Answer:
Stock Beta = 1.68
Explanation:
The expected return on stock can be estimate using te capital asset pricing model (CAPM).
The capital pricing model establishes the relationship between expected return from a stock and its systematic risk . The systematic risk is that which affects all players (businesses and firms) in the entire market, such risks are occasioned by changes in interest rate, exchange rate e.t.c
According to the model , the expected return is computed as follows
E(r) = Rf + β(Rm-Rf)
Rf- risk -free rate, Rm-Rf - market premium , β- beta
DATA:
E(r) = 13%, Rm-Rf = 5.3 , risk-free rate- 4.1%, β?
Applying this model, we have
13% = 4.1% + β× (5.3%)
0.13 = 0.041 + 0.053β
Collecting like terms
0.053β= 0.13 - 0.041
divide both sides by 0.053
β= (0.13 - 0.041)/0.053
β = 1.679
Stock Beta = 1.68
Merline Manufacturing makes its product for $60 per unit and sells it for $142 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December income statement follows.
MERLINE MANUFACTURING Income Statement For Month Ended December 31, 2017
Sales $1,420,000
Cost of goods sold 600,000
Gross profit 820,000
Operating expenses Sales commissions (10%) 142,000
Advertising 224,000
Store rent 25,200
Administrative salaries 46,000
Depreciation—Office equipment 56,000
Other expenses 13,200
Total expenses 506,400
Net income $313,600
Management expects December’s results to be repeated in January, February, and March of 2018 without any changes in strategy. Management, however, has an alternative plan. It believes that unit sales will increase at a rate of 10% each month for the next three months (beginning with January) if the item's selling price is reduced to $127 per unit and advertising expenses are increased by 15% and remain at that level for all three months. The cost of its product will remain at $60 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same.
Required:
Prepare budgeted income statements for each of the months of January, February, and March that show the expected results from implementing the proposed changes. (Enter your final answers in whole dollars.)
Answer:
Merline Manufacturing
MERLINE MANUFACTURING Budgeted Income Statement For Months of January, February, and March, 2017
December January February March
Sales $1,420,000 $1,397,000 $1,536,700 $1,690,370
Cost of goods sold 600,000 660,000 726,000 798,600
Gross profit 820,000 $737,000 $810,000 $891,770
Operating expenses:
Sales commissions (10%) 142,000 139,700 153,670 169,037
Advertising 224,000 257,600 257,600 257,600
Store rent 25,200 25,200 25,200 25,200
Administrative salaries 46,000 46,000 46,000 46,000
Depreciation—
Office equipment 56,000 56,000 56,000 56,000
Other expenses 13,200 13,200 13,200 13,200
Total expenses 506,400 537,700 551,670 567,037
Net income $313,600 $199,300 $258,330 $324,733
Explanation:
a) Data:
MERLINE MANUFACTURING Income Statement For Month Ended December 31, 2017
December
Sales $1,420,000
Cost of goods sold 600,000
Gross profit 820,000
Operating expenses:
Sales commissions (10%) 142,000
Advertising 224,000
Store rent 25,200
Administrative salaries 46,000
Depreciation—Office equipment 56,000
Other expenses 13,200
Total expenses 506,400
Net income $313,600
b) Calculations:
Sales:
January = $1,420,000/$142 x 1.1 x $127 = $1,397,000
Sales unit = 11,000 (10,000 x 1.1)
February = 11,000 x 1.1 x $127 = $1,536,700
Sales unit = 12,100 (11,000 x 1.1)
March = 12,100 x 1.1 x $127 = $1,690,370
Sales unit = 13,310 12,100 x 1.1)
c) Advertising = $224,000 x 1.15 = $257,600
d) Cost of goods sold:
January = $660,000 (11,000 x $60)
February = $726,000 (12,100 x $60)
March = $798,600 (13,310 x $60)
e) Sales commission for each month is 10% of sales for the month.
f) Budgeted income statements are summaries for a period based on estimated incomes and expenses. They are useful in helping management to make projections and production decisions that will achieve desired outcomes. From these budgeted statements, management may decide to retain the December selling price and units and not increase advertising costs since the achieved net income did not improve over December's performance until March.
