Answer:
Mason Company
a) Schedule of Cost of Goods Manufactured:
Direct labor cost $80,000
Raw material purchases $135,000
Manufacturing overhead
applied to work in process $201,000
Cost of goods manufactured $416,000
b) Schedule of Cost of Goods Sold:
Cost of goods manufactured $416,000
Under-applied overhead 21,000
Cost of goods sold $437,000
c) Income Statement:
Sales $656,000
Cost of goods sold $437,000
Gross profit $219,000
Selling expenses $105,000
Administrative expenses $41,000
Total expenses $146,000
Net income $73,000
Explanation:
a) Data and Calculations:
Sales $656,000
Direct labor cost $80,000
Raw material purchases $135,000
Selling expenses $105,000
Administrative expenses $41,000
Manufacturing overhead
applied to work in process $201,000
Actual manufacturing
overhead costs $222,000
Under-applied overhead $21,000 ($222,000 - $201,000)
Measuring and reporting quality costs does not solve quality problems. Decreases in quality costs generally occur as soon as improvement programs are implemented. Quality cost information helps managers identify the relative importance of quality problems. The impact of customer ill will is generally not found on quality control reports.
a. True
b. False
Answer:
True statements:
Measuring and reporting quality costs does not solve quality problems.
Quality cost information helps managers identify the relative importance of quality problems.
The impact of customer ill will is generally not found on quality control reports.
Explanation:
When the quality cost is determined and reported so the same should not solve the problem of the quality also the information related to the quality cost helps the managers to identify the significance of the quality issue
The effect of the customer could not found on the reports made for quality control
But if there is a decrease in the quality cost so the improvement programs could not be implemented soon
Last year, you purchased a stock at a price of $64.00 a share. Over the course of the year, you received $2.20 per share in dividends and inflation averaged 2.7 percent. Today, you sold your shares for $69.00 a share. What is your approximate real rate of return on this investment
Answer:
8.55%
Explanation:
Calculation to determine your approximate real rate of return on this investment
First step is to calculate the Nominal return
Nominal return = ($69 - $64+ $2.20)/$64
Nominal return=7.2/$64
Nominal return= 0.1125
Now let calculate the Approximate real return
Approximate real return = 0.1125 - 0.027
Approximate real return= 0.0855*100
Approximate real return=8.55%
Therefore your approximate real rate of return on this investment is 8.55%
A large cable company is the only provider of cable TV and Internet for a small community. As a result, consumers in the community who want either of these services must purchase from this company. In which of the following economic markets is the cable company operating?
a. Oligopoly
b. Monopolistic
c. Monopoly
d. Perfect
Answer:
b. Monopolistic
Explanation:
monopoly or monopolistic operation can be regarded as an operation that involves specific person or specific firm being the only supplier existing as the supplier of a particular commodity.
It can be regarded as economic market structure that give room to specific person as the only one suppling the particular good.
The cable company is operating in a monopolistic market. A monopoly or monopolistic operation can be defined as one in which a singular person or specific company serves as the only supplier of a given commodity. Thus, option B is correct.
It can be viewed as an economic market structure where a specific person is allowed to be the only supplier of a given good. Monopolistic marketplaces are those where a specific good or service is solely provided by one business.
A monopolistic market structure mimics the characteristics of a pure monopoly, in which a single business completely dominates the market and sets the supply and pricing of goods and services.
Therefore, option B is the ideal selection.
