Eaton Tool Company has fixed costs of $266, 600, sells its units for $68, and has variable costs of $37 per unit. a. Compute the break-even point.
b. Ms. Eaton comes up with a new plan to cut fixed costs to $210,000. However, more labor will now be required, which will increase variable costs per unit to $40. The sales price will remain at $68. What is the new break-even point?
c. . Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)?
a. Profitability will be less
b. Profitability will be more
Answers
Answer:
a. $584,800
b. $510,000
c. Profitability will be more
Explanation:
a.
Contribution Margin = Selling price - variable cost = $68 - $37 = $31
The break-even point is the level of sales at which the business incur no profit no loss.Fixed and variable costs are covered at this level of sales. Use following formula of break-even to calculate the fixed cost.
Break-even point = Fixed cost / Contribution margin ratio
Break-even point = $266,600 / ($31 / $68) = $584,800
b.
Contribution Margin = Selling price - variable cost = $68 - $40 = $28
Break-even point = Fixed cost / Contribution margin ratio
Break-even point = $210,000 / ($28 / $68) = $510,000
c.
As the break-even point is decreases it means the cost of associated with the product is decreased because the selling price remains constant. Although there is an increase in the variable cost but reduction in fixed cost has more effect than increase in variable cost.
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On January 1, 20X8, Peta Company acquired 85 percent of Star Company's common stock for $100,000 cash. The fair value of the noncontrolling interest was determined to be 15 percent of the book value of Star at that date. What portion of the retained earnings reported in the consolidated balance sheet prepared immediately after the business combination is assigned to the noncontrolling interest
Answers
Answer: The following journal entries would be recorded upon disposal of the equipment:
Debit Credit
Cash $100,000
Accumulated depreciation $140,000
Equipment $250,000
Loss on disposal of asset $10,000
Explanation: Using the straight-line method of depreciation, the following formula applies: (Historical cost - Salvage value) / No of years
Depreciation = ($250,000 - $50,000) / 5 years = $40,000 yearly
Accumulated depreciation (January 1, 2010 - July 1, 2013) for three and half years is $140,000 (3.5 years * $40,000). This means that the equipment had a net book value (NBV) of $110,000 as at the time of disposal. So, the above entries would eliminate the asset in the books and recognise the loss on disposal (sales proceed was less than the NBV).
Answers
Answer:
Allocated administrative expense to Meat department = $17,000
Explanation:
The basis of allocating the administrative expense is the floor space occupied by the the department.
Administrative expense
= Floor space occupied/Total floor area × Administrative expense
Total floor area= (1,470+980+2,450)= 4,900 square feet
Floor area occupied by meat department = 2,450
Administrative expense = $34,000
Allocated administrative expense to Meat department:
= (2,450/4,900) × $34,000 = $17,000
= $17,000
Answer:
$17,000
Explanation:
Using the floor spacing occupied by each department as the basis for the allocation of the administrative expense. In other words, the bigger the square feet occupied, the bigger the total administrative expense to be allocated.
Given
Department Square Feet Dollar Sales
Produce 1,470 $ 99,000
Bakery 980 $ 49,000
Meats 2,450 $ 61,000
Totals 4,900 $ 209,000
And the Amount Administrative Square feet of floor space $ 34,000
Then the administrative cost allocated to the meat department
= (2450/4900) * $ 34,000
= $17,000
Answers
Answer:
Ending Inventory $ 64,000
Explanation:
To define the final inventory of the company it's necessary to find the cost of good of the period.
As the company had a 43% of gross profit, it means that for every dollar of sales we have 0,43 dollar of Gross Profit, with this value is possible to know the total cost of the goods sold during the period, that it's the difference between Sales Revenue and Gross Profit.
Total Sales Revenue had to be the net value after returns and discounts as it's detailed.
Income Statement
Sales revenue $ 300,000
Cost of goods sold -$ 171,000
Gross Profit $ 129,000 43%
Beginning Inventory $ 60,000
Purchases $ 175,000
Cost of goods sold -$ 171,000
Ending Inventory $ 64,000
Answers
Answer:
- Identical products, as well as a large number of buyers and sellers, are characteristics of a market. In such markets, sellers of goods influence the prevailing market price, giving them the role of price in the market. FALSE: This characteristics correspond to competitive markets, which are those markets where prices are determined by sellers and buyers simultaniouslly, and, none of them individually can exert influence over prices (nor sellers or buyers in particular) . Aditionally, goods or services must be homogeneous or equal.