"According to Google's 2013 Study on the Incremental Clicks Impact of Mobile Search Advertising, the vertical with the highest CTR was"
The available options are:
a)Classified and Local
b) Education and Government
c)Media and Entertainment
d)Technology
Answer:
a)Classified and Local
Explanation:
Google's 2013 Study on the Incremental Clicks Impact of Mobile Search Advertising, was conducted from March 2012 to April 2013, on more than 300 U.S. AdWords accounts from 12 verticals.
The results, which shows the verticals range from 82 percent incremental clicks in the general service industry to 97 percent in the classified ad vertical.
This infographic provides details on the 12 different verticals which are:
1. Classified and Local - 97
2. Business and Industrial - 94%
3. Education and Government - 94%
4. Technology - 90%
5. Finance - 87%
6. Automative - 86%
7. Consumer Packaged Goods - 86%
8. Media and Entertainment - 86%
9. Retail - 86%
10. Travel - 85%
11. Healthcare - 83%
12. Service in all Veriticals - 82%
Hence, the right answer is CLASSIFIED AND LOCAL with 97%
Jamison Company purchased the assets of Booker Company at an auction for $4,200,000. An independent appraisal of the fair value of the assets is listed below:
Land $1,425,000
Building 2,100,000
Equipment 1,575,000
Trucks 2,550,000
Assuming that specific identification costs are impracticable and that Jamison allocates the purchase price on the basis of the relative fair values, what amount would be allocated to the Trucks?
A. $1,400,000
B. $2,100,000
C. $2,520,000
D. $2,550,000
Answer:
A. $1,400,000
Explanation:
Amount to be allocated = Auction price / Total individual price * Truck price
Auction price = $4,200,000
Total individual price = $1,425,000 + $2,100,000 + 1,575,000 + $2,550,000 = $7,650,000
Truck price = $2,550,000
Amount to be allocated = ($4,200,000 / $7,650,000) * $2,550,000
Amount to be allocated = $1,400,000
Suppose Ningbo Steel had sales revenue of $11,000 sales revenue, cost of goods sold of $5,000, operating expenses of $3000, interest expense of $1,000, a tax rate of 20%, and 1,000 shares of common stock outstanding. Based on this information, net profit after tax was:_________.
A. $1,600
B. $500
C. $1,000
D. $0
Answer:
A. $1,600
Explanation:
Ningbo Steel
Income Statement
Sales Revenue $11,000
Less Cost of goods sold $5,000
Gross Profit $6,000
Less Operating Expense $3,000
Earning Before Interest and Taxes $3,000
Less Interest Expense $1,000
Earning before Tax $2,000
Less Tax Expenses (2,000 *20%) $400
Net Profit after tax $1,600
Sterling Hotel uses activity-based costing to determine the cost of servicing customers. There are three activity pools: guest check-in, room cleaning, and meal service. The activity rates associated with each activity pool are $8.00 per guest check-in, $20.00 per room cleaning, and $4.00 per served meal (not including food). Julie Washington visited the hotel for a 7-night stay. Julie had 6 meals in the hotel during the visit. Determine the total activity-based cost for Washington's visit during the month. Round your answer to the nearest cent.
Answer:
Total cost= $172
Explanation:
Giving the following information:
guest check-in= $8 per guest check-in
room cleaning= $20 per room
meal service= $4 per served meal
Julie Washington visited the hotel for a 7-night stay. Julie had 6 meals in the hotel during the visit.
To calculate the total cost, we need to use the following formula:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
guest check-in= 8*1= 8
room cleaning= 20*7= 140
meal service= 4*6= 24
Total cost= $172
g If the inflation rate is larger than the nominal interest rate: Group of answer choices the real interest rate is negative the real interest rate is larger than the nominal interest rate. the real interest rate is zero. Not enough information is given. unemployment rises.
Answer: the real interest rate is negative
Explanation:
The real interest rate is the rate of interest that is received or expected to be received by a lender, saver or an investor after due to inflation. Real interest rate is gotten when the inflation rate is deducted from the nominal interest rate.
