(a)

Given the information in the table below (Table 1) for three consecutive years) in an economy, calculate the missing data in the table labelled (A) to (F). Also, show how you have worked out your answer for each missing value.

Table 1

(b) Government survey takers determine that the typical family expenditures each month in the year designated as the base year are as follows:

20 pizzas at $10 each

Rent of apartment, $600 per month

Petrol and car maintenance, $100

Phone service, $50

In the year following the base year, the survey takers determine that pizzas have risen to $11 each, apartment rent is $640, petrol and car maintenance has risen to $120, and phone service has dropped in price to $40.

i) Find the CPI in the subsequent year and the rate of inflation between the base year and the subsequent year.

ii) The family’s nominal income rose by 5 percent between the base year and the subsequent year. Are they worse off

or better off in terms of what their income is able to buy?

Rabin Ltd uses a perpetual FIFO inventory system and has compiled the following cost information for the year ended December 31, 2017. Opening inventory consisted of 100 units. The cost per unit of opening inventory is $100 DM, $60 DL and $110 MOH (of which 20% is variable). Robin produced 1,400 units and sold 1,250 units during 2017. The selling price per unit is $320.

Answer the following for the year ended December 31, 2017 (round your answer to the nearest unit or dollar and use the rounded answer for subsequent calculations):
(a) How many units are left in ending inventory at December 31, 2017? units

(b) What is the cost per unit in ending inventory under:

                    absorption costing $/ unit?

                    variable costing $/ unit?

                    throughput costing $/ unit?

(c) Calculate the total cost of opening inventory using:

                    absorption costing $?

                    variable costing $?

                    throughput costing $?

(d) Calculate: gross profit $?

                     contribution margin $?

                     throughput margin $?

(e) Net income will be greatest under which costing method? Absorption costing or Variable costing

(f) Net income will be lowest under which costing method? Absorption costing or Variable costing

Wyoming Corporation produces heavy equipment for military applications. As part of this process, it currently manufactures a fuel valve; the cost of the valve is indicated below:

The company has an offer from an outside valve manufacturer to produce the part for $1,850 per unit and supply 1,000 valves (the number needed in the coming year).

If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas needing their services.

The equipment cannot be used elsewhere in the company, and it has no market value.

The space occupied by the production of the valve can, however, be used by another production group of the company that is currently leasing space for $41,000 per year.

REQUIRED:

What are the costs involved should they decide to outsource the production of the valves?

What are the benefits involved should they decide to outsource the production of the valves?

Should they outsource the production of the valves or continue to manufacture them?

In negotiating with the outside vendor, what is the MAXIMUM price that the company could offer the outside manufacturer without losing money on this decision.

List and explain TWO qualitative factors that the company might address as part of this decision.

SUPPLIER

Sno Sname Status City

s1 Smith 20 London

s2 Jones 10 Paris

s3 Blake 30 Paris

s4 Clark 20 London

s5 Adams 30 NULL

PART

Pno Pname Color Weight City

p1 Nut Red 12 London

p2 Bolt Green 17 Paris

p3 Screw NULL 17 Rome

p4 Screw Red 14 London

p5 Cam Blue 12 Paris

p6 Cog Red 19 London

SHIPMENT

Sno Pno Qty Price

s1 p1 300 .005

s1 p2 200 .009

s1 p3 400 .004

s1 p4 200 .009

s1 p5 100 .01

s1 p6 100 .01

s2 p1 300 .006

s2 p2 400 .004

s3 p2 200 .009

s3 p3 200 NULL

s4 p2 200 .008

s4 p3 NULL NULL

s4 p4 300 .006

s4 p5 400 .003

QUESTIONS (SOLUTIONS MUST BE SQL QUERY IN SQL SERVER):

1. Print supplier numbers for suppliers who ship at least all those parts shipped by supplier S3. Do not include S3 in the answer and do not "count".

2. Print supplier numbers for suppliers who ship ONLY red parts.

Quiz #4

Spring 2018

Emerson Company produces ceramic tea pots. Emerson allocates overhead based on the number of direct labor hours. The company is considering using a standard cost system and has developed the following standards (a batch is 100 teapots).

Standard Costs:                    

Direct Material                                    60 lbs. per batch          $ 5.00 per lb. .          

Direct Labor                                        3.0 hr. per batch         $17.00 per hr.

Variable Manufacturing Overhead     3.0 hr.                          $7.00 per hr.

Fixed Manufacturing Overhead         3.0 hr.                          $3.00 per hr.   

2018 Budgeted Data for February:

Budgeted production, 121 batches (100 tea pots each batch)

Denominator Hours, 363 DLH. (Emerson applies overhead on the basis of direct labor hours.)

Budgeted variable overhead, $2,541

Budgeted fixed overhead, $1,089.