Learn more about the monopolistic market here:
https://brainly.com/question/32669234
#SPJ3
Imagine you are a manager at Trader Dan's grocery store. You've been tasked with analyzing the checkout lines to see if anything needs to be changed from the current set-up. Complete the following problems.
a. After extensive observation, you've determined that there are normally 11 customers coming into the store per hour. When analyzing your cashiers, you've found that they can checkout a single customer in 0.9 minutes. Calculate the utilization rate of your cashier assuming you only have one cashier working. Report your answer in decimal form with two decimals, rounding to the nearest hundredth.
b. You now need to plan for the holiday rush! When the holidays hit, Trader Dan's has a massive increase in customers coming to the store. If during these holidays you have 4.2 customers per minute coming in and your cashiers can handle 1.16 customers per minute, how many cashier lines should you have open to handle these customers? Report the minimum number of cashiers needed.
c. Dan himself came to your store and wanted to know how long customers were waiting in line (this is very important to Dan!). Report the time customers wait in your queue if you have 4 cashiers open, 62 customers come into the store per hour and your cashiers take 2.8 minutes per customer to ring them up.
Answer: answer is 2.5
Explanation:
The records of the Dodge Corporation show the following results for the most recent year:
Sales (16,000 units) $256,000
Variable expenses $160,000
Net operating income $32,000
Given the provided data, identify the contribution margin.
Answer:
unitary contribution margin= $6
Explanation:
Giving the following information:
Sales (16,000 units) $256,000
Variable expenses $160,000
First, we need to calculate the unitary selling price and unitary variable cost:
Selling price= 256,000 / 16,000= $16
Unitary variable cost= 160,000 / 16,000= $10
Now, the unitary contribution margin:
unitary contribution margin= selling price - unitary variable cost
unitary contribution margin= 16 - 10
unitary contribution margin= $6
asino Inc. expects to pay a dividend of $3 per share at the end of year 1 (Div1) and these dividends are expected to grow at a constant rate of 6 percent per year forever. If the required rate of return on the stock is 18 percent, what is the current value of the stock today?
Answer:
the current stock of the value today is $25
Explanation:
The computation of the current stock of the value today is shown below:
Next year dividend D1 = $3
growth rate g =6% forever
rate of return = 18%
So,
Current Stock Price P = D1 ÷ (r - g)
=3 ÷ (18% - 6%)
= 3 ÷ 12%
= 3 ÷ 0.12
= $25
Hence, the current stock of the value today is $25
Which of the following statements are true regarding technology, gaming, and gambling? #1. Rapid-play poker machines have increased the number of problem and pathological gamblers. #2. Online gambling has resulted in an increased number of problem and pathological gamblers. #3. There is no evidence that technology has led to an increase in the number of people with gambling or gaming addictions. #4. Electronic media is a breeding ground for new addictions, such as Internet, video games, texting, and multiplayer games.
Answer:
1. Rapid-play poker machines have increased the number of problem and pathological gamblers.
2. Online gambling has resulted in an increased number of problem and pathological gamblers.
4. Electronic media is a breeding ground for new addictions, such as Internet, video games, texting, and multiplayer games.
Explanation:
The true statements regarding technology, gaming, and gambling include:
1. Rapid-play poker machines have increased the number of problem and pathological gamblers.
2. Online gambling has resulted in an increased number of problem and pathological gamblers.
4. Electronic media is a breeding ground for new addictions, such as Internet, video games, texting, and multiplayer games.
It should be noted that there are several betting companies nowadays and this has led to more people to be involved in gambling.
Berkeley Corporation has a policy of furnishing new automobiles to the athletic department of the local university. The automobiles are used for short periods of time by the extremely popular head basketball coach. When the automobiles are returned to Berkeley Corporation, they are sole to regular customers. The owner of Berkeley Corporation maintains that any such cars held for more than one year should qualify as Sec. 1231 property. Do you agree?
Answer:
Berkeley Corporation
No. I do not agree with the owner of Berkeley Corporation.
Vehicles or automobiles are section 1245 property and not section 1231.
Explanation:
The IRS regards Section 1231 properties to include buildings, machinery, land, timber, and other natural resources, unharvested crops, cattle, livestock, and leaseholds that are held in a business or trade for at least one year. They are used in trade and not for sale. On the other hand, Section 1245 properties include all depreciable or amortizable tangible personal property, such as furniture, automobiles, and equipment, or other intangible personal property, such as a patent or license.
