CBA’s production line of the Widget gadget has a fixed cost of $200,000 and the variable cost is $5 per unit.

a) If the company sells the first 10,000 units at a price of $20 and then sells all additional units at $15 per unit, what is the break-even point?

b) Suppose that the company is considering outsourcing this to FED company. If so, it will save the fixed and variable costs per unit. If the cost of outsourcing is $13 per unit, over what range would each of the production options (in-house and outsourcing) be preferred? Assume that the price per unit will remain the same whether it produces the product internally or outsources it.

c) Johndoe Company is interested in buying the Widget gadget from CBA. Johndoe Company is open to letting CBA manufacture them in-house or outsource them under certain conditions. Johndoe will only buy the outsourced if CBA reduces the selling price to $18 per unit. Also, if CBA does outsource this, Johndoe will only buy 8,000 units. On the other hand, if CBA produces the product internally, Johndoe will be willing to pay $20 per unit for all the products and Johndoe will buy 12,000 widgits. Economically, which option (produce internally or outsource) is better for CBA?   

Direct Labor and Direct Materials Variances, Journal Entries

Jameson Company produces paper towels. The company has established the following direct materials and direct labor standards for one case of paper towels:

During the first quarter of the year, Jameson produced 45,000 cases of paper towels. The company purchased and used 135,700 pounds of paper pulp at $0.38 per pound. Actual direct labor used was 91,000 hours at $12.10 per hour.

Required:

Instructions for parts 1 and 2: If a variance is zero, enter "0" and select "Not applicable" from the drop down box.

1. Calculate the direct materials price and usage variances.

2. Calculate the direct labor rate and efficiency variances.

3. Prepare the journal entries for (1) the direct materials price variance, (2) the direct materials usage variance, and (3) the direct labor variances. If an amount box does not require an entry, leave it blank or enter "0".

1. National Comapny issued 7.5% bonds, dated January 1, with a face amount of $600,000 on January 1, 2017. The bonds mature on December 31, 2023. The market yield for bonds of similar risk and maturity was 5.5%. Interest is made semiannually on June 30 and December 31.

Required:

a. Determine the price of the bonds at January 1, 2017 (be certain to include all of the "given" information)

b. Prepare a bond amortization table using the effective interest method and make certain to obtain totals for the columns of Cash Interest Paid, Interest Expense, and Premium Amortization

c. Prepare the journal entry to record their issuance by National Company on January 1, 2017.

d. Prepare the journal entry recordin gthe first interest payment on June 30, 2017.

e. Prepare the journal entry recording the interest payment on December 31, 2017.

f. Prepare journal entries at maturity on December 31, 2023.

g. Prepare the journal entry to record the retirement of the bond at a call price of $640,000 on January 1, 2020.

h. Instead of retirement of the bond as described in "g" above, assume the bond was retired @108 call price on January 1, 2020.

ABC’s production line of the Widget gadget has a fixed cost of $200,000 and the variable cost is $5 per unit.

a) If the company sells the first 9,000 units at a price of $20 and then sells all additional units at $17 per unit, what is the break-even point?        

b) Suppose that the company is considering outsourcing this to DEF company. If so, it will save the fixed and variable costs per unit. If the cost of outsourcing is $12 per unit, over what range would each of the production options (in-house and outsourcing) be preferred? Assume that the price per unit will remain the same whether it produces the product internally or outsources it.

c) Johndoe Company is interested in buying the Widget gadget from ABC. Johndoe Company is open to letting ABC manufacture them in-house or outsource them under certain conditions. Johndoe will only buy the outsourced if ABC reduces the selling price to $18 per unit. Also, if ABC does outsource this, Johndoe will only buy 8,000 units. On the other hand, if ABC produces the product internally, Johndoe will be willing to pay $20 per unit for all the products and Johndoe will buy 12,000 widgits. Economically, which option (produce internally or outsource) is better for ABC?   

KellyKelly

Fabrics manufactures a specialty monogrammed blanket. The following are the cost standards for this​ blanket:

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​(Click the icon to view the​ standards.)Actual results from last​ month's production of

2 comma 1002,100

blankets are as​ follows:

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​(Click the icon to view the actual​ results.)Read the requirements

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.

Requirement 1.  What is the standard direct material cost for one​ blanket? ​(Round your answer to the nearest​ cent.)

Requirement 2. What is the actual cost per yard of fabric​ purchased? ​(Round your answer to the nearest​ cent.)

Requirement 3. Calculate the direct material price and quantity variances. ​(Enter the variances as positive numbers. Enter currency amounts in the formula to the nearest cent and then round the final variance amounts to the nearest whole dollar. Label the variance as favorable​ (F) or unfavorable​ (U). Abbreviations​ used: DM​= Direct​ materials)

First determine the formula for the price​ variance, then compute the price variance for direct materials.

Determine the formula for the quantity​ variance, then compute the quantity variance for direct materials.

Requirement 4. What is the standard direct labor cost for one​ blanket? ​(Round your answer to the nearest​ cent.)

Requirement 5. What is the actual direct labor cost per​ hour? ​(Round your answer to the nearest​ cent.)

Requirement 6. Calculate the direct labor​ (DL) rate and efficiency variances. ​(Enter the variances as positive numbers. Enter the currency amounts in the formulas to the nearest​ cent, then round the final variance amounts to the nearest whole dollar. Label the variance as favorable​ (F) or unfavorable​ (U). Abbreviations​ used: DL​ = Direct​ labor)

​First, determine the formula for the rate​ variance, then compute the rate variance for direct labor.

​First, determine the formula for the efficiency​ variance, then compute the efficiency variance for direct labor.

Requirement 7. Analyze each variance and speculate as to what may have caused that variance.