A negative real interest rate simply implies that means that inflation rate is more than nominal interest rate.
What is the difference in the present worth between an investment of $10,000 per year for 50 years and an investment of $10,000 per year forever at an interest rate of 10% per year
Answer:
Difference in Present Value = $ 851.86
Explanation:
The fist scheme is an annuity. A series of fixed cash flow occurring annually for certain period of time. We can determine the present value of the annuity using the formula below:
PV = A × (1- (1+r)^(-n) )/r
10,000 × (1- 1.10^(-50))/0.1 =99,148.14
The second scheme is a perpetuity . A series of fixed cash inflow occurring for the unforeseeable future
PV = A × 1/r
PV = 10,000× 1/0.1= 100,000
Difference in PV = 100,000 - 99,148.14= 851.855
Difference in Present Value = $ 851.86
On January 1, Year 1, Stratton Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the payment on the note on December 31, Year 2 is:
Answer:
Computation of the interest expense using the equation as shown below:
Interest expense for year 1 = Notes payable * Interest rate
= $100,000 * 10%
= $7,000
Notes payable reduction in Year 1 = $14,238 - $7,000
= $7,238
General journal entry
Item Debit Credit
Notes payable $7,745
Interest expense $6,493
Cash $14,238
Workings
Interest expense = ($100,000 - $7,238) * 7%
= $92,762 * 7%
=$6,493
Which of the following is the easiest but least accurate of the commonly used methods for allocating support department costs to production departments?
A. Sequential method
B. Activity-based management method
C. Reciprocal services method
D. Direct method
Answer:
D. Direct method
Explanation:
Cost allocation in financial accounting can be defined as the process of identifying, gathering and assigning of cost across multiple cost objects such as products, inventory or departments.
There are various types of cost allocation methods and these are;
1. Sequential method.
2. Activity-based management method.
3. Reciprocal services method.
4. Direct method.
The direct method is an allocation method for cost, where costs of the production service department are directly allocated to the production (operating) department of a firm or business entity using appropriate allocation base and then allocated to the product itself.
Generally, the direct method is the easiest (simplest) but least accurate of the commonly used methods for allocating support department costs to production departments.
Blaser Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $33,000 and a desired minimum rate of return of 7.5%. The ROI for Blaser Corporation is
Answer:
Return on Investment (ROI) = 10%
Explanation:
Return on Investment (ROI) is the proportion of operating assets that earned as profit by a business entity.
It is determined by dividing the operating income by operating assets.
ROI is used to evaluate the performance of a business entity by comparing the entity's ROI to the opportunity cost of capital.
The opportunity cost of capital is the minimum rate of return that would be make Blaser corporation to be indifferent between investing the money in its business and an alternative investment outlet.
ROI = Operating income /Operating assets × 100
= 33,000/330,000 × 100= 10%
Return on Investment (ROI) = 10%
Ben has $500 in his savings account and the bank pays an interest rate of 10 percent a year. The inflation rate is 6 percent a year. The government taxes the interest that Ben earns on his deposit at 20 percent. Calculate the nominal after-tax interest rate and the real after-tax interest rate that Ben earns.
Answer:
Nominal after-tax interest rate = 8%Real After-Tax Interest Rate = 2%Explanation:
The Nominal rate is 10%
Inflation rate is 6%
And Tax rate is 20%
Nominal after-tax interest rate
= Nominal rate (1 - tax rate)
= 10% ( 1 - 0.2)
= 8%
Real After-Tax Interest Rate
= Nominal after-tax interest rate - inflation rate
= 8% - 6%
= 2%
Business level strategy addresses two related issues: what businesses should a corporation compete in and how can these businesses be managed so that they create synergy.
Answer:
This statement is false, because it is the CORPORATE level strategy that addresses these two related issues.
Explanation:
The corporate level strategy can be defined as the strategy whose focus is to create synergy to effectively manage its competing business units and which constitute the organizational whole. Therefore, at this strategic level, the focus is to establish a focus to maximize profitability and positioning in a diverse organization.
