All questions must be answered in details

ELASTICITY

1. Suppose that Bill’s Thrift Mart annual Founder’s Day sale, when all prices in the store are reduced by 50%, results in its sales doubling compared to a typical day. (a) What is Thrift Mart’s price elasticity of demand? (b) Is the Founder’s Day sale a good idea for the store?

2. List three examples of an inferior good (not discussed in class or in the text). Justify your choice of examples.

3. How responsive are your grades to a change in the amount of studying you do? For example, if you increased your study time by 25%, how would your grades respond? State these estimates as elasticities. Are your estimates high or low? Would it be worth your while to study more for each class? Explain.

4. Jumping Joe’s Night Club has found that when they offer half price admission to the club on Wednesday nights (when business is typically slow), their total revenue rises. (a) Is their demand elastic? Explain. (b) Is it a good idea for them to continue with this promotion? Why?

5. Absolut Vodka ran the same advertising campaign for about 20 or 30 years. What must the company have believed to be its advertising elasticity of demand? Explain.

7. The elasticity of demand for Dave’s Famous is Pizza is 2.6. Dave is considering raising pizza prices by 20%. Is this a good idea? What will happen to his sales? His total revenue? Explain.

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 62 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

For example, administrative expenses should be $3,500 per month plus $44 per course plus $3 per student. The company’s sales should average $890 per student.

The company planned to run four courses with a total of 62 students; however, it actually ran four courses with a total of only 58 students. The actual operating results for September appear below:

Required:

Prepare a flexible budget performance report that shows both revenue and spending variances and activity variances for September. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Ciena & Associates

The following customer segmented quarterly income statement is for Ciena and

Associates, a firm that performs legal services

Customers                       Koontz                             Davis                   Nello                   Total

Sales revenue                  $150,000                        $750,000              $100,000          $1,000,000

Variable costs                 125,000                           600,000               80,000                805,000

Contribution margin       $ 25,000                          $150,000              $ 20,000            $ 195,000

Direct fixed costs            7,500                                  157,500               5,000                  170,000

Allocated fixed costs      3,000                                15,000               2,000                 20,000

Profit (loss)                      $ 14,500                          $ (22,500)              $ 13,000            $ 5,000

Management is concerned about the significant losses associated with the Davis

account and would like to drop this customer. Allocated fixed costs are assigned to

customers based on sales revenue.

If Davis is dropped, total allocated fixed costs are assigned to the remaining

customers, and all variable and direct fixed costs for the Davis account will be

eliminated.

Required

a. Perform differential analysis. Assume keeping all customers is Alternative

1, and dropping the Davis account is Alternative 2.

b. Which alternative is best? Explain.

c. Summarize the result of dropping the Davis account.

d. Explain what happened to the profitability of the other two customers as a

result of dropping the Davis account.

e. Assume all the facts of this problem remain the same with one exception. As

a result of dropping the Davis account, Ciena and Associates is only able to

reduce the direct fixed costs associated with the Davis account by 90 percent.

The remaining 10 percent will not be eliminated for several more years. Does

this change Ciena's decision as to whether to drop the Davis customer?

Black Manufacturing Inc. produces control valves used in the production of oil field equipment. The control valves are sold to various gas and oil engineering companies throughout the United States. Projected sales in units for the coming year are as follows:

The following data pertain to production policies and manufacturing specifications followed by Black:

1. Revenue collections are estimated to be 30% in the month of the sale, 60% in the month following the sale, 10% in the second month after the sale.
2. The desired ending inventory for each month is 70% of the next month’s sales. Finished goods beginning inventory is consistent with this policy.
3. The data on materials used are as follows:

Inventory policy dictates that sufficient materials be on hand at the beginning of the month to produce 50% of the next month’s estimated production. Raw materials inventory is consistent with this policy.

1. The direct labor used per unit of output is two hours at an expected cost of $15.00 per hour.
2. The unit selling price is $90.00 per valve.