The

▼

favorable

unfavorable

DM price variance and

▼

favorable

unfavorable

DM quantity variance may have been caused by

▼

purchasing inferior raw materials

purchasing superior quality raw materials

. The

▼

cheaper materials that are of a lesser quality

more expensive materials that are of a higher quality

cause

▼

less

more

waste.The

▼

favorable

unfavorable

DL rate variance and

▼

favorable

unfavorable

DL efficiency variance may have been caused by

▼

utilizing a more-skilled workforce

utilizing a less-skilled workforce

. The

▼

higher

less

skilled workers command a

▼

higher

lower

​wage, however,

▼

do not work as quickly as a more experienced workforce

work more efficiently than a less experienced workforce

.

Requirement 8. Look at all four variances together​ (the big​ picture). How might they all be​ related? What variance is very likely to have caused the other​ variances?

One possible cause of all four variances is

▼

the initial purchase of inferior raw materials

the initial purchase of superior raw materials

. This would create

▼

a favorable DM price variance while creating more waste

a favorable DL price variance

an unfavorable DL price variance

an unfavorable DM price variance while reducing waste

leading to

▼

a favorable quantity variance

an unfavorable quantity variance

. Because

▼

a higher skilled

a lower skilled

workforce was​ used, the DL rate variance was

▼

favorable

unfavorable

​, ​however, given a

▼

higher quality material and a more-skilled workforce, less

lower quality material and a less-skilled workforce, more

labor hours were​ required, creating

▼

a favorable

an unfavorable

DL efficiency variance.

Actual cost of 11,550 yards of direct material (fabric) purchased. . . . .

$107,415

Actual yards of direct material (fabric) used. . . . . . . . . . . . . . . . . . . . . .

10,850

Actual wages for 3,270 hours worked. . . . . . . . . . . . . . . . . . . . . . . . . .

$53,628

Coffee Bean Inc. (CBI) processes and distributes a variety of coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 15 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor.

Some of the coffees are very popular and sell in large volumes; a few of the newer brands have very low volumes. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices for certain coffees are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well.

Data for the current budget include factory overhead of $2,500,000, which has been allocated on the basis of each product’s direct labor cost. The budgeted direct labor cost for the current year totals $595,000. The firm budgeted $5,500,000 for purchase and use of direct materials (mostly coffee beans).

The budgeted direct costs for 1-pound bags of two of the company’s many products are as follows:

CBI’s controller, Mona Clin, believes that its current product costing system could be providing misleading cost information. She has developed this analysis of the current year’s budgeted factory overhead costs:

Data regarding the current year’s production of just two of its lines, Mona Loa and Malaysian, follow. There is no beginning or ending direct materials inventory for either of these coffees.

Using Coffee Bean Inc.’s current product costing system, determine the full product costs and selling prices of one pound of Mona Loa coffee and one pound of Malaysian coffee. (Round your answers to 2 decimal places.)

Using an activity-based costing approach, develop a new product cost for 1 pound of Mona Loa coffee and 1 pound of Malaysian coffee. Allocate all overhead costs to the 100,500 pounds of Mona Loa and the 1,950 pounds of Malaysian. (Round intermediate calculations to 2 decimal places.)

Longstreet Communications Inc. (LCI) has the following capital structure, which it WACC

considers to be optimal: debt = 25% (LCI has only long-term debt), preferred stock = 15%, and

common stock = 60%. LCI’s tax rate is 40%, and investors expect earnings and dividends to

grow at a constant rate of 6% in the future. LCI paid a dividend of $3.70 per share last year

(D0), and its stock currently sells at a price of $60 per share. Ten-year Treasury bonds yield 6%,

the market risk premium is 5%, and LCI’s beta is 1.3. The following terms would apply to new

security offerings. Preferred: New preferred stock could be sold to the public at a price of $100

per share, with a dividend of $9. Flotation costs of $5 per share would be incurred. Debt: Debt

could be sold at an interest rate of 9%. Common: New common equity will be raised only by

retaining earnings.

a. Find the component costs of debt, preferred stock, and common stock. For

common stock show using both DCF (DDM) and CAPM.

b. What is the WACC?

Consider the following information for Global Warning Corp. (GW) and Hurricane Epsilon Industrial Complex (HEPIC).

Global Warning has a current price of $55, a US beta of 1.1 and a dividend yield of 5%. HEPIC has a price of $40, a US beta of 0.76 and a dividend yield of 6%. Both Global Warning and Hurricane Epsilon are expected to experience dividend growth rates of 2% and 4% respectively in perpetuity (i.e., forever). Assume both Global Warning and HEPIC are 100% equity financed.

In addition you know that the S&P 500 index is at 22000, the yield on the 3-month Treasury bill is 2% and the equity risk premium is 8%.

Julie is the portfolio manager at know better plc. She wants to estimate the interest rate risk of assets of the company consisting of 1 million shares of Bond A, 2 million shares of Bond B, and 2 million shares of Bond C. The duration of Bond A is 5.59, a valuation model found that if interest rates decline by 30 basis points, the value of Bond A will increase to 83.5 pounds, and if interest rates increase by 30 basis points, the value of Bond to A will decline to 80.75 pounds. The same valuation model also found that if interest rates decreases by 50 basis points, the value of Bond B increases to 104.6 pounds, and if interest rates increases by 50 basis points, the value of Bond B decreases to 96.4 pounds, and the current value of Bond B is 100 pounds. Kirstin also knows from the valuation model that, by using the duration and convexity rule, if interest rates decline by 1%, the price of bond C increases approximately by 8.46 pounds, and if interest rates increase by 3%, the price of Bond C decreases approximately by12.77 pounds. The convexity of Bond C is 300. a ) What is current value of the bond portfolio?