Bruno's Lunch Counter is expanding and expects operating cash flows of $31,700 a year for 6 years as a result. This expansion requires $110,300 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $7,800 of net working capital throughout the life of the project. What is the net present value of this expansion project at a required rate of return of 11 percent
Answer:
the net present value of this expansion project is - $9,190.14.
Explanation:
Net Present Value is calculated by taking the Present Day (discounted) Value of all future net cash flows based on the cost of capital and subtracting the initial cost of investment.
Summary for Bruno's Lunch Counter cash flows for the Project are :
Year 0 = - $110,300
Year 1 = $31,700 - $7,800 = $23,900
Year 2 = $23,900
Year 3 = $23,900
Year 4 = $23,900
Year 5 = $23,900
Year 6 = $23,900
Use the financial calculator to input the values as follows
CF0 = - $110,300
CF1 = $23,900
CF2 = $23,900
CF3 = $23,900
CF4 = $23,900
CF5 = $23,900
CF6 = $23,900
P/yr = 1
r = 11 %
Net Present Value will be - $9,190.1453
Prepare journal entries to record the following four separate issuances of stock.
1. A corporation issued 8,000 shares of $20 par value common stock for $192,000 cash.
2. A corporation issued 4,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $33,000. The stock has a $1 per share stated value.
3. A corporation issued 4,000 shares of no-par common stock to its promoters in exchange for their efforts, estimated to be worth $33,000. The stock has no stated value.
4. A corporation issued 2,000 shares of $75 par value preferred stock for $183,000 cash.
Answer:
1.
DR Cash $192,000
CR Common stock. $160,000
CR Paid-in capital in excess of par value - Common stock $32,000
Working
Common Stock = $20 * 8,000
= $160,000
Paid-in capital in excess of par value - Common stock = 192,000 - 160,000
= $32,000
2
DR Organization expenses $33,000
CR Common stock, $4,000
CR Paid-in capital in excess of stated value - common stock $29,000
Working
Common Stock = 1 * 4,000
= $4,000
Paid-in capital in excess of stated value, common stock = 33,000 - 4,000
= $29,000
3
DR Organization expenses $33,000
CR Common stock $33,000
4
DR Cash $183,000
CR Preferred stock $150,000
CR Paid-in capital in excess of par value - preferred stock $33,000
Working
Preferred Stock = 75 * 2,000
= $150,000
Paid-in capital in excess of par value - preferred stock = 183,000 - 150,000
= $33,000
Suppose investors can earn a return of 2% per 6 months on a Treasury note with 6 months remaining until maturity. The face value of the T-bill is $10,000. What price would you expect a 6-month maturity Treasury bill to sell for?
Answer:
Price of treasury bill = $9,803.92
Explanation:
The price of the treasury note would be the present value of the future receivable on maturity discounted at the rate of return of 2% per six-month.
The formula is FV = PV × (1+r)^(n)
PV = Present Value- ?
FV - Future Value, - 10,000
n- number of years- 1/2
r- interest rate - 2%
PV = 10,000 × (1.02)^(-1)
PV = 9,803.92
Price of treasury bill = $9,803.92
Sampson Co. sold merchandise to Batson Co. on account, $46,000, terms 2/15, net 45. The cost of the merchandise sold is $38,500. Batson Co. paid the invoice within the discount period. Assume both Sampson and Batson use a perpetual inventory system.
Required:
Prepare the entries that both Sampson and Batson Companies would record.
