380 Fixed 170,700 393,080 Administrative Expenses (all fixed) 451,500 Net Income $7,320 The average Dinner costs $40 each and the average lunch costs $20 each. Lucjia’s Café sells twice as many lunches as it does dinners. The variable cost, as a percentage of sales for both lunches and dinners is the same. Assume that Lucjia’s Café is open 305 days per year. For 2011, the current year, fixed operating expenses will increase by $41,215 and fixed Administrative Expenses will increase by $20,993. Required: a) Compute the number of Dinners and Lunches that Lucjia’s Café will have to sell per day in 2010 in order to break even.

Division A produces a product that it sells to the outside market. It has compiled the following:

1.

i)

Division B of the same company is currently buying an identical product from an outside provider for $45 per unit. It wishes to purchase 4000 units per year from Division A. Division A is currently selling 30000 units of the product per year. If the internal transfer is made, Division A will not incur any selling costs. What would be the minimum transfer price per unit that Division A would be willing to accept?

A)8

B) 9

c)45

d)47

ii)

The first step in the absorption-cost approach is to calculate the markup percentage used in setting the target selling price.

T/F ?

Jonesy, Inc. sold 150 High Quality DVD players in the amount of $225 each during 2014 (for cash). The DVD's have a cost basis of $175 to the company. Jonesy offers a free 2 year warranty on all DVD players. Historically, they have experienced an average warranty cost of 3% of the sales price. Jonesy uses the perpetual inventory method. A. Record the sale of the 150 DVD players. B. Record the Warranty Expense Adjusting Entry at the end of 2014. C. During 2015, 10 of the DVD players are returned due to a severe malfunction and had to replaced with an entirely new unit out of inventory. Record this entry. D.What is the total warranty expense that would have been recorded for 2014? E. What is the total warranty liability at the end of 2014? F. What is the total warranty expense that would have been recorded for 2015? G. What is the total warranty liability at the end of 2015? Comment on the company's estimated warranty percentage. Is it sufficient? How would you change it?

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $24.00 million. The plant and equipment will be depreciated over 10 years to a book value of $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.18 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.43 million per year and cost $2.27 million per year over the 10-year life of the project. Marketing estimates 13.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 35.00%. The WACC is 10.00%. Find the IRR (internal rate of return).

Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

Just wanted to know that I'm doing the process right. thanks