- The market for digital cable does not exhibit the two primary characteristics that define perfectly competitive markets: TRUE: digital cable is not an identical product (different sellers offer different options of channels, the service they offer is heterogeneous) and there are not many sellers, in a way that they cannot exert influence over prices. Then, it is not a competitive market.
Answers
Answer:
The amount that could be justified now for the purchase of this piece of equipment is $73,747.41.
Explanation:
Note: This question is not complete as all the data in it are omitted. A complete question is therefore provided before answering the question as follows:
It is estimated that a certain piece of equipment can save $22,000 per year in labor and materials cost. The equipment has an expected life of five years and no market value. If the company must earn a 15% annual return on such investments, how much could be justified now for the purchase of this piece of equipment?
The explanation to the answer is now given as follows:
To calculate this, the formula for calculating the present value of an ordinary annuity is used as follows:
PV = P * [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)
Where;
PV = Present value of the amount to justify the equipment purchase = ?
P = yearly savings in labor and materials costs = $22,000
r = annual return rate = 15% = 0.15
n = Equipment has an expected life = 5
Substitute the values into equation (1) to have:
PV = $22,000 * [{1 - [1 / (1 + 0.15)]^5} / 0.15]
PV = $22,000 * [{1 - [1 / 1.15]^5} / 0.15]
PV = $22,000 * [{1 - 0.869565217391304^5} / 0.15]
PV = $22,000 * [{1 - 0.497176735298289} / 0.15]
PV = $22,000 * [0.502823264701711 / 0.15]
PV = $22,000 * 3.35215509801141
PV = $73,747.41
Therefore, the amount that could be justified now for the purchase of this piece of equipment is $73,747.41.
Final answer:
The question asks about the amount a company can justify spending on equipment, based on expected savings and a required rate of return. This requires understanding the concept of Present Value in financial calculations, using the formula PV = CF / (1 + r.
Explanation:
The problem is related to the concept of Present Value in finance. Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return. In this scenario, the stream of cash flows is the annual savings in labor and materials costs due to the equipment. The return rate is the annual return the company requires on such investments.
To calculate the present value, use the formula:
PV = CF / (1 + r
Where:
PV is the Present Value
CF is the annual savings (Cash flow)
r is the annual return rate
n is the expected life of the equipment.
Plug in the given values into this formula to get the amount the company could justify for the purchase of this equipment. Do remember, the rate (r) is expressed in decimal, so if the annual return is say, 5%, use 0.05 in the formula.
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Answers
Answer and step-by-step explanation:
Step 1: Calculation of net accounts receivable on December 31, 2017
Net accounts receivable
= Accounts Receivable - Allowance for Doubtful Debts
= $800,000 - $55,000
= $745,000
The company shall report its net accounts receivable on December 31, 2017 as $745,000.
Step 2: Journal entry to write off the accounts:
Debit Credit
2-Jan-2018 Allowance for doubtful debts $10,000
Accounts receivable $10,000
Writing off debts not collectible
Step 3: Calculation of net accounts receivable on January 3, 2018:
Net accounts receivable
= Accounts Receivable - Allowance for Doubtful Debts
= $790,000 - $45,000
= $745,000
The company shall report its net accounts receivable on January 3, 2018 as $745,000. The net accounts receivable has not changed from December 31, 2017 because the write-offs worth $10,000 were estimated and allowed for in 2017. Hence, the decrease in accounts receivable is offset by an equal decrease in the allowance for doubtful debts.
Final answer:
Extreme Fitness had a Net Accounts Receivable of $745,000 on December 31, 2017. Even after the write-off of certain accounts totalling $10,000 on January 2, 2018, the Net Accounts Receivable strikes the same balance on January 3, 2018, because the write-off affects both the Accounts Receivable and Allowance for Doubtful Accounts equally.
Explanation:
On December 31, 2017, Extreme Fitness had a balance of $800,000 in Accounts Receivable. This amount was offset by a balance of $55,000 in Allowance for Doubtful Accounts, resulting in a Net Accounts Receivable of $745,000 ($800,000 - $55,000).
The company learnt on January 2, 2018, about certain uncollectible accounts and authorized a write-off of $10,000. The journal entry for this would be Debit: Allowance for Doubtful Accounts $10,000 and Credit: Accounts Receivable $10,000. This reduces the Book Value of Accounts Receivable by the write-off amount but does not affect the Net Accounts Receivable.
Thus, post the write-off action on January 3, 2018, the total Accounts Receivable would reduce to $790,000 ($800,000 - $10,000), and the Allowance for Doubtful Accounts would reduce to $45,000 ($55,000 - $10,000). The Net Accounts Receivable, however, still stays at $745,000 ($790,000 - $45,000), just as it was on December 31, 2017.
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