2018 Actual Results for February:               

Direct material purchases were 4,500 lbs. at a cost of $4.70 per lb.

Direct material used was 4,100 lbs.

Direct labor costs was $3,344 at an average direct labor cost per hour of $17.60.

Total variable manufacturing overhead was $1,406.

Total fixed manufacturing overhead was $1,490.

Actual production was 60 batches.

    EXTRA CREDIT: (Worth 5 pts) Prepare journal entries for:

a.         material price and quantity variances.

b.         labor rate and efficiency variances.

Using the financial statements above, what is Rosnan's 2013 market value added (MVA)? Round your answer to the nearest dollar. Do not round intermediate calculations.

$

Using the financial statements given earlier, what is Rosnan's 2013 economic value added (EVA)? Round your answer to the nearest cent. Do not round intermediate calculations.

Assume that Ambrose Motor Corp. (AMC) estimates next year’s earnings before interest payments as $100 million, provided it does not lose a product liability lawsuit. The probability of a lawsuit is .02 and the payment if it occurs is estimated to be $50 million. From its $100 million in earning, Ambrose expects to pay $60 million on its interest and principal payments, leaving $40 million for shareholders - again provided the company does not lose a product liability suit. Ambrose is trying to decide how to finance risk associated with the potential liability suit.

What is the expected value of loss associated with the product liability lawsuit?

In a perfect market without transactions costs (taxes are among potential transactions costs) where AMC does not value insurer services, how much would AMC’s shareholders want AMC to pay for $50 million of product liability insurance?

Would an insurer be willing to provide this policy for the price AMC would be willing to pay? Explain.

Next, suppose that AMC’s insurer has an in-house legal expert on product liability who can reduce the probability of losing the lawsuit from .02 to .01. If the insurer’s premium loadings add an additional amount to the premium of 30% of the losses and loss adjustment expense, how much is the premium for $50 million of coverage, and would AMC be willing to pay it?

Acme Dry cleaning has an on-campus location with 5 years to go on its lease. An existing dry cleaning machine will last for the 5-year duration of the lease, at which time it will be worn out and worthless. A machine will be more efficient and will allow the company to handle a broader range of fabrics. As a result, the new machine will increase revenues by $1,500 a year and decrease operating costs (other than depreciation) by $600 per year.

The old machine was purchased two years ago (purchase price = $8,000) and has a 3-year life for depreciation purposes. The old machine could be sold today for $6,000. The new machine will cost $15,000, last 5 years, and has a 3-year life for depreciation purposes. The new machine is expected to have a re-sale value of $5,000 in 5 years (when the lease is up).

Since revenue are expected to increase, the company will need to keep an additional $250 of petty cash in the storee's cash register beginning at time 1. This petty cash balance will need to be increased by an additional 100$ at time 2. This $350 (250 + 100) will be removed at time 5.

Acme Dry cleaning is in the 40 percent tax bracket and uses straight line depreciation. The required return for projects of this risk class is 18%. Should Acme purchase the new machine? Provide a numerical solution.

TeeBee manufactures springs and related components for a variety of industrial and consumer end products.  TB is evaluating a new business opportunity.  In response to the growing health consciousness of the affluent aging baby boomer generation, a new concept in traction-associated exercise equipment is being developed.  TB feels confident it can be a supplier of choice of the high quality springs needed for this new generation of equipment. TB has determined that its existing manufacturing facilities are not suitable for the manufacture of the type of spring needed.  In order to evaluate whether to enter this market, TB needs to consider the return on investment in a new manufacturing facility.  TB has identified two options for its potential new manufacturing site:

            Option A:  Renovation of an existing warehouse (economic life of 10 years)

            Option B:  Construction of a completely new facility (economic life of 20 years)

TB projects it will be able to sell 9,000 spring sets per year for the foreseeable future.  Price per spring set is $699 (in year end 1 dollars).  TB has employed a nominal discount rate of 9 percent on similar construction projects in the past.  The following additional data have been collected.  Assume all cash flows occur at the end of the year.  Inflation is 3 percent per year.  

*Assume all construction costs are incurred in period 0.

**Assume all these operating costs are incremental and represent cash flows. These operating cost projections apply to the first year of operations.  Cash costs (as well as revenues) are expected to increase with inflation.  Inflation applies initially in year 2.

Required:  Prepare a financial analysis of the two options and make a recommendation.  Use the income statement to net cash flow format, reflecting EBITDA, EBIT, EBIAT, and  NCF.  To see some of the implications of the changes to the tax code enacted in 2017, do your analysis under both the old and the new tax code regimes, as outlined below.

*Straight line depreciation of construction costs over life of asset (term of project), no salvage value.

**Immediate expensing of construction costs.  This change can most easily be accommodated by showing depreciation of 100% of the capital expenditure in year 1 of the project. Then, depreciation expense for the remaining years of the project is $0.