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Demonstration Problem 2-2 Effect of Cost Structure

Which of the following is least likely to result in product innovations that have near-term commercial application?

Which of the following is the appropriate journal entry if a company performs a service and is paid immediately?

Which of the following estimates are required when calculating depreciation expense?

June 24, 2019/in Uncategorized /by John

Demonstration Problem 2-2 Effect of Cost Structure (3 pts.)

My Company / Your Company

My Company and Your Company provide rafting tours on Big Bear River. My Company pays tour guides fixed salaries. It budgets salaries expense at $160,000 per year. Your Company pays tour guides $40 per rafter served. Rafters are charged $50 per tour. Both companies expect to carry approximately 4,000 rafters during the year.

Required

a. Prepare budgeted annual income statements for the two companies.

b. In an effort to lure rafters away from Your Company, My Company lowers the price per rafter to $39. Prepare revised income statements for both companies. Assume that My Company serves 6,000 rafters who each pay $39 per tour, while Your Company serves only 2,000 rafters who pay $50 per tour.

d. Suppose Your Company matches the $39 price set by My Company. Prepare income statements for both companies assuming that each company serves 4,000 customers.

Demonstration Problem 2-2 Work Papers

		MyCompany	YourCompany
Number of Rafters		4,000	4,000

Revenue
Cost of Guides My Company	Fixed
Cost of Guides Your Company	Variable
Net income

		MyCompany	YourCompany
Number of Rafters (a)		6,000	2,000

Revenue My Company
Revenue Your Company
Cost of Guides My Company	Fixed
Cost of Guides Your Company	Variable
Net Income

		MyCompany	YourCompany
Number of Rafters		4,000	4,000

Revenue
Cost of Guides My Company	Fixed
Cost of Guides Your Company	Variable
Net Loss

Demonstration Problem 2-3 Effect of Operating Leverage (2 pts.)

Sharon Virgil owns a delivery service company. She charges customers $10 per delivery. The companyA????1s variable expenses average $2 per delivery and fixed costs are $600 per month. Ms. Virgil provided 100 deliveries during the most recent month.

Required

a. Prepare an income statement using a contribution margin format.

b. Determine the magnitude of operating leverage. Use your answer to determine the percentage change in net income if sales increase by 10%.

c. Assume that sales increase by 10% (deliveries increase to 110). Prepare a contribution margin format income statement assuming 110 deliveries. Calculate the percentage change in net income and compare your answer with your solution to part b.

Demonstration Problem 2-3 Work Papers

Income Statement Using a Contribution Margin Format, Volume of 100 Deliveries


Revenue
Variable Expenses
Contribution Margin
Fixed Expenses
Net Income

Magnitude of Operating Leverage = Contribution Margin A????1 Net Income:

$________ A????1 $_________ = ___ times.

Therefore, a 10% increase in sales will produce a _________ increase in net income. Similarly, a 10% decrease in sales will produce a __________ decrease in net income.

Income Statement Using a Contribution Margin Format, Volume of 110 Deliveries


Revenue
Variable Expenses
Contribution Margin
Fixed Expenses
Net Income

(Alternative Net Income – Base Net Income) A????1 Base:

($______ – $______) A????1 $______ = _____%

Demonstration Problem 3-1 Cost-Volume-Profit Analysis (10)

Jeff Jamail is evaluating a business opportunity to sell cookware at trade shows. Mr. Jamail can buy the cookware at a wholesale cost of $210 per set. He plans to sell the cookware for $350 per set. He estimates fixed costs such as plane fare, booth rental cost, and lodging to be $5,600 per trade show.

Required

a. Determine the number of cookware sets Mr. Jamail must sell at a trade show to break even (zero profit or loss). Use the following structure to answer this question:

(1) Contribution Margin Per Unit Approach:

a. Determine the amount of the contribution margin per unit.

b. Explain that when the total contribution margin is sufficient to pay for the fixed cost, Mr. Jamail will break even. Show the computation of break-even in units.

c. Show how to compute the break-even point in number of dollars using the break-even point in units and the selling price.

d. Confirm the results by preparing an income statement.

(1) Contribution Margin Per Unit Approach

(a) Determine the contribution margin per unit.

Per Unit Contribution Margin
Sales Price	$

	$

(b) When the total contribution margin is sufficient to pay for the fixed costs, Mr. Jamail will break even. The number of units required to break even can be computed as follows:

Formula for Computation of Break-Even Point in Units

		$
—————————–	=	————	=
		$

(c) The break-even point in number of dollars can be computed as follows:

Break-Even Point in Sales Dollars

Sales Price Per Unit	$

	$

(d) Confirm the results by preparing an income statement.

