Answer:
$84,300
Explanation:
Purchase cost 75000
commission 4500
property taxes 4000
Title insurance 800
Total cost 84300
**Property taxes for current period will be charges as expense and not to be capitalized
Answer:
Decrease in operating income $3,200
Explanation:
The computation is shown below:
Particulars Old method New method
Sales $1,710,000 $1,786,000
(9,000 units × $190) (9,400 units × $190)
Less:
Variable expenses $513,000 $592,200
(9,000 units × $57) (9,400 units × $63)
Contribution margin $1,197,000 $1,193,800
Less:
Fixed expenses ($913,000) ($913,000)
operating income $284,000 $280,800
Decrease in income $3,200
We simply take an difference of operating income under both methods that reflects the decrease in operating income
Machine maintenance ($330,000) machine hours 250 750 1,000
Setups ($630,000) setups 35 20 15
Packing ($166,000) cartons 10 30 60
Photo development ($574,000) pictures 4,400 2,400 1,400
Deluxe textbooks are made with the finest quality paper, six-color printing, and many photographs. Moderate texts are made with three colors and a few photographs spread throughout each chapter. Economy books are printed in black and white and include pictures only in chapter openings.
Required:
Sheridan currently allocates all overhead costs based on machine hours. The company produced the following number of books during the prior year:
Deluxe Moderate Economy
50,000 150,000 200,000
Determine the overhead cost per book for each book type.
Answer:
Deluxe= $4.25 per book
Moderate= $4.25 per book
Economy= $4.25 per book
Explanation:
Giving the following information:
Activity (Cost) Cost Driver Delux Moderate Economy
Machine maintenance ($330,000) machine hours 250 750 1,000
Setups ($630,000)
Packing ($166,000)
Photo development ($574,000)
First, we need to calculate the total overhead cost:
Total overhead= 330,000 + 630,000 + 166,000 + 574,000= 1,700,000
Now, we can calculate the estimated manufacturing overhead rate to allocate overhead to each book type.
The allocation base is machine-hours.
Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Estimated manufacturing overhead rate= 1,700,000/ 2,000= $850 per machine hour.
Now, we can allocate overhead to each book:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Deluxe= $850*250hours= $212,500
Moderate= $850*750hours= $637,500
Economy= $850*1,000= $850,000
Based on the number of units, we can calculate the unitary overhead:
Deluxe= $212,500/50,000= $4.25 per book
Moderate= $637,500/150,000= $4.25 per book
Economy= $850,000/200,000= $4.25 per book
To determine the overhead cost per book for each type, we first establish the cost per unit/activity (machine hour, setup, carton, picture). Then, we multiply each activity cost by the respective number of activities for each book type. Finally, we divide the total overhead cost by the number of books produced. This method is known as Activity-Based Costing.
To determine the overhead cost per book for each book type, Activity-Based Costing (ABC) is used. This cost allocation method assigns overhead costs to each activity (or task) involved in the production process and then allocates these costs to the various products based on the volume of each activity they require.
Step 1: Calculate the cost per driver for each activity.
Step 2: Calculate the total overhead cost for each book type by multiplying the cost per driver by the number of drivers for each activity.
Step 3: To find the overhead cost per book, divide the total overhead cost by the number of books produced.
From this exercise, it is clear that different products consume overhead resources differently and thus can have different per-unit overhead costs when you move from the traditional cost system to the Activity Based Costing method.
#SPj3
Answer:
DrSalaries Expense $960
Cr Salaries Payable $960
Explanation:
Based on the information given we were told that the Company pays each of its two office employees each Friday at the rate of $240 per day which means that if the employees worked on both Monday and Tuesday, the month-end adjusting Journal entry to record the salaries earned but unpaid is:
Dr Salaries Expense $960
Cr Salaries Payable $960
Using this formula to Calculate the amount
Amount = Rate per day * Number of days * Number of employees
Let plug in the formula
Amount= $240 * 2 * 2 employees
Amount= $960
WACC Estimation
The table below gives the balance sheet for Travellers Inn Inc. (TII), a company that was formed by merging a number of regional motel chains.
Travellers Inn: December 31, 2012 (Millions of Dollars)
Cash $10 Accounts payable $10
Accounts receivable 20 Accruals 10
Inventories 20 Short-term debt 5
Current assets $50 Current liabilities $25
Net fixed assets 50 Long-term debt 30
Preferred stock 5
Common equity
Common stock $10
Retained earnings 30
Total common equity $40
Total assets $100 Total liabilities and equity $100
The following facts also apply to TII:
1. Short-term debt consists of bank loans that currently cost 8%, with interest payable quarterly. These loans are used to finance receivables and inventories on a seasonal basis, bank loans are zero in the off-season.
2. The long-term debt consists of 30-year, semiannual payment mortgage bonds with a coupon rate of 8%. Currently, these bonds provide a yield to investors of rd= 12%. If new bonds were sold, they would have a 12% yield to maturity.
3. TII's perpetual preferred stock has a $100 par value, pays a quarterly dividend of $2.50, and has a yield to investors of 11%. New perpetual preferred would have to provide the same yield to investors, and the company would incur a 3% flotation cost to sell it.
4. The company has 4 million shares of common stock outstanding. P0 = $20, but the stock has recently traded in price the range from $17 to $23. D0 = $1 and EPS0 = $2. ROE based on average equity was 26% in 2008, but management expects to increase this return on equity to 31%; however, security analysts and investors generally are not aware of management's optimism in this regard.