Based on the information given, it's not section 1231. Therefore, I do not agree with the owner of Berkeley Corporation.
Section 1231 simply means a term that is used to describe a property relating to the United States Internal Revenue Code. Vehicles or automobiles are section 1245 property and not section 1231.
The Internal Revenue Service regards Section 1231 properties like buildings, machinery, land, timber, and other natural resources, unharvested crops, cattle, livestock, etc. Section 1245 represents properties that are depreciable like furniture, automobiles, equipment, etc.
Learn more about section 1231 on:
https://brainly.com/question/17157656
A new employee, John Chapman, earns $10 per hour and gets time-and-a-half over 40 hours per week. His first week he worked 45 hours. Deductions from his check were $30 for OASDI, $7 for Medicare, $ 61 for federal income tax withholding, and $15 for a United Way contribution. What was his gross pay for the period
Answer: $475
Explanation:
Gross pay is:
= Regular pay + Overtime
= (Regular hours * Regular pay) + ( Overtime hours * regular pay * time and a half)
= (10 * 40 hours) + ( (45 - 40 hours) * 10 * 1.5)
= 400 + 75
= $475
Gilchrist Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the machine-hours for the upcoming year at 44,800 machine-hours. The estimated variable manufacturing overhead was $4.65 per machine-hour and the estimated total fixed manufacturing overhead was $1,239,616. The predetermined overhead rate for the recently completed year was closest to:
Answer: $32.32
Explanation:
From the information given, the predetermined overhead rate for the recently completed year will be calculated thus:
= Total manufacturing overhead / Estimated machine hours
= $1,447,936 / 44,800
= $32.32 per machine hour
Total manufacturing overhead was calculated as:
Estimated fixed overhead = $1,239,616
Estimated variable overhead = 44,800 × $4.65 = $208320
Total manufacturing overhead = $1,447,936
Consider a coupon bond with a 5% coupon rate. It will mature in one year and its yield to maturity is 10%. If the 1-year interest rate increases to 12% over the course of the year, what is the return on the bond?
Answer:
$95.45
Explanation:
First, we need to calculate the price of the bond using both yields to maturity
Current Price
Use the following formula to calculate the price of the bond
P = ( C x PVAF ) + ( F x PVF )
Where
F =Face value = $1,000
C =Coupon Payment = $1,000 x 5% = $50
PVAF = ( 1 - ( 1 + 10% )^-1 ) / 10% = 0.90909091
PVF = 1 / ( 1 + 10% )^1 = 0.90909091
Placing values in the formula
P = ( $50 x 0.90909091 ) + ( $1,000 x 0.90909091 )
P = $954.55
After 1 Year
The Bond will be matured on this time
At the of Maturity the price of the bond will be equal to the face value
Price of the bond = $1,000
Now calculate the return on the bond
Return on the bond = Coupon Interest + Price appreciation
Where
Coupon Interest = $50
Price appreciation = $1,000 - $954.55 = $45.45
Placing values in the formula
Return on the bond = $50 + $45.45 = $95.45
Exercise 8-19 Amortization of intangible assets LO P4 Milano Gallery purchases the copyright on a painting for $418,000 on January 1. The copyright is good for 10 more years. The company plans to sell prints for 11 years. Prepare entries to record the purchase of the copyright on January 1 and its annual amortization on December 31.
Answer:
Jan 01
Dr Copyright $418,000
Cr Cash $418,000
Dec 31
Dr Amortization expense—Copyright $41,800
Cr Accumulated amortization—Copyright $41,800
Explanation:
Preparation of entries to record the purchase of the copyright on January 1 and its annual amortization on December 31.