Answer:
Sampson Company
Dr Accounts Receivable -Batson Co.45,080
Cr Sales 45,080
Dr Cost of Merchandise Sold38,500
Cr Merchandise Inventory38,500
Dr Cash 45,080
Cr Accounts Receivable-Batson Co.45,080
Batson Company
Dr Merchandise Inventory45,080
Cr Accounts Payable - Sampson Co.45,080
Dr Accounts Payable -Sampson Co.45,080
Cr Cash45,080
Explanation:
Preparation of the Journal entries for both Sampson and Batson Companies would record
Based on the information given we were told that Sampson Company sold merchandise to Batson Company At the amount of $46,000 with 2/15 term while the merchandise was sold at the amount of $38,500 and since we are Assuming that both of them uses a perpetual inventory system this means the transaction will be recorded as:
Journal Entries for Sampson Company
Dr Accounts Receivable -Batson Co.45,080
Cr Sales 45,080
(2%*46,000=920)
(45,000-920=45,080)
Dr Cost of Merchandise Sold38,500
Cr Merchandise Inventory38,500
Dr Cash 45,080
Cr Accounts Receivable-Batson Co.45,080
Journal Entries for Batson Company
Dr Merchandise Inventory45,080
Cr Accounts Payable - Sampson Co.45,080
(2%*46,000=920)
(45,000-920=45,080)
Dr Accounts Payable -Sampson Co.45,080
Cr Cash45,080
(2%*46,000=920)
(45,000-920=45,080)
1. On January 1, 2020, Scottsdale Company issued its 12% bonds in the face amount of $3,000,000, which mature on January 1, 2032. The bonds were issued for $$3,408,818 to yield 10%. Scottsdale uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. The 12/31/23 Premium on Bond Payable balance is:
Answer:
Premium ob bonds payable = $320,090.44 (credit balance)
Explanation:
January 1, 2020
Dr Cash 3,408,818
Cr Bonds payable 3,000,000
Cr Premium on bonds payable 408,818
January 1, 2021
Dr Interest expense 340,881.80
Dr Premium on bonds payable 19,118.20
Cr Cash 360,000
($3,408,818 x 0.1) - $360,000 = -$19,118.20
January 1, 2022
Dr Interest expense 338,969.98
Dr Premium on bonds payable 21,030.02
Cr Cash 360,000
($3,389,699.80 x 0.1) - $360,000 = -$21,030.02
January 1, 2023
Dr Interest expense 336,866.98
Dr Premium on bonds payable 23,133.02
Cr Cash 360,000
($3,368,669.78 x 0.1) - $360,000 = -$23,133.02
December 31, 2023
Dr Interest expense 334,553.68
Dr Premium on bonds payable 25,446.32
Cr Interest payable 360,000
($3,345,536.76 x 0.1) - $360,000 = -$25,446.32
On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $54,480. Calvin Co. has one recorded asset, a specialized production machine with a book value of $10,000 and no liabilities. The fair value of the machine is $78,000, and the remaining useful life is estimated to be 10 years. Any remaining excess fair value is attributable to an unrecorded process trade secret with an estimated future life of 4 years. Calvin’s total acquisition date fair value is $90,800.
At the end of the year, Calvin reports the following in its financial statements:
Revenues 65,550 Machine 13,590 Common stock 10,000
Expenses 29,250 Other assets 27,710 Retained earnings 31,300
Net income 36,300 Total assets 41,300 Total equity 41,300
Dividends paid 5,000
Required:
Determine the amounts that Beckman should report in its year-end consolidated financial statements for noncontrolling interest in subsidiary income, noncontrolling interest, Calvin’s machine (net of accumulated depreciation), and the process trade secret.
Answer:
Beckman noncontrolling interest in subsidiary income $10,520
Calvin Machine (net of accumulated depreciation) $71,200
Explanation:
To calculate noncontrolling interest in subsidiary's income;
Revenue $65,550
Expenses $39,250 (29,250 + $6,800 + $3,200)
Net Income $26,300
Noncontrolling percentage = 40%
NonControlling Income = $10,520
Depreciation of Machine = [tex]\frac{Fair value of Machine - Book value}{estimated useful life}[/tex]
[tex]\frac{78,000 - 10,000}{10 years}[/tex] = 6,800 per annum
Amortization of trade secrets = [tex]\frac{Fair Value Total - Machine value}{Useful life}[/tex]
Amortization of trade secrets = [tex]\frac{90,800 - 78,000}{4 years}[/tex]
= 3,200
A company makes a product that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows: Sales $ 2,080,000 Variable expenses 1,040,000 Contribution margin 1,040,000 Fixed expenses 200,000 Net operating income $ 840,000 The company president wants to add new features to the product, which will increase the variable expenses by $1.90 per unit. She thinks that the new features, combined with some increase in marketing spending, would increase this year's sales by 25%. How much could the president increase this year's fixed marketing expense and still earn the same $840,000 net operating income as last year
Answer:
The president could increase this year's fixed marketing expense and still earn the same $840,000 net operating income as last year if the increase in fixed marketing expense does not exceed in total amount than $198,250.
