After reading this chapter, it isn’t surprising that you’re becoming an investment wizard. With your newfound expertise, you purchase 100 shares of KSU Corporation for $37 per share. Assume the price goes up to $45 per share over the next 12 months and you receive a qualified dividend of $0.50 per share. What would be your total return on your KSU Corporation investment? Assuming you continue to hold the stock, calculate your after-tax return. How is your realized after-tax return different if you sell the stock? In both cases, assume you are in the 25 percent federal marginal tax bracket and 15 percent long-term capital gains and qualified dividends tax bracket and there is no state income tax on investment income.

a.  A bond that has a ​$1 comma 000 par value​ (face value) and a contract or coupon interest rate of 10.5 percent. Interest payments are ​$52.50 and are paid semiannually. The bonds have a current market value of ​$1 comma 122 and will mature in 10 years. The​ firm's marginal tax rate is 34 percet.

b.  A new common stock issue that paid a ​$1.83 dividend last year. The​ firm's dividends are expected to continue to grow at 7.4 percent per​ year, forever. The price of the​ firm's common stock is now ​$27.35.

c.  A preferred stock that sells for ​$122​, pays a dividend of 8.1 ​percent, and has a​ $100 par value.  

d.  A bond selling to yield 11.7 percent where the​ firm's tax rate is 34 percent.

Crown Co. can produce two types of lamps, the Enlightner and Foglighter. The data on the two lamp models are as follows:

It takes one machine hour to produce each product. Total fixed costs for the manufacture of both products are $125,000. Demand is high enough for either product to keep the plant operating at maximum capacity.

Assuming that sales mix in terms of dollars remains constant, what is the breakeven point in dollars? (Round intermediate calculations to 4 decimal places and final answer up to the nearest whole number.)

Multiple Choice

• $383,459.

• $213,089.

• $401,237.

• $339,489.

• $1,040,391.

Crown Co. can produce two types of lamps, the Enlightner and Foglighter. The data on the two lamp models are as follows:

It takes one machine hour to produce each product. Total fixed costs for the manufacture of both products are $90,000. Demand is high enough for either product to keep the plant operating at maximum capacity.

Assuming that sales mix in terms of dollars remains constant, what is the breakeven point in dollars? (Round intermediate calculations to 4 decimal places and final answer up to the nearest whole number.)

Multiple Choice

• $306,513.

• $118,365.

• $288,735.

• $945,667.

• $244,765.

Brighton Services repairs locomotive engines. It employs 100 full-time workers at $21 per hour. Despite operating at capacity, last year's performance was a great disappointment to the managers. In total, 10 jobs were accepted and completed, incurring the following total costs.

Of the $1,000,000 manufacturing overhead, 30 percent was variable overhead and 70 percent was fixed.

This year, Brighton Services expects to operate at the same activity level as last year, and overhead costs and the wage rate are not expected to change. For the first quarter of this year, Brighton Services completed two jobs and was beginning the third (Job 103). The costs incurred follow.

You are a consultant associated with Lodi Consultants, which Brighton Services has asked for help. Lodi's senior partner has examined Brighton Services's accounts and has decided to divide actual factory overhead by job into fixed and variable portions as follows.

In the first quarter of this year, 30 percent of marketing and administrative cost was variable and 70 percent was fixed. You are told that Jobs 101 and 102 were sold for $920,000 and $572,000, respectively. All over- or underapplied overhead for the quarter is written off to Cost of Goods Sold.

Required:

a. Present in T-accounts the actual manufacturing cost flows for the three jobs in the first quarter of this year.

b. Using last year's overhead costs and direct labor-hours as this year's estimate, calculate predetermined overhead rates per direct labor-hour for variable and fixed overhead.

c. Present in T-accounts the normal manufacturing cost flows for the three jobs in the first quarter of this year. Use the overhead rates derived in requirement (b).

d. Calculate operating profit (loss) for the first quarter of this year under actual and normal costing systems.

Brighton Services repairs locomotive engines. It employs 100 full-time workers at $22 per hour. Despite operating at capacity, last year's performance was a great disappointment to the managers. In total, 10 jobs were accepted and completed, incurring the following total costs.

Of the $1,020,000 manufacturing overhead, 40 percent was variable overhead and 60 percent was fixed.

This year, Brighton Services expects to operate at the same activity level as last year, and overhead costs and the wage rate are not expected to change. For the first quarter of this year, Brighton Services completed two jobs and was beginning the third (Job 103). The costs incurred follow.