Jan 01
Dr Copyright $418,000
Cr Cash $418,000
(To record purchase of copyright )
Dec 31
Dr Amortization expense—Copyright $41,800
Cr Accumulated amortization—Copyright $41,800
($418,000/10 years)
(To record amortization expense of copyright )
It should not usually be clear whether we are describing independent or mutually exclusive projects in the following chapters because when we only describe one project then it can be assumed to be independent.
a. True
b. False
Answer:
false
Explanation:
A mutually exclusive project is a project that if one occurs then the other project cannot occur also at the same time. Mutually exclusive projects are independent projects also
Economic life of equipment: 5 years. Implicit interest rate and lessee's incremental borrowing rate: 9% semiannually. Fair value of the computers at January 1, 2021: $23 million. What is the interest revenue that Technoid would report for this lease in its 2021 income statement
Answer:
$3,411,922.19
Explanation:
Calculation to determine the interest revenue that Technoid would report for this lease in its 2021 income statement
First step is calculate interest for the first six months
Interest for the first six months=[$23,000,000-lease payment of 3,287,947) × 9%]
Interest for the first six months=$19,712,053×9%
Interest for the first six months=$1,774,084.77
Interest for the first six months=$1,774,085 (Approximately)
Second step is to calculate the interest for the second six months
Interest for the second six months=[$23,000,000 - lease payment of 3,287,947 - ($3,287,947 - $1,774,085)] × 9%
Interest for the second six months=($19,712,053-$1,513,862)×9%
Interest for the second six months=$18,198,191×9%
Interest for the second six months=$1,637,837.19
Now let determie the interest revenue using this formula
Interest revenue=Interest for the first six months+Interest for the second six months
Let plug in the formula
Interest revenue=$1,774,085+$1,637,837.19
Interest revenue=$3,411,922.19
Therefore the interest revenue that Technoid would report for this lease in its 2021 income statement is $3,411,922.19.
On January 1, 2021, Princess Corporation leased equipment to King Company. The lease term is 11 years. The first payment of $700,000 was made on January 1, 2021. The equipment cost Princess Corporation $4,641,167. The present value of the lease payments is $5,001,197. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, how much interest revenue will Princess record in 2022 on this lease
Answer: $403,221.67
Explanation:
Interest revenue in 2022 = Value of Lease payments in 2022 * Interest rate
Value of lease payments after first payment :
= 5,001,197 - 700,000
= $4,301,197
Value of lease payments after second payment in 2022:
= Value of lease payment after first payment + Interest revenue - lease payment
= 4,310,197 + (4,310,197 * 10%) - 700,000
= $4,032,216.70
Interest revenue in 2022 = 4,032,216.70 * 10%
= $403,221.67
Which of the following describe management's use of a master budget: Multiple select question. Helps in determining bonuses to managers who meet budgets Helps analyze differences between actual and budgeted results Helps to place blame on managers who do not meet budgets Helps reveal undesirable outcomes Helps in planning and control activities
Answer:
Helps analyze differences between actual and budgeted results
Helps reveal undesirable outcomes
Helps in planning and control activities
Explanation:
A master budget comprised of future income statement or planned operating budget and the future balance sheet or financial budget that represent the goals and objectives of the organization and the ways to achieve them. It identified the actual & budgeted results difference, It disclosed the non-desirable results and also it helps in activities that deals in planning & controlling
Therefore the above statements should be correct
Prepare the December 31 adjusting entries for the following transactions.
a. Fees accrued but not billed, $6,300.
b. The Supplies account balance on December 31, $4,750.
c. Supplies on hand, $960
d. Wages accrued but not paid, $2,700
e. Depreciation of office equipment, $1,650
f. Rent expired during year, $10,800.
Answer and Explanation:
The journal entries are shown below:
a. Account receivable Dr $6,300
To Fees Revenue $6,300
(Being fees accrued is recorded)
b Supplies Expense $3,790 ($4,750 - $960)
To Supplies $3,790
(being supplies expense is recorded)
d. Wages Expense $2,700
To Wages Payable $2,700
(being wages expense is recorded)
e. Depreciation Expense $1,650
To Accumulated Depreciation $1,650
(being depreciation expense is recorded)
f. Rent Expense $10,800
To Prepaid Rent $10,800
(being rent expense is recorded)
Stock dividends distributable should be classified on the:________.
