1. The following costs result from the production and sale of 4,450 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $295 each. The company has a 30% income tax rate.

a. Prepare a contribution margin income statement for the company.

b. Compute its contribution margin per unit and its contribution margin ratio.

2. Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $350 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $315,000, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $245 per 100 yards of XT rope.

a. Estimate Product XT’s break-even point in terms of sales units and sales dollars. (1 unit = 100 yards) (Do not round intermediate calculations.) 2.

b. Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.

Abbott Lamp Corporation manufactures Mountain Dew Lamps.   Abbott Lamp Corporation has the following historical cost behavior data:

Other 2018 estimated information is as follows:

Rent on production facility                 $100

Factory supervisor salary                    $100

Depreciation on factory equipment    $200

Rent on corporate headquarters          $300

Corporate HQ salaries                         $1,000

Total                                                    $1,700

Abbott Lamp also estimates the following with regard to direct materials and direct labor:

Direct Materials:

1 mountain can/mountain dew lamp @ $2/mountain dew can;

.25 pieces of paper/mountain dew lamp @$4/piece of paper;

Direct Labor

.2 dlh/mountain dew lamp @ $10/dlh

1. Estimate the VARIABLE predetermined overhead rate using the high-low method. Using the high-low method, what does the y-intercept ‘mean’ in this case? Please answer number 2 question below and confirm calculation for Question 1 is correct.

   Variable predetermined overhead rate:    ($1950-$700)/(350dlh-100dlh)
   				$1250/250=$5.00dlh
   				$1950-($5.00dlh)*(350dlh)
   				$1950-$1750= $200
   Now, this predicts that for every dlh we incur, utilities will increase by $5.00.

2. Using your answer from 1 above (using BOTH the VPDOH and the y-intercept), compute the breakeven point in terms of total # of mountain dew lamps that need to be sold to break even. Assume that the price per Mountain Dew Lamp is $20/mountain dew lamp and that capacity is NOT an issue.

Thermal properties

A bar has an initial length of 100 mm at room temperature of 27oC. The tensile test indicates that the bar yields when it reaches is the stress level of 145 MPa and the strain value of 2.071 x 10-3. The bar is later placed in an oven and heated from room temperature to 100 oC. The linear coefficient of thermal expansion of the material is 23 x 10-6 oC-1 at 27oC, and 34 x 10-6 oC-1 at 527oC. Determine:

a. What is the linear coefficient of thermal expansion at 100 oC?

b. What is the length of the bar in millimeter at 100 oC?

c. Does the heating from room temperature to 100 oC the cause the bar to yield

The Howland Carpet Company has grown rapidly during the past 5 years. Recently, its commercial bank urged the company to consider increasing its permanent financing. Its bank loan under a line of credit has risen to $200,000, carrying a 8% interest rate. Howland has been 30 to 60 days late in paying trade creditors.

Discussions with an investment banker have resulted in the decision to raise $400,000 at this time. Investment bankers have assured the firm that the following alternatives are feasible (flotation costs will be ignored).

• Alternative 1: Sell common stock at $8.
• Alternative 2: Sell convertible bonds at a 8% coupon, convertible into 100 shares of common stock for each $1,000 bond (i.e., the conversion price is $10 per share).
• Alternative 3: Sell debentures at a 8% coupon, each $1,000 bond carrying 100 warrants to buy common stock at $10.

John L. Howland, the president, owns 80% of the common stock and wishes to maintain control of the company. There are 100,000 shares outstanding. The following are extracts of Howland's latest financial statements:

1. Show the new balance sheet under each alternative. For Alternatives 2 and 3, show the balance sheet after conversion of the bonds or exercise of the warrants. Assume that half of the funds raised will be used to pay off the bank loan and half to increase total assets.
2. Show Mr. Howland's control position under each alternative, assuming that he does not purchase additional shares. Round your answers to the nearest whole number, if necessary.
3. What is the effect on earnings per share of each alternative, assuming that profits before interest and taxes will be 20% of total assets? Round your answers to the nearest cent.
4. What will be the debt ratio (TL/TA) under each alternative? Round your answers to the nearest whole number, if necessary.