Explanation:
a) Data and Calculations:
Income Statement Last Year's This Year's
Sales $ 2,080,000 $2,600,000 ($2,080,000 x 1.25)
Variable expenses 1,040,000 1,361,750 (32,500 x $41.90)
Contribution margin 1,040,000 $1,238,250
Fixed expenses 200,000 398,250 ($198,250)
Net operating income $ 840,000 $840,000
Garcia Company issues 10%, 15-year bonds with a par value of $230,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of 117 1/4. The effective interest method is used to allocate interest expense.
1. Using the implied selling price of 117 1/4, what are the issuer's cash proceeds from issuance of these bonds.
2. What total amount of bond interest expense will be recognized over the life of these bonds?
3. What amount of bond interest expense is recorded on the first interest payment date?
Answer:
A.$269,675
B.$305,325
C.$10,787
Explanation:
Requirement A Cash proceeds
Cash proceeds can find out by multiplying par value with the selling price
Cash proceeds = Par Value x Selling price
Cash proceeds = $230,000 x 117.25%
Cash proceeds = $269,675
Requirement B Interest Expense
Bond interest expense =Total repayment -Amount borrowed(REQ.A)
Bond interest expense = $575,000(w) - $269,675
Bond interest expense = $305,325
Workings
Semi-annual interest expense = $230,000 x 10% x 6/12
Semi-annual interest expense = $11,500
Total payment would be 30 for 15 years
Total payment = $11,500 x 30
Total payment = $345,000
Total repayment = Par value + $345,000
Total repayment = $230,000 + $345,000
Total repayment = $575,000
Requirement C Bond interest expense on the first interest payment date
Bond interest Expense = $269,675(REQ.A) x 8% x 6/12
Bond interest Expense = $10,787
A company’s perpetual preferred stock pays an annual dividend of $2.10 per share. The preferred stock’s market value is $36.04 per share and the company’s tax rate is 30%. If the flotation costs for preferred stock are 6%, what is the company’s annual cost of new preferred stock financing? Question 4 options: 1) 5.87% 2) 7.25% 3) 6.54% 4) 6.20% 5) 5.41%
Answer:
6.20%
Explanation:
The company’s annual cost of new preferred stock financing is the annual dividend payable on the preferred stock divided by the net price of the stock
annual dividend is $2.10
net price=market price*(1-flotation cost %)
net price=$36.04 *(1-6%)
net price=$ 33.88
company’s annual cost of new preferred stock financing=$2.10/$33.88
company’s annual cost of new preferred stock financing==6.20%
Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and desired investment is $6 billion. Net foreign lending would be equal to
Answer:
Net foreign lending would be equal to $4 billion.
Explanation:
This can be computed using the formula for computing the total output of an open economy as follows:
Y = C + G + I + NX .................................. (1)
Where;
Y = Total Output = $35 billion
C = Desired consumption = $15 billion
G = Government purchases = $10 billion
I = Desired investment = $6 billion
NX = Net foreign lending = ?
Substituting the values into equation (1) and solve for NX, we have:
$35 = $15 + $10 + $6 + NX
$35 - $15 - $10 - $6 = NX
NX = $4 billion
Therefore, net foreign lending would be equal to $4 billion.
Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 5%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies.
For years, Worley believed that the 5% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown below:
Activity Cost Pool (Activity Measure) Total Cost Total Activity
Customer deliveries (Number of deliveries) $ 500,000 5,000 deliveries
Manual order processing (Number of manual orders) 248,000 4,000 orders
Electronic order processing (Number of electronic orders) 200,000 12,500 orders
Line item picking (Number of line items picked) 450,000 450,000 line items
Other organization-sustaining costs (None) 602,000
Total selling and administrative expenses $ 2,000,000
Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley $30,000 to buy from its manufacturers):
Activity
Activity Measure University Memorial
Number of deliveries 10 25
Number of manual orders 0 30
Number of electronic orders 15 0
Number of line items picked 120 250
Required:
Compute the total revenue that Worley would receive from University and Memorial.