Income Statement

Sales	$
	( )

	( )
Net Income	$ 0

(2) Contribution Margin Ratio Approach.

a. Calculate the contribution margin ratio.

b. Use the ratio to calculate the break-even point in sales dollars, then use the results and the selling price to calculate the break-even point in units.

(2) Contribution Margin Ratio Approach

(a) The contribution margin ratio is computed as follows.

(b) Using the contribution margin ratio, calculate the break-even point in sales dollars and units.

(3) Equation Approach.

a. Calculate the break-even point in units.

b. Calculate the break-even point in sales dollars.

(3) Equation Approach

(a) Use the break-even equation and solve for number of units:

Break-Even Equation

(b) Compute the break-even point in dollars as in part a3 above:

Break-Even Point in Sales Dollars

Sales Price	$

	$

b. Assume Mr. Jamail desires to earn a profit of $4,900 per show.

(1) Determine the sales volume in units (sets of cookware) necessary to earn the desired profit.

(2) Determine the sales volume in dollars necessary to earn the desired profit.

(3) Using the contribution margin format, prepare an income statement to confirm your answers to parts 1 and 2.

(1) Sales Volume Required to Earn a Desired Profit

Formula for Computation of Sales Volume Necessary to Earn a Target Profit of $4,900


—————————————	=	———————	=

(2) Determine the sales volume in dollars required to earn the desired profit.

Required Sales in Number of Dollars

Sales Price	$

	$

(3) Confirm the answers by preparing an income statement.

Income Statement

Sales	$
	( )

	( )
Net Income	$

Determine the margin of safety between the sales volume at the break-even point and the sales volume required to earn the desired profit.Determine the margin of safety both in sales dollars and as a percentage.

c. Margin of Safety

(1) Margin of Safety Expressed in Sales Dollars:

Margin of Safety

	$

	$12,250

(2) Margin of Safety Expressed as a Percentage:

Margin of Safety Percentage


———————-	=	——————	=

June 24, 2019/in Uncategorized /by John

1. Making plans for how products that have reached the end of their useful lives will be dealt with is the primary subject of.

		cradle-to-grave assessment.
		end-of-life programs.
		life-cycle analysis.
		three R’s programs.
		process mapping.2. Which of the following is an example of a postponement tactic? mass customization standardization process mapping delayed differentiation service blueprinting3. Similar to that in manufacturing, the service scheduling hierarchy begins with __________ and ends with _________. aggregate planning; detailed daily scheduling aggregate planning; master scheduling master scheduling; detailed material planning aggregate planning; detailed material planning quarterly planning; monthly planning4. In a decision-making setting, if the manager has to contend with limits on the amount of information he or she can consider, this __________ can lead to a poor decision. bounded rationality suboptimization risk aversion misspecification complexification5. Which one of these is not used in decision making under risk? EVPI EMV decision trees minimax regret All are used for risk situations.

6. A decision maker’s worst option has an expected value of $1,000, and her best option has an expected value of $3,000. With perfect information, the expected value would be $5,000. The decision maker has discovered a firm that will, for a fee of $1,000, make her position-risk free. How much better off will her firm be if she takes this firm up on its offer?

		$5,000
		$4,000
		$3,000
		$2,000
		$1,0007. A systemic view of the organization and its operations processes can help minimize the risk of __________ leading to a poor decision. bounded rationality suboptimization risk aversion misspecification complexification8. A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called a. payoff table. feasible region. Laplace table. decision tree. payback period matrix.

		9. Which of the following is least likely to result in product innovations that have near-term commercial application? process blueprinting development applied research quality function deployment basic research

June 24, 2019/in Uncategorized /by John

9. Which of the following is the appropriate journal entry if a company performs a service and is paid immediately?

A. Debit to Cash, Debit to Revenue

B. Debit to Cash, Credit to Revenue

C. Debit to Accounts Receivable, Credit to Cash

D. Debit to Revenue, Credit to Accounts Receivable

E. Debit to Accounts Receivable, Credit to Revenue

10. Which of the following is the appropriate journal entry if a company purchases equipment costing $100,000 by paying cash of $10,000?

A. Debit to Cash, Debit to Equipment, Credit to Accounts Payable

B. No entry should be made

C. Debit to Equipment, Credit to Notes Payable, Credit to Cash

D. Debit to Cash, Debit to Notes Payable, Credit to Equipment

E. Debit to Equipment, Debit to Notes Payable, Credit to Cash

11. What are the total assets for Shiver Ice House?

Common Stock	$120,000	Accounts Payable	$25,000
Cash	$116,640	Accounts Receivable	$22,450
Supplies	$ 1,500	Office Equipment	$23,300
Prepaid Rent	$ 3,200	Unearned Revenue	$ 4,152
Revenue	$ 20,000	Utilities Expense	$ 422
Retained Earnings	$ 30,000	Shaving Equipment	$31,640