Hefty Inc. produces plastic storage containers. The company makes two sizes of containers: regular (55 gallon) and large (100 gallon). The company uses the same machinery to produce both sizes. The machinery can be run for only 2,500 hours per month. Hefty can produce 20 regular containers every hour, whereas it can only produce 8 large containers in the same amount of time. Fixed costs amount to $1,000,000 per month. Sales prices, variable costs, and monthly demand are as follows:

Total investment                                  $150,000,000

Required rate of return                                  10% per year

Consider each of the following INDEPENDENT scenarios:

1. To maximize profits, how many of each size container should Hefty produce per month? Prepare an income statement with this level of sales. What other strategies might Hefty consider (answer this question on the conclusion tab).
2. Assume the company makes only the regular product. Hefty is a price taker. The market price for the regular container recently dropped to $100 per container as there is a new low-cost online market entrant. Hefty needs to earn the necessary income to satisfy its financial stakeholders. How much does Hefty need to reduce costs to satisfy its required rate of return?

3. Hefty Inc. is deciding whether to outsource the production of a type of glue that is included in its containers. Hefty currently makes 10,000 bottles of glue with a variable cost of $.90 per bottle. If Hefty Inc. outsources, it can buy the glue ready-made for $1.20 per bottle and can shut down the production facilities it is currently using to manufacture the glue, which cost $12,000 per year. What is the effect of outsourcing? What other factors should Hefty consider?

1. The conclusion should be formatted as follows:

The Howland Carpet Company has grown rapidly during the past 5 years. Recently, its commercial bank urged the company to consider increasing its permanent financing. Its bank loan under a line of credit has risen to $250,000, carrying an 8% interest rate. Howland has been 30 to 60 days late in paying trade creditors. Discussions with an investment banker have resulted in the decision to raise $500,000 at this time. Investment bankers have assured the firm that the following alternatives are feasible (flotation costs will be ignored).

● Alternative 1: Sell common stock at $8.

● Alternative 2: Sell convertible bonds at an 8% coupon, convertible into 100 shares of common stock for each $1,000 bond (i.e., the conversion price is $10 per share).

● Alternative 3: Sell debentures at an 8% coupon, each $1,000 bond carrying 100 warrants to buy common stock at $10.

John L. Howland, the president, owns 80% of the common stock and wishes to maintain control of the company. There are 100,000 shares outstanding. The following are extracts of Howland’s latest financial statements:

Balance Sheet

Line of credit 250,000

Other current liabilities $150,000

Long-term debt 0

Common stock, par $1 100,000

Retained earnings 50,000

Total assets $550,000

Total claims $550,000

Income Statement

Sales $1,100,000

All costs except interest 990,000

EBIT $110,000

Interest 20,000

Pre-tax earnings $90,000

Taxes (40%) 36,000

Net income $54,000

Shares outstanding 100,000

Earnings per share $0.54

Price/earnings ratio 15.83

Market price of stock $8.55

a. Show the new balance sheet under each alternative. For Alternatives 2 and 3, show the balance sheet after conversion of the bonds or exercise of the warrants. Assume that half of the funds raised will be used to pay off the bank loan and half to increase total assets.

b. Show Mr. Howland’s control position under each alternative, assuming that he does not purchase additional shares.

c. What is the effect on earnings per share of each alternative, assuming that profits before interest and taxes will be 20% of total assets?

d. What will be the debt ratio (TL/TA) under each alternative?

e. Which of the three alternatives would you recommend to Howland, and why?

Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $87, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $75 million, a coupon of 10 percent, and sells for 97 percent of par. The second issue has a face value of $50 million, a coupon of 11 percent, and sells for 105 percent of par. The first issue matures in 25 years, the second in 7 years. a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) Equity/Value Debt/Value b. What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) Equity/Value Debt/Value c. Which are more relevant, the book or market value weights? Market value/Book value

Problem 2: Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 25 Direct labor $ 18 Variable manufacturing overhead $ 3 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 90,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $54 per unit.

Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.