Bunnell Corporation is a manufacturer that uses job-order costing. On January 1, the company’s inventory balances were as follows:

The company applies overhead cost to jobs on the basis of direct labor-hours. For the current year, the company’s predetermined overhead rate of $12.75 per direct labor-hour was based on a cost formula that estimated $510,000 of total manufacturing overhead for an estimated activity level of 40,000 direct labor-hours. The following transactions were recorded for the year:

1. Raw materials were purchased on account, $654,000.
2. Raw materials use in production, $618,800. All of of the raw materials were used as direct materials.
3. The following costs were accrued for employee services: direct labor, $460,000; indirect labor, $150,000; selling and administrative salaries, $270,000.
4. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $417,000.
5. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $360,000.
6. Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year.
7. Jobs costing $1,539,250 to manufacture according to their job cost sheets were completed during the year.
8. Jobs were sold on account to customers during the year for a total of $3,172,500. The jobs cost $1,549,250 to manufacture according to their job cost sheets.

Required :

6. What is the journal entry to record the transfer of completed jobs that is referred to in item g above?

7. What is the ending balance in Work in Process?

8. What is the total amount of actual manufacturing overhead cost incurred during the year?

9. Is manufacturing overhead underapplied or overapplied for the year? By how much?

10. What is the cost of goods available for sale during the year?

Part A

Furniture Specialties is a company that make two types of dining tables: Simple and Futuristic. There are two types of direct materials: Pine and Mahogany woods. Direct manufacturing labour workers are hired on an hourly basis; no overtime is worked. In terms of manufacturing overhead costs, there are two manufacturing overhead cost pools and two cost drivers. The two manufacturing overhead cost pools are manufacturing operations overhead and machine setup overhead. The cost drivers for manufacturing overhead are: direct manufacturing labour-hours for manufacturing operations overhead cost and setup labour-hours for machine setup overhead cost. Nonmanufacturing costs consist of product design, marketing, and distribution costs.

The following data are available for the 2018 budget:

Required:

Based on the above information provided by the various department managers, prepare the following budgets:

C. Direct Material Usage Budget in quantity and dollars (6 points)

O&A Corporation, a merchandising company, reported the following results for September:

Number of units sold……………………..…. 7,400

Selling price per unit ………………….…...…339

Cost of goods sold ………………….....531,500

Total Variable selling expense ………..….. 99,900

Total fixed selling expense …………..…77,800

Total Variable administrative expense …... 44,400

Total fixed administrative expense ……..185,200

Questions: What is the total variable selling expense? (Contribution income statement format)

What is the total variable expense? (Contribution income statement format)

What is the contribution margin? (Contribution income statement format)

What is the gross margin? (Traditional income statement format)

What is the total administrative expense? (Traditional income statement format)

What is the net operating income? (Traditional income statement format)

The primary objective of a for-profit firm is to

a. maximize total revenue

b. maximize agency costs

c. minimize average cost

d. maximize shareholder value

If a firm's production process involves increasing returns to scale, what will happen to its average total cost if it increases all inputs proportionately (that is, by the same percentage)?

A firm’s technology is represented by f(x_1,x₂) = x₁x_2.. Derive the conditional input demands for input 1 and 2 and write down the total cost function.

Assume you are the CFO of a company. Your analyst reports the following information (Use the following information for the remainder of the question):

• Current exchange rate is $1.16/€.

• Forward rate is $1.175/€.

• Expected final sales volume is 35,000. Worst case scenario is volume of 15,000. Best case scenario is volume of 50,000.

• Cost per student is €2000.

• Option premium is 2% of USD strike price.

• Option strike price is $1.165/€.

1. Using the above information

a) What is the total projected costs (for all three scenarios) in dollars at the current exchange rate?

b) What are the total costs (for all three scenarios) if you use a forward contract to hedge?

c) What is the total option premium for each scenario?

2. As the CFO, you decided not to hedge. Assuming expected final sales volume is 35,000, what are your total costs

a) if the exchange rate remains at $1.16/€? Let’s call this the baseline scenario.

b) if the exchange rate will be $1.25/€? How does this compare to the baseline case?

c) if the exchange rate will be $1.11/€? How does this compare to the baseline case?

3. As the CFO, you decided to hedge using forward contracts. Assuming expected final sales volume is 35,000 and forward rate is $1.175/€. What are your total benefit/cost and the percentage benefit/cost from hedging (compared to no hedging)

a) if the exchange rate remains at $1.16/€?

b) if the exchange rate will be $1.25/€?

c) if the exchange rate will be $1.11/€?