A. $291,340

B. $106,962

C. $198,730

D. $218,730

E. $221,580

12. What is net income for Shiver Ice House?

Common Stock	$120,000	Accounts Payable	$25,000
Cash	$116,640	Accounts Receivable	$22,450
Supplies	$ 1,500	Office Equipment	$23,300
Prepaid Rent	$ 3,200	Unearned Revenue	$ 4,152
Revenue	$ 20,000	Utilities Expense	$ 422
Retained Earnings	$ 30,000	Shaving Equipment	$31,640

A. $19,578

B. $20,528

C. $23,728

D. $49,578

E. $24,578

13. What is total for the debits on the Trial Balance for Shiver Ice House?

Common Stock$120,000Accounts Payable$25,000Cash$116,640Accounts Receivable$22,450Supplies$ 1,500Office Equipment$23,300Prepaid Rent$ 3,200Unearned Revenue$ 4,152Revenue$ 20,000Utilities Expense$ 422Retained Earnings$ 30,000Shaving Equipment$31,640

A. $291,340

B. $106,964

C. $199,152

D. $193,390

E. $203.152

14. Find net income using the following transactions.1. Bill Co. paid $2,000 for one month rent

1.Bill Co. paid $2,000 for one month rent2.Bill Co. paid $1,200 for two weeks wages3.Bill Co. performed $5,200 in consulting services on account4.Bill Co billed a customer $1,500 for services performed5.Bill Co. received $5,200 in payment for item 36.Bill Co performed services and immediately collected $2,0007.Bill Co. paid $500 for advertising in the local paper

A. $10,200

B. $ 5,000

C. $ 8,700

D. $13,900

E. $ 7,000

15. During the month of February, Hoffer Company had cash receipts of $7,500 and cash disbursements of $8,600. The February 28 cash balance was $1,800. What was the January 31 beginning cash balance?

A. $700

B. $1,100

C. $2,900

D. $0

E. $4,300

16. Identifying business activities requires selecting transactions and events relevant to an organization. Which of the following events would be recorded in the accounting records of Acme Car Wash?

A. Acme washes 500 cars

B. J.B. Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed

C. Clean Company, a supplier, sells 50 pounds of soap to ABC Company

D. Sudsey Company, a supplier, goes out of business

E. Acme hires Andrea as a receptionist

17. Internal users of accounting information always include: (Points : 1)

A. Shareholders

B. Managers

C. Lenders

D. Suppliers

E. Customers

Contribution Margin Ratio

Contribution

Margin

————————————-

June 24, 2019/in Uncategorized /by John

Question 1

Which of the following estimates are required when calculating depreciation expense?
1.

Depreciation rate
2.

Useful life
3.

Expected maintenance costs
4.

Salvage value

Answer
A.
1, 2, 3, and 4
B.
2 and 4
C.
2, 3, and 4
D.
1, 2, and 4

1 points
Question 2

Which of the following is not necessary in calculating the depreciation expense for the first year for a newly purchased factory forklift?
Answer
A.
Total cost of the forklift at acquisition
B.
Market value of the forklift during its useful life
C.
Estimated salvage value
D.
Depreciation rate
E.
Estimated useful life

1 points
Question 3

At what point is an asset considered to be impaired?
Answer
A.
When the net book value is less than the sum of expected cash flows
B.
When the net book value is less than the market value
C.
When the net book value is greater than the sum of expected cash flows
D.
When the net book value is greater than the market value

1 points
Question 4

AT Company purchased a tractor at a cost of $60,000. The tractor has an estimated salvage value of $10,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2012 and was used 2,400 hours in 2012 and 2,100 hours in 2013. What method of depreciation will produce the maximum depreciation expense in 2013?
Answer
A.
Double-declining-balance
B.
Straight-line
C.
All methods produce the same expense in 2013
D.
Units-of-production

1 points
Question 5

AT Company purchased a tractor at a cost of $60,000 on January 1, 2012. The tractor has an estimated salvage value of $10,000 and an estimated life of 8 years. If AT uses the straight-line method, what is the book value at January 1, 2016?
Answer
A.
$35,000
B.
$25,000
C.
$41,250
D.
Some other answer

1 points
Question 6

Goodwill can be recorded as an asset when:
Answer
A.
An offer is received to purchase the business at a price in excess of the value of the assets
B.
A business has above normal profitability compared to other businesses in its industry
C.
A business can determine that it has created customer goodwill and name recognition
D.
A business is purchased and payment is made in excess if the fair value of the identifiable net assets

1 points
Question 7

How should intangible assets be disclosed on the balance sheet?
Answer
A.
At cost in the current assets section
B.
As a reduction of stockholders’ equity
C.
At the estimated market value at the balance sheet date
D.
Net of the costs already amortized