A) income statement as an expense.
B) balance sheet as an asset.
C) balance sheet as a liability.
D) balance sheet as an item of stockholders' equity.
Answer:
a) income statement as an expense
A company plans on selling 500 units. The selling price per unit is $10. There are 60 units in beginning inventory, and the company would like to have 100 units in ending inventory. How many units should be produced for the coming period?
a. 540 units
b. 2,000 units
c. 2,035 units
d. 365 units
e. 400 units
Below is budgeted production and sales information for Best Dog Collar Company for the month of December:
Product CCC Product DDD
Estimated beginning inventory 30,000 units 18,000 units
Desired ending inventory 32,000 units 15,000 units
Region I, anticipated sales 320,000 units 500,000 units
Region II, anticipated sales 190,000 units 130,000 units
The unit selling price for product CCC is $5 and for product DDD is $12. Budgeted sales for the month are:
a. $9,692,000
b. $8,680,000
c. $10,110,,000
d. $9,010,000
Mordica Company’s standard labor cost per unit of output is $22.00 (2.00 hours x $11.00 per hour). During August, the company incurs 2,340 hours of direct labor at an hourly cost of $9.90 per hour in making 1,300 units of finished product.
Required:
Compute the total, price, and quantity labor variances.
Solution :
Total labor variance = [(standard rate x standard hours) - (actual rate x actual hours)]
= [$11 x (1300 x 2)] - ($9.90 x 2340)
= $28600 - $23166
= $ 5434 unfavorable
Labor price variance = ( standard rate - actual rate) x actual hours
= ($11.00 - $9.90) x 2340
= $ 1.1 x 2340
= $2574 favorable
Labor quantity variance = standard x (standard hours - actual hours)
= $11.00 x [(1300 x 2) - 2340]
= $11.00 x (2600 - 2340)
= $11.00 x 260
= $2860 unfavorable
Using the following information, what is the amount of gross profit?
Purchases $37,000
Merchandise inventory, September 1 6,100
Selling expense 1,050
Merchandise inventory, September 30 6,800
Sales 91,000
Interest expense 1,040
Administrative expense 1,010
Rent revenue 1,700
Answer:
Gross profit= $54,700
Explanation:
Giving the following information:
Purchases $37,000
Merchandise inventory, September 1 6,100
Merchandise inventory, September 30 6,800
Sales 91,000
First, we need to calculate the cost of goods sold:
COGS= beginning finished inventory + cost of goods purchased - ending finished inventory
COGS= 6,100 + 37,000 - 6,800
COGS= $36,300
Now, the gross profit:
Gross profit= sales - COGS
Gross profit= 91,000 - 36,300
Gross profit= $54,700
On October 1, 2020 Sheffield Corp. issued 5%, 10-year bonds with a face value of $6140000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Bond interest expense reported on the December 31, 2020 income statement of Sheffield Corp. would be:_________
Answer: $70610
Explanation:
Following the information given, the issue price of the bond will be:
= $6,140,000 × 1.04
= $6,385,600
The premium on bonds payables will be:
= $6,385,600 - $6,140,000
= $245,600
Cash interest Payables will be:
= 6,140,000 × 5% × 3/12
= $76,750
Bond Premium amortization for Each Year will be:
= 245,600 / 10
= $24,560
Then, the premium amortized will be:
= $24,560 × 3/12
= $6,140
Therefore, the interest expenses on Dec 31 will be:
= Cash interset Payables - Premium amortized
= $76,750 - $6,140
= $70,610
Eclypso Inc. manufactures a product that passes through two processes: mixing and molding. All manufacturing costs are added uniformly in the mixing department.