You are a consultant associated with Lodi Consultants, which Brighton Services has asked for help. Lodi's senior partner has examined Brighton Services's accounts and has decided to divide actual factory overhead by job into fixed and variable portions as follows.

In the first quarter of this year, 30 percent of marketing and administrative cost was variable and 70 percent was fixed. You are told that Jobs 101 and 102 were sold for $874,000 and $580,000, respectively. All over- or underapplied overhead for the quarter is written off to Cost of Goods Sold.

Required:

a. Present in T-accounts the actual manufacturing cost flows for the three jobs in the first quarter of this year.

b. Using last year's overhead costs and direct labor-hours as this year's estimate, calculate predetermined overhead rates per direct labor-hour for variable and fixed overhead.

c. Present in T-accounts the normal manufacturing cost flows for the three jobs in the first quarter of this year. Use the overhead rates derived in requirement (b).

d. Calculate operating profit (loss) for the first quarter of this year under actual and normal costing systems.

Country A can build 250 tractors and 50 ships if it splits time evenly during a year.

Country B can build 100 tractors and 100 ships if it splits time evenly during the same year.

1. If the term of trade 1ship = 2 tractors, country A wants to have 100 ships how many tractors will it have at the end of the year if it spends 100% of the time to build tractors? Show calculation. (10 points)

A firm has a production function of Q = KL + L, where MPL = K + 1 and MPK = L. The wage rate (W) is $100 per worker and the rental (R) is $100 per unit of capital.

a. In the short run, capital (K) is fixed at 4 and the firm produces 100 units of output. What is the firm's total cost?

b. In the long run, what is the total cost of producing 100 units of output?

1. Determine the following information using absorption costing and variable costing:
Absorption costing
a. Manufacturing cost _______________
b. Per-unit cost _______________
c. Cost of ending inventory _______________

Variable costing
a. Manufacturing cost _______________
b. Per-unit cost _______________
c. Cost of ending inventory _______________

Basic facts:
Direct materials $1,000
Direct labor $2,000
Variable overhead $1,500
Fixed overhead $1,000
Units produced 100
Units sold 80

No beginning inventory

2. What is the prime cost per unit and conversion cost per unit:
a. Prime cost _______________
b. Conversion cost _______________

Basic facts:
Direct material $1,000
Direct labor $500
Overhead $200
Units produced 50

3. Determine the breakeven point for both total sales and units:
a. Sales _______________
b. Units _______________

Basic facts:

Fixed overhead $20,000
Contribution margin 20%
Price per unit $10

4. Calculate the contribution margin to demonstrate the impact of changes in higher leverage and lower leverage product changes:

a. Higher leverage contribution margin
- Lower sales volume _______________
- Higher sales volume _______________

b. Lower leverage contribution margin
- Lower sales volume _______________
- Higher sales volume _______________

Basic facts:
Higher leverage
- Sales $200 and $400
- Variable expense 25%
- Fixed expenses $40

Lower leverage
- Sales $200 and $400
- Variable expense 50%
- Fixed expenses $40

5. Determine the change in contribution margin as a result of a change in sales mix for the following:
a. Base case _______________
b. Favorable mix change ______________
c. Unfavorable mix change _______________

Basic facts:
- Sales price per unit in all three cases $10
- Contribution margin: Product A 20%, Product B 30%, Product C 40% and Product D 50%
- Sales units for base case 25 units for all four products
- Sales units for favorable mix change: Product A 10 units, Product B 20 units, Product C 30 units and Product D 40 units
- Sales units for unfavorable mix change: Product A 40 units, Product B 30 units, Product C 20 units and Product D 10 units

6. Determine cost of goods sold: _______________

Basic facts:
Beginning finished goods inventory $3,000
Ending finished goods inventory $6,000
Direct material $15,000
Direct labor $10,000
Overhead $5,000

7. What is the contribution margin % and gross margin %:
Contribution margin % _____________
Gross margin % ______________

Basis facts:
Sales $80
Direct material $28
Direct labor $12
Overhead $10 indirect and $10 direct
SG&A expense $12 indirect $4 direct

8. Determine the cost and cash impact of keeping or replacing Machine X:
Keep
Cost _____________
Cash ______________

Replace
Cost ____________
Cash _____________

Basic facts:
- Original purchase price for Machine X = $20,000
- Machine X has a 10 year life and straight line depreciation, or $2,000 depreciation per year
- Book value after year 6: $20,000-$12,000=$8,000
- Loss on disposal of machine X $3,000
- Replacement machine: $16,000 acquisition cost
Annual cash operating cost: Machine X $40,000 and Replacement Machine $24,000