Answer is complete and correct
Total Revenue
University $ 31,500
Memorial $ 31,500
Answer:
Worley CompanyComputation of Total Revenue from University and Memorial:
Total Cost = $38,541.00
Mark-up (5%) $1,927.05
Total Revenue $40,468.05
Explanation:
a) Data and Calculations:
Activity Cost Pool (Activity Measure) Total Cost Total Activity
Customer deliveries (Number of deliveries) $ 500,000 5,000 deliveries
Manual order (Number of manual orders) 248,000 4,000 orders
processing
Electronic order (Number of electronic orders) 200,000 12,500 orders
processing
Line item picking (Number of line items picked) 450,000 450,000 line items
Other organization-sustaining costs (None) 602,000
Total selling and administrative expenses $ 2,000,000
Data on University and Memorial Hospitals:
Activity Measure University Memorial
Number of deliveries 10 25
Number of manual orders 0 30
Number of electronic orders 15 0
Number of line items picked 120 250
Activity Rates:
Customer deliveries (Number of deliveries) $ 500,000/5,000 = $100
Manual order (Number of manual orders) 248,000/4,000 = $62
processing
Electronic order (Number of electronic orders) 200,000/12,500 = $16
processing
Line item picking (Number of line items picked) 450,000/450,000 = $1
Other organization-sustaining costs (None) 602,000
Cost of Selling and Administrative Expenses to the two hospitals:
Activity Measure University Memorial Total Total Cost
Number of deliveries 10 25 35 $3,500
Number of manual orders 0 30 30 $1,860
Number of electronic orders 15 0 15 $240
Number of line items picked 120 250 370 $370
Total Selling and Administrative Expenses $5,970
Cost of medical supplies = $30,000
Selling and administrative expenses = $5,970
Fixed costs = $2,571
($5,970/$1,398,000 x $602,000)
Total Cost = $38,541
Mark-up (5%) $1,927.05
Selling price $40,468.05
b) The case stated that both University and Memorial had purchased a total quantity of medical supplies that had cost Worley $30,000 to buy from its manufacturers. This implies that each hospital did not buy supplies that had cost Worley $30,000 for each. Based on this assumed fact from the case, the total revenue that Worley would collect from the two hospitals after keying in the selling and distribution and head office fixed costs, to get a total cost of $38,541.00 and adding the 5% markup, the revenue that Worley would receive would be $40,468.05 ($38,541 x 1.05).
The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows:
P0=D1/(rs−g)
If you were analyzing the consumer goods Industry, for which kind of company in the industry would the constant growth model work best?
a. Young companies with unpredictable earnings
b. Mature companies with relatively predictable earnings
c. All companies
In order to achieve the target for the nominal interest rate established by the monetary policy rule, the central bank adjusts:
Answer: C. the money supply.
Explanation:
The Money Supply in an economy can be adjusted to influence interest rates due to the indirect relationship that exists between them. This means that when there is a high money supply, interest rates are lower and vice versa.
The Central Bank controls how much money is in the economy by using Open Market operations that buy or sell government securities as well as reserve requirements on banks.
You own two different energy drink brands with similar elasticities: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow", you can only increase your total sales if
Answer: b. Prices for “600 minute energy” are reduced
Explanation:
The drinks have similar elasticities so they are substitutes. This means that reducing the price of one will cause people to demand less of the other drink. By reducing the price of "Blue Cow", there will be less demand for "600 minute energy".
To increase total sales therefore, the effects of the decrease in the price of Blue Cow must be counteracted. To do so, the price of 600 minute energy must be reduced as well. This way people will demand the two drinks more. This reduction will draw in people buying other drinks apart from these 2 thereby increasing total sales.