1 points
Question 8

Which of the following is not a balance sheet category for long-lived assets?
Answer
A.
Plant assets
B.
Revenue expenditures
C.
Intangible assets
D.
None of the above

1 points
Question 9

Which of the following plant assets is not depreciated?
Answer
A.
Leasehold improvements
B.
Equipment
C.
Land for site use
D.
Furniture
E.
All of these are depreciated

1 points
Question 10

Swain, Inc., acquired a machine that involved the following expenditures and related factors:
Gross invoice price

$28,500
Sales tax

1,425
Cash discount taken

570
Freight

675
Assembly of machine

900
Installation of machine

1,350
Assorted spare parts for future use

2,700
Tuning and adjusting machine before use

450

The initial accounting cost of the machine should be:
Answer
A.
$33,870
B.
$32,280
C.
$30,030
D.
$32,730
E.
None of the above

1 points
Question 11

A land site for a new office building is purchased for $180,000. A barn on the site will be razed at a net cost of $10,000. The $10,000 razing expenditure is properly debited to:
Answer
A.
Office Building
B.
Land
C.
Razing Expense
D.
Land Improvements
E.
None of the above

1 points
Question 12

For $5,550,000, Bale, Inc., purchased another company’s land, building, and equipment. Independent appraisals indicate the values of these assets as follows: land, $600,000; building, $3,600,000; and equipment, $1,800,000. How much should be recorded as the acquisition cost of each asset?
Answer
A.
Land, $600,000; building, $3,600,000; equipment, $1,800,000
B.
Land, $555,000; building, $3,330,000; equipment, $1,665,000
C.
Land, $525,000; building, $3,375,000; equipment, $1,650,000
D.
Land, $550,000; building, $3,200,000; equipment, $1,800,000
E.
None of the above

1 points
Question 13

What is the term identifying the expected net recovery from the disposal of a plant asset at the end of its useful life?
Answer
A.
Accumulated depreciation
B.
Salvage value
C.
Depreciation expense
D.
Market value
E.
None of the above

1 points
Question 14

On April 1, 2012, Flyer, Inc., acquired a new machine for $80,000. Its estimated useful life is eight years with an expected salvage value of $8,000. Assuming straight-line depreciation, 2012 depreciation expense is:
Answer
A.
$ 9,000
B.
$ 6,750
C.
$ 7,500
D.
$10,000
E.
None of the above

1 points
Question 15

On January 1, 2012, Casler Company purchased a bottle-capping machine for $80,000. During its useful life, the company expects that the machine will cap 1,500,000 bottles. The machine’s expected salvage value is $5,000. During 2012, the machine capped 250,000 bottles and during 2013, the machine capped 300,000 bottles. Assuming units-of-production depreciation, 2013 depreciation expense is:
Answer
A.
$12,500
B.
$13,333
C.
$15,000
D.
$16,000
E.
None of the above

1 points
Question 16

On January 1, 2012, Global, Inc., purchased a new machine for $60,000. Its estimated useful life is eight years with an expected salvage value of $6,000. Assuming double-declining balance depreciation, 2012 depreciation expense is:
Answer
A.
$ 7,500
B.
$ 6,750
C.
$13,500
D.
$15,000
E.
None of the above

1 points
Question 17

On January 1, 2012, Vandell, Inc., purchased a new machine for $96,000. Its estimated useful life is 16 years with an expected salvage value of $16,000. Assuming double-declining balance depreciation, 2012 depreciation expense is:
Answer
A.
$10,000
B.
$ 6,000
C.
$12,000
D.
$13,500
E.
None of the above

1 points
Question 18

At the end of the expected useful life of a depreciable asset with an estimated 15% salvage value, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods?
Answer
A.
Straight Line

Units-of Production

Double-Declining Balance
No

Yes

B.
Straight Line

Units-of Production

Double-Declining Balance
Yes

Yes

C.
Straight Line

Units-of Production

Double-Declining Balance
No

D.
Straight Line

Units-of Production

Double-Declining Balance
No

Yes

E.
Straight Line

Units-of Production

Double-Declining Balance
Yes

Yes

1 points
Question 19

Barber, Inc., purchased a truck on January 1, 2010, for $36,000. At that time, the truck’s useful life was an estimated four years with no salvage value. Before the entry to record 2013 depreciation was made, the truck’s estimated useful life was changed to six years with a $900 salvage value. Using straight-line deprecation, what is the 2013 depreciation expense?
Answer
A.
$2,700
B.
$6,000
C.
$3,000
D.
$1,350
E.
None of the above

1 points
Question 20

The book value of a depreciable asset is:
Answer
A.
The original cost of the asset
B.
The original cost of the asset less its accumulated depreciation
C.
The original cost of the asset less its salvage value
D.
The accumulated depreciation on the asset
E.
None of the above