Information for the mixing department for the month of October is as follows:
Work in process, October 1:
No. of units (45% complete) 7,200
Direct materials $42,000
Direct labor $50,400
Overhead $14,400
During October, 38,400 units were completed and transferred to the molding department. The following costs were incurred by the mixing department during October:
Direct materials $144,000
Direct labor $192,000
Overhead $ 60,000
By October 31, 3,600 units that were 85% complete remained in the mixing department. Eclypso uses the weighted average method. Eclypso's equivalent units of production using the weighted average method would be:_________
a. 24,740.
b. 32,000.
c. 41,460.
d. 35,000.
Alpha Technology produces two products: a high-end laptop under the label Excellent Laptops and an inexpensive desktop under the label Outstanding Computers. The two products use two overhead activities, with the following costs:
Setting up equipment $3,000
Machining $15,000
The controller has collected the expected annual prime costs for each product, the machine hours, the setup hours, and the expected production.
Excellent Laptops Outstanding Computers
Direct Labor $25,000 $10,000
Direct Materials $20,000 $5,000
Expected Production in Units 3,000 3,000
Machine Hours 850 2,000
Setup Hours 80 75
Calculate Outstanding Computer's consumption ratio for setup hours. (Note: Round your answer to two decimal places.)
a.0.75
b.0.90
c.0.25
d.0.45
e.0.48
35. Direct materials used in production, direct labor, and applied overhead are charged to the:
a. indirect labor account.
b. work-in-process account.
c. overhead account.
d. raw materials account.
Answer and Explanation:
Equivalent units of production is
=Units completed & transferred + Units in ending work in process
= 38400 units+ (85% of 3600 units
= 41460 units
Outstanding Computer's consumption ratio for setup hours is
= (75 setup hours ÷ 155 setup hours) × 100
= 0.48
35.
The direct material that are used for production, direct labor and the applied overhead should be charged to the work in process account
Reggie and Bebe own an apartment building in Portland, Oregon, with 8 identical units. They live in one and rent the remaining units. Their rental income for the year was $45,000. They incurred the following expenses for the entire building: Advertising for available units $ 850 Maintenance 9,000 Repairs 7,500 Utilities 12,000 Depreciation 8,000 What amount of net income should Reggie and Bebe report for the current year for this
Answer:
$12,213
Explanation:
Calculation to determine What amount of net income should Reggie and Bebe report for the current year for this
NET INCOME
Rental Income $45,000
Advertising for available units $850
Maintenance $7,875
($9,000*7/8)
Repairs $6,562.5
($7,500*7/8)
Utilities $10,500
($12,000*7/8)
Depreciation $7,000
($8,000*7/8)
Net Rental Income $12,213
Therefore the amount of net income that should Reggie and Bebe should report for the current year is $12,213
The following information is available for a company's utility cost the estimated variable cost per machine hour is:_____.
Month Machine hours Utility cost
January 950 $5,500
February 1,850 $7,000
March 2,500 $8,100
April 650 $3,420
Answer:
Variable cost per unit= $2.53
Explanation:
Giving the following information:
Month Machine hours Utility cost
January 950 $5,500
February 1,850 $7,000
March 2,500 $8,100
April 650 $3,420
To calculate the unitary cost per machine hour, we need to use the high-low method:
Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)
Variable cost per unit= (8,100 - 3,420) / (2,500 - 650)
Variable cost per unit= $2.53
Kermit plans to open a boutique. The initial investment is $10,000. He has to spend $1,500 in annual operations and maintenance. The boutique generates $3,000 in revenues every year. Kermit uses a 10 year planning horizon and a MARR of 12%. The correctly calculated Rate of Return for this project is ________________%.
Answer:
8.14
Explanation:
The Rate of Return is 8.14 from my calculations which you can find in the attached file.
Now since the Rate of return is 8.14. Which is less than MARR of 12%, it shows that investment is not good.