Suppose that on January 1, the cost of borrowing French francs for the year is 18%. During the year, U.S. inflation is 5%, and French inflation is 9%. At the same time, the exchange rate changes from FF 1 = $0.15 on January 1 to FF 1 = $0.10 on December 31. What was the real U.S. dollar cost of borrowing francs (real interest rate in U.S.) for the year?
Answer:
-25.08%.
Explanation:
Given that, during the year, the franc devalued by (0.15 - 0.10)/0.15 = 33.33%.
Then, the nominal dollar cost of borrowing French francs, therefore, was 0.18(1 - 0.3333) - 0.3333 = -21.33%.
Thus, for each dollar's worth of francs borrowed on January 1, it cost only $1 - $0.2133 = $0.7867 to repay the principal plus interest.
Also, with U.S. inflation of 5% during the year, the real dollar cost of repaying the principal and interest is $0.7867/1.05 = $0.7492.
Subtracting the original $1 borrowed, it shows that the real dollar cost of repaying the franc loan is -$0.2508 or a real dollar interest rate of -25.08%.
The Suds Corporation has just suffered significant losses of revenue for three quarters in a row, and the shareholders are furious. Much of the loss can be attributed to the board's decision to change from their traditional lager beer to a lighter and smoother brew. Unfortunately, the new recipe alienated current customers and failed to bring in new customers. Although Suds has announced that it will return to its original product, the shareholders are claiming the board violated its fiduciary duty of care, and they are suing the directors personally for their significant losses. What must the shareholders prove to win their lawsuit
Answer and Explanation:
The fiduciary duty of care also called duty of care is the fudicaiary responsibility that requires board directors of a company to act and make decisions in good faith, having the best interest of the company in mind. This duty(whether written or implied) makes board directors responsible in ensuring that decisions made for the company are sound, ethical and legal.
In the above example, board directors of the suds corporation may have not performed this duty as required but this would depend on thorough investigation to ascertain the method and process by which the decision was arrived on. For instance, we are sure the decision was legal and also ethical(as they were only out to improve on company products and increase revenue likewise), we are not sure however of the soundness of this decision. This leads us to investigate the processes and results obtained from enquiring/researching on this new product decided on by the board. Therefore was it sound according to these results and processes. This is where evidence of a breach of duty by the board may be found
Fit-for-Life Foods reports the following income statement accounts for the year ended December 31
Gain on sale of equipment $ 6,250 Depreciation expense—Office copier $ 500
Office supplies expense 700 Sales discounts 16,000
Insurance expense 1,300 Sales returns and allowances 4,000
Sales 220,000 TV advertising expense 2,000
Office salaries expense 32,500 Interest revenue 750
Rent expense—Selling space 10,000 Cost of goods sold 90,000
Sales staff wages 23,000 Sales commission expense 13,000
Prepare a multiple-step income statement.
Answer:
Fit-for-Life Foods
Multiple-step income statement, for the year ended December 31
Sales 220,000
Less Sales returns and allowances (4,000)
Net Revenue 216,000
Less Cost of goods sold (90,000)
Gross Profit 126,000
Less Operating Expenses :
General and Administrative Expenses
Gain on sale of equipment ( 6,250)
Office supplies expense 700
Depreciation expense—Office copier 500
Insurance expense 1,300
Office salaries expense 32,500 (28,750)
Selling and Distribution Expenses
TV advertising expense 2,000
Sales discounts 16,000
Sales commission expense 13,000
Sales staff wages 23,000
Rent expense—Selling space 10,000 (64,000)
Operating Income / (Loss) 33,250
Less Non - Operating Expenses
Interest revenue 750
Net Income / (Loss) 34,000
Explanation:
A multiple-step income statement shows separately profit generated from Primary Activities of the Company (Operating Profit) and profits that included Secondary Activities of the Company (Net Profit)
Since stock prices will shift in response to unpredictable future news, these prices will tend to follow what mathematicians call _________________.
Answer:
a random walk with a trend
Explanation:
This model assumes that in each period the stock prices would take a random step away from what was its previous value.
Stock prices cannot be predicted therefore they are a random walk. Future prices cannot be predicted by what used to be the prices in the past. Stock prices change in response to unpredictable future news, hence they follow a random walk with a trend.