REQUIRED:  Prepare a monthly operating budget for the May with the following schedules:

1. Revenue Budget, including Collections, and Accounts Receivable
2. Production Budget
3. Direct Materials Purchases Budget
4. Direct Labor Budget

Problem II Multiple-step income statement--Perpetual Inventory --Presented below is information related to Katie Company for the year 2015. Note that all the accounts may not be needed.   All numbers are pretax. (20 Points)

Administrative Expenses …………………………………………     400,000         C/S Shares Issued          120,000

Unrealized loss on Available for Sale Securities………                          60,000     Treasury Shs                20,000

Interest Revenue …………………………………………………     150,000           Shares Outstanding       100,000

Realized Loss on Sale of Delivery Equipment ………………      150,000

Discontinued Operations………………..…………………..…            400,000

Sales     …………………………………………………………… 4,650,000

Selling Expenses ……………………….…………………………     300,000

Allowance for Doubtful Accounts ………………………………..       50,000

Cash Dividends Declared and Paid on Common Stock ………….    200,000

Cash Dividends Declared and Not Paid on Preferred Stock …….      100,000

Loss resulting from Computation Error in Previous ………….…     200,000

Unearned Revenue………………………………………………..            75,000

Cost of Goods Sold ……………………………………………… 2,6 00,000

Sales Returns and Allowance …………………………………….      50,000

Beginning Balance—Retained Earnings ……………………….    2,000,000

Beginning Balance— Accumulative Other Comprehensive Inc…      150,000  

Other Information:   Assume a 30% tax rate. Answer the following questions. If possible, please show all work.

1. Net Sale -----------------------------------------------------------------     $__________________

2. Income From Operations--------------------------------------------   $__________________

3. Total Gains and Losses    -------------------------------------------- $__________________

Taxes ---------------------------------------------------------------------    $__________________

income from continuing operations before ?                               $__________________    EPS__________

?__________________________________________________           $__________________      EPS__________

Net Income ---------------------------------------------------------------    $__________________      EPS__________

For questions 7 to 9, assume Net Income is $800,000

8.Total Comprehensive Income --------------------------------------- $__________________

9.Ending Balance for Accumulative Comprehensive Income ------     $__________________

10.Beginning Retained Earnings …………………………………………      $3,000,000

+ or –

= Ending Retained Earnings ……………………………………….   $__________________

TipTop Flight School offers flying lessons at a small municipal airport. The school’s owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. A recent variance report appears below:

After several months of using such variance reports, the owner has become frustrated. For example, she is quite confident that instructor wages were very tightly controlled in July, but the report shows an unfavorable variance.

The planning budget was developed using the following formulas, where q is the number of lessons sold:

  
Required:

2. Complete the flexible budget performance report for the school for July.

On January 1, 2021, Cullumber Company, a public company, purchased 30% of the common shares of Triple Titanium Inc. for $500,000. The remaining shares (70%) are held by the family members of the company’s founder. Cullumber considers this a strategic investment and a critical step into developing consumer markets. Triple Titanium is currently a supplier to Cullumber. Cullumber placed two members on the 10-person board of directors of Triple Titanium and the two members believe they have been influential on the board through the year. Cullumber and Triple Titanium both have December 31 year ends.

During 2021, Triple Titanium reported profit of $230,000 and paid total dividends of $85,000.

1)

Prepare the following journal entries for Cullumber, assuming significant influence does exist. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

2)

During 2022, Triple Titanium reports profit of $220,000 and pays total dividends of $70,000.

Prepare the required journal entries related to these transactions on Cullumber’s books. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

3)

Determine the balance in the investment account on December 31, 2021, and December 31, 2022.

4) Show how the investment account and related revenue accounts would be reported on the financial statements for December 31, 2021.

For 20Y2, Macklin Inc. reported a significant decrease in net income. At the end of the year, John Mayer, the president, is presented with the following condensed comparative income statement:

Required:

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Use the minus sign to indicate a decrease in the "Increase/(Decrease)" columns. If required, round percentages to one decimal place.