Year Initial Annual Maintenance Annual Revenue Total Cash Flow
0 -$10,000 -$10,000
1 -$1,500 $3,000 $1,500
2 -$1,500 $3,000 $1,500
3 -$1,500 $3,000 $1,500
4 -$1,500 $3,000 $1,500
5 -$1,500 $3,000 $1,500
6 -$1,500 $3,000 $1,500
7 -$1,500 $3,000 $1,500
8 -$1,500 $3,000 $1,500
9 -$1,500 $3,000 $1,500
10 -$1,500 $3,000 $1,500
Internal Rate of Return 8.1442% [IRR() in excel]
The rate of return is 8.1442 which is less than MARR of 12% investment is not worth it
What is the present value of an annuity that pays $58 per year for 13 years and an additional $1,000 with the final payment
Answer:
$882.03
Explanation:
Interest rate used is 7.23%
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
Cash flow in year 1 to 12 = 58
cash flow in year 13 = 1058
I = 7.23
To find the PV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
Harrison Ford Company has been approached by a new customer with an offer to purchase 10,000 units of its model IJ5 at a price of $4.00 each. The new customer is geographically separated from the company's other customers, and existing sales would not be affected. Harrison normally produces 75,000 units of IJ5 per year but only plans to produce and sell 60,000 in the coming year. The normal sales price is $12 per unit. Unit cost information for the normal level of activity is as follows:
Direct Materials $1.75
Direct Labor 2.50
Variable Overhead 1.50
Fixed Overhead 3.25
Total $9.00
Required:
a. What are the relevant costs and benefits of the two alternatives (accept or reject the special order)?
b. By how much will operating income increase or decrease if the order is accepted?
Answer:
a. The relevant costs and benefits of the two alternatives are as follows:
Relevant costs = $57,500
Relevant benefits = $40,000
b. Operating income will decrease if the order is accepted by $17,500.
Explanation:
a. What are the relevant costs and benefits of the two alternatives (accept or reject the special order)?
Note that accepting the special order will increase the planned production from 60,000 to 70,00. Since this still lower than normal 75,000 units of production, this implies that Fixed Overhead will not be incurred when the order is accepted. Therefore, the Fixed Overhead is not relevant in this situation.
Therefore, the relevant costs and benefits of the two alternatives are as follows:
Relevant costs = Units of special order * (Direct Materials + Direct Labor + Variable Overhead) = 10,000 * ($1.75 + $2.50 + $1.50) = $57,500
Relevant benefits = Revenue from the special order = Units of special order * Unit price of special order = $10,000 * $4 = $40,000
b. By how much will operating income increase or decrease if the order is accepted?
Amount of decrease in operating income = Relevant costs - Relevant benefits = $57,500 - $40,000 = $17,500
Since the relevant costs will greater than the relevant benefits, it can be observed from the calculation above that operating income will decrease if the order is accepted by $17,500.
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA)
Ignacio, Inc., had after-tax operating income last year of $1,196,500. Three sources of financing were used by the company: $2 million of mortgage bonds paying 4 percent interest, $4 million of unsecured bonds paying 6 percent interest, and $9 million in common stock, which was considered to be relatively risky (with a risk premium of 8 percent). The rate on long-term treasuries is 4 percent. Ignacio, Inc., pays a marginal tax rate of 30 percent.
Required:
Calculate the after-tax cost of each method of financing. Enter your answers as decimal values rounded to three places. For example, 4.36% would be entered as ".044".
Mortgage bonds __________
Unsecured bonds __________
Common stock __________
Answer:
Mortgage bonds after-tax cost:
= Interest rate * (1 - tax rate)
= 4% * ( 1 - 30%)
= 4% * 70%
= 2.8%
Unsecured bonds after-tax cost:
= 6% * (1 - 30%)
= 6% * 70%
= 4.2%
Common stock:
= Long term treasury rate + risk premium
= 4% + 8%
= 12%