9. What is the purchase price variance and material usage variance:
Purchase price variance ______________
Material usage variance ______________

Basic facts:
- 100 pounds
- Standard price $2.00 per pound
- Actual price $1.75 per pound
- Cost $2.00 per pound
- Standard usage 500 pounds
- Actual usage 575 pounds

10. What is the labor rate variance and labor efficiency variance:
Labor rate variance ______________
Labor efficiency variance ______________

Basic facts:
- Standard hours 175
- Actual hours 200
- Standard labor rate $20 per hour
- Actual labor rate $15 per hour

11. What is the spending variance: _______________

Basic facts:
Budgeted expenditures $30,000
Actual expenditures $35,000

12. What is the under applied overhead absorption variance: _______________

Basic data:
Standard units 500
Actual units 400
Standard overhead per unit $10

13. Calculate days DSO, DIOH and DPO on hand based on the following information:
DSO _______________
DIOH _______________
DPO _______________

Basic facts – annual (first year of operation):
- Sales $365,000
- Accounts receivable at year end $60,000
- Cost of sales $182,500
- Inventory at year end $25,000
- Accounts payable at year end $22,500

14. What is the cash conversion cycle based on the data in question 13: _______________

15. If you add 5 days to the DSO, DIOH, and DPO based on the data in question 13 and the standard CCC is as calculated in question 13 what is the CCC $ variance: ______________

16. Name three key success factors related to management control systems and responsibility:
_______________
_______________

_______________

17. Goal congruence is achieved when _____________, working in their own perceived best interest, make decisions that help meet the overall goals of the organization.

18. What are the three types of responsibility centers:
_______________
_______________

_______________

19. How many organizations have implemented ISO 9001 and in how many countries:
Organizations ______________

Countries _______________

20. Delegation of freedom to make decisions is called: _____________

21. In a decentralized organization first-level managers generally have the best information concerning local conditions:
True _______________

False ______________

22. For decentralization to work, autonomy is not necessary:
True ________________
False ________________

23. The most common profitability measures include:
_____________
_____________

_____________

_____________

24. What is the formula for EVA: ____________________________

25. The price that one segment charges another segment of the same organization for a product or service is known as a: _________________

26. What is the formula for a transfer price: __________________________

27. What are two attributes of capital assets:
_______________
_______________

28. CIP is reduced in value when an asset is: ______________

29. When does a depreciation charge start for a fixed asset: ______________

30. What is the benefit of accelerated depreciation: _______________

31. What is the objective of discounted-cash-flow models: ______________

32. What is the net present value: _____________

Basic facts:
- Original investment $10,000
- Useful life 4 years
- Annual income generated from investment (cash inflow) $2,500
- Minimum desired rate of return 10%

- NPV factor by year: 1 .9091, 2 .8264, 3 .7513, and 4 .6830

33. IRR determines the discount rate at which the NPV equals: _______________
_______________

34. Sensitivity analysis shows the __________________________ that would occur if financial projections differ from those expected.

35. What are the three types of cash flows that should be considered when relevant cash flows are arrayed:
_______________
_______________
_______________

36. Cost of capital is the Company’s: _______________________________

37. What is the Company’s cost of capital: ______________

Basic facts:
- Expected equity return 12%
- Cost of debt 6%
- Company’s capital structure 60% equity and 40% debt

38. What is the payback period: _____________

Basic facts:
- $25,000 capital expenditure
- $10,000 annual cash saving or generation

39. What are the four types of typical cost objectives:
_______________
_______________
_______________
_______________

40. What are two popular methods for allocating service costs:
_______________
_______________

41. When are by-product cost identified: ________________

42. How is overhead (based on machine hours) applied to a particular product: ____________________________

43. What is the applied overhead: ____________

Basic facts:
- 100 direct labor hours
- Overhead rate per direct labor hour $5.00

44. _______________ costing includes fixed overhead in the cost of products.

45. _______________ costing excludes fixed overhead from the cost of products.

46. Which of the two costing methods in questions 43 and 44 is based on GAAP requirements: _______________

47. Process costing is used when large numbers of nearly: ____________________________

48. Job-order costing allocates costs to products that are identified by individual: _______________________________

49. Service industries typically use process costing:
True _______________
False _______________

50. Organizations using JIT production systems usually have large inventories:
True _______________
False _______________