5. Betas, as reported by security analysts, range from 1.3 to 1.7; the T-bond rate is 10%; and RPM is estimated by various brokerage houses to be in the range from 4.5% to 5.5%. Some brokerage house analysts reports forecast dividend growth rates in the range of 10% to 15% over the foreseeable future.
6. TII's financial vice president recently polled some pension fund investment managers who hold TII's securities regarding what minimum rate of return on TII's common would make them willing to buy the common rather than TII bonds, given that the bonds yielded 12%. The responses suggested a risk premium over TII bonds of 4 to 6 percentage points.
7. TII is in the 35% federal-plus-state tax bracket.
8. TII's principal investment banker predicts a decline in interest rates, with rd falling to 10% and the T-bond rate to 6%, although the bank acknowledges that an increase in the expected inflation rate could lead to an increase rather than a decrease in interest rates.
Assume that you were recently hired by TII as a financial analyst and that your boss, the treasurer, has asked you to estimate the company's WACC under the assumption that no new equity will be issued. Your cost of capital should be appropriate for use in evaluating projects that are in the same risk class as the assets TII now operates. Do not round intermediate steps. Round your answer to two decimal places.
%
NOTE:
Wrong Answers:
14.29% & 14.76% --> Please someone give me right answer, I am posting same question 4th time; please dont post spam.
--> It's Problem 9-17 of mangerial finance course WACC Estimation problem; required to consider above table with given 8 assumption to get WACC value; it will be only one answer liike 15.12%; 17.32%.....
Answer:
Explanation:
(1) Cost of short-term debt after tax : 8% ( 1 – tax rate)
= 8% ( 1 – 35%)
= 8% (65%)
= 5.2%
Market value of Short term debt ( in million $) = 5
(2) Cost of long-term debt after tax: 8% ( 1 – tax rate)
= 8% ( 1 – 35%)
= 8% (65%)
= 5.2%
Market value of long term debt ( in $ million) = ( par value of Debt * coupon rate) / Yield
= (30 * 8%) / 12%
= 2.4 / 12%
= 20
(3) Market price of preferred stock = annual Dividend / Yield to investor
= ($2.50*4) / 0.11
= $ 10 / 0.11
= $ 90.909
Cost of new preferred stock = Annual dividend / Current market price – floatation cost
= ($2.50*4) / $ 90.909 – ( 3% * $ 90.909)
= $ 10 / $ 90.909 – $ 2.727
= $ 10 / $ 88.182
= 0.1134
= 11.34%
Market value of Preferred stock ($ millions) = Par value of Preferred * Annual Dividend rate / Yield
= 5 * ( $ 10 / $ 100) / 0.11
= 5 * 0.1 / 0.11
= 0.5 / 0.11
= 4.545454
(4) Market value of Common stock ($ millions) = No of common stock outstanding * Current market price
= 4 * 20
= 80
Retention ratio = (1 – dividend pay-out ratio)
= (1 – $1 / $ 2)
= (1 – 0.5)
= 0.5
= 50%
Growth rate = return on equity * retention ratio
= 26% * 0.5
= 13%
Cost of common stock (Alternative 1) = (Dividend for next year / Current market price) + growth rate
= [1 ( 1+ 0.13) / 20 ] + 13%
= [1 ( 1.13) / 20 ] + 13%
= [1.13 / 20 ] + 13%
= 5.65% + 13%
= 18.65%
Cost of common stock (alternative 2) = Risk free rate + Beta (Market risk premium)
= 10% + [(1.3 + 1.7)/2] [(4.5% + 5.5%) /2]
= 10% + [(1.3 + 1.7)/2] [(4.5% + 5.5%) /2]
= 10% + (1.5)( 5%)
=10% + 7.5%
= 17.5%
Cost of Common stock (Alternative 3) = Yield on TII Bond + Average Risk premium
= 12% + (4% + 6%) / 2
= 12% + (10%) / 2
= 12% + 5%
= 17%
Cost of common stock = Highest of Alternative 1, Alternative 2 & Alternative 3
= Highest of (18.65%, 17.5% and 17%)
= 18.65%
Answer : Weighted Average cost of capital (WACC) of Company is 15.28% (take a look to the document attached)
Answer:
manufacturing overhead rate =$12.78
Explanation:
Giving the following information:
Butler Manufacturing estimated that:
Manufacturing overhead $176,400
Direct labor hour 13,800.
Actual results for the year:
The actual manufacturing overhead costs $185,000.
Actual direct labor hours 14,600.
We need to calculate the predetermined manufacturing overhead rate per direct hour
manufacturing overhead rate = 176400/13800hours= $12.78
Answer:
EOQ = 220.6052281 shirts rounded off to 221 shirts
The order should be placed after every 110 days.
Explanation:
The EOQ or economic order quantity is the optimum order level or quantity which minimizes the inventory related costs. This is the order quantity where the cost of ordering and the cost of holding the inventory is the minimum. The formula for EOQ is,
EOQ = √(2 * AD * O) / H
Where,
Annual demand for t shirts (assuming 365 days per year) = 2 * 365 = 730
Holding cost per unit per year = 0.5 * 12 = $6
EOQ = √(2 * 730 * 200) / 6
EOQ = 220.6052281 shirts rounded off to 221 shirts
To calculate how frequently the order should be placed,we will calculate the number of orders per year by dividing the total annual demand by the EOQ.
Number of orders per year = 730 / 220.61
Number of orders per year = 3.309 or 3.31 orders per year
Number of days per order = 365 / 3.309
Number of days per order = 110.305 days or 110 days