4. As the CFO, you decided to hedge using option contracts. What type of option is suitable for this case (call option or put option)? Why?

5. As the CFO, you decided to hedge using option contracts. What are your total benefit/cost and the percentage benefit/cost from hedging (compared to no hedging)

a) if the exchange rate remains at $1.16/€?

b) if the exchange rate will be $1.25/€?

c) if the exchange rate will be $1.11/€?

6. What is the most profitable strategy for expected final sales volume is 35,000 and for the worst-case scenario volume of 15,000 (no hedge, forward contract, or option contract)

a) if the exchange rate remains at $1.16/€?

b) if the exchange rate will be $1.25/€?

c) if the exchange rate will be $1.11/€?

d) What is the overall best strategy? Why?

Elsinore Electronics is a decentralized organization that evaluates divisional management based on measures of divisional contribution margin. Home Audio (Home) Division and Mobile Electronics (Mobile) Division both sell electronic equipment, primarily for video and audio entertainment. Home focuses on home and personal equipment; Mobile focuses on components for automobile and other, nonresidential equipment. Home produces an audio player that it can sell to the outside market for $72 per unit. The outside market can absorb up to 90,000 units per year. These units require 3 direct labor-hours each.

If Home modifies the units with an additional hour of labor time, it can sell them to Mobile for $81 per unit. Mobile will accept up to 78,000 of these units per year.

If Mobile does not obtain 78,000 units from Home, it purchases them for $84 each from the outside. Mobile incurs $36 of additional labor and other out-of-pocket costs to convert the player into one that fits in the dashboard and integrates with the automobile’s audio system. The units can be sold to the outside market for $203 each.

Home estimates that its total costs are $1,080,000 for fixed costs, $14.40 per direct labor-hour, and $7.20 per audio player for materials and other variable costs besides direct labor. Its capacity is limited to 375,000 direct labor-hours per year.

Required:

Determine the following:

a. Total contribution margin to Home if it sells 90,000 units outside. (Do not round intermediate calculations.)

b. Total contribution margin to Home if it sells 78,000 units to Mobile. (Do not round intermediate calculations.)

(c) & (d). The costs to be considered in determining the optimal company policy for sales by Home.

The annual contributions and costs for Home and Mobile under the optimal policy.

Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $2 million, $7 million, $11 million, and $14 million. After the fourth year, free cash flow is projected to grow at a constant 7%. Brandtly's WACC is 16%, the market value of its debt and preferred stock totals $46 million; and it has 22 million shares of common stock outstanding. Write out your answers completely. For example, 13 million should be entered as 13,000,000.

What is the present value of the free cash flows projected during the next 4 years? Round your answer to the nearest cent. Do not round your intermediate calculations.

$

What is the firm's horizon, or continuing, value? Round your answer to the nearest cent. $ What is the firm's total value today? Round your answer to the nearest cent. Do not round your intermediate calculations.

$

What is an estimate of Brandtly's price per share? Round your answer to the nearest cent. Do not round your intermediate calculations.

$

The Roche Radius, defined to the orbital distance at which a satellite tidally torn apart by the parent body, is named after Edward Roche, who first derived it in 1848. Recall that his radius is given by:

d = r*( 2 * M/m )^(1/3)  

Where r is the radius of the satellite, m is the mass of the satellite, and M is the mass of the parent body.

(a) Recast this equation in terms of the density of the satellite (p_m), the density of the parent body (p_M), and the radius of the parent body (R). (Hint: you may assume that each body is well approximated by a sphere.)

(b) Let's consider the Saturn system, and apply this equation. Saturn's moon Pan orbits the planet at a distance 1.34 x 10⁵ km; inside of a gap in the rings! Calculate the ratio of Pan's orbital radius to its calculated Roche Radius (p_Pan = 0.42 g/cm² , p_Saturn = 0.687 g/cm² , R_Saturn = 58,000 km). Comment on whether this moon is safe from tidal disruption, or not.

(c) Using what you know about the Roche Radius, and the above example, calculate the radius of the moon required to create the rings of Saturn as seen today (assuming that it was just one moon, with the density of pan and near the present-day orbit of Pan). The total mass in Saturn's rings is approximately 3 x 10¹⁹ kg. (Hint for calculating Saturn's mass: 0.687 g/cm² = 687 kg/m² )