Answer:loss on the sale of the equipment =$3,400
Explanation:
---We first compute the book value of the equipment
Cost of asset=$94,000
accumulated depreciation = $73,000
Book Value of assets = Cost of asset-accumulated depreciation
= $94,000 - $73,000= $21,000
---Gain or Loss on the asset
Sale value of equipment = $17,600
Book value of equpment= $21,000
loss on sale of equipment = Sale value of equipment-Book value of equipment=$17,600- $21,000= -$3,400
Samuel, a longtime employee of the ABCD Corporation, was injured when he fell off a ladder while stocking widgets at ABDC at their East Lansing, Michigan location. Samuel believes ABCD Corporation was negligent for selling widgets. If Samuel sues his employer in a circuit court under a negligence theory of recovery:
a. he will lose
b. he will win
c. he will forfeit his rights to workers compensation benefits, completely
d. he will forfeit his rights to workers compensation benefits, but only if the court awards him non-economic damages
Answer:
Option B. He will win
Explanation:
If Samuel is desiring to sue his employer in a circuit court because he thinks that the employer was negligent then he will have to sue under negligence Act, which says that the employer is obliged to take all necessary precautions and if found negligent then the court may apply contributory negligent theory as well as comparative negligent theory. These two negligent theories means that the employer was partly responsible for injury, which means that this would result in compensation to Samuel.
Hence it is more likely that Samuel will win the case.
It is likely that if Samuel sues ABCD Corporation in a circuit court under a negligence theory of recovery, a. he will lose.
The question to ask is, is ABCD Corporation negligent in selling widgets? No. Is it the case that the corporation's sale of widgets caused Samuel to fall off a ladder while he was stocking them at the Michigan location? No.
For Samuel to be successful in the circuit court, he must prove that ABCD Corporation acted negligently with its sales of widgets, especially:
ABCD Corporation owed a duty to Samuel not to sell widgets ABCD Corporation breached this duty to Samuel ABCD's breach was the actual cause of Samuel's injury ABCD's breach was also the proximate cause of Samuel's fall and injury Samuel suffered actual damages as a result of the negligent act by ABCD Corporation.
Thus, based on the above, Samuel will lose the case because the corporation was not negligent for selling widgets nor for the fall of Samuel from the ladder.
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If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?
Answer:
Hello attached below is the complete question
D1 represents the demand curve reflecting private benefits ( c )
Explanation:
The effects of an externality is positive( shift of the demand curve to the right ) when the production of goods and service has a positive effect on the consumers ( people that are not involved in the production process ). this positive effect will lead to an increase in quantity demanded as well from consumers.
The curve ( D1 ) does not represent the social benefits for the consumers but represents the demand curve reflecting private benefits,
Suppose that a country has no public debt in year 1 but experiences a budget deficit of billion in year 2, a budget surplus of billion in year 3, a budget surplus of billion in year 4, and a budget deficit of billion in year 5.
A) What is the absolute size of its public debt in year 4?
B) If its real GDP in year 4 is $104 billion, what is this country's public debt as a percentage of real GDP in year 4?
Answer:
a. 72 billion
b. 69.2%
Explanation:
a. The absolute size of its public debt in year 4 would be the total value of the deficit from year 1 till 4.
= 0 + 50 + 30 - 10 (budget surplus so it reduces deficit) - 2
= 72 billion
b. Percentage of real GDP in year 4;
= (72/104) * 100%
= 69.2%
A market situation in which a large number of firms produce similar but not identical products is called
Answer:
A market situation in which a large number of firms produce similar but not identical products is called perfectly competitive.
Explanation:
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $50 per share, 200 shares of Lowes (LOW) at $30 per share, and 100 shares of Ball Corporation (BLL) at $40 per share. Suppose over the next year Ball has a return of %, Lowes has a return of %, and Abbott Labs has a return of . The return on your portfolio over the year is:
Answer:
3.8%
Explanation:
There are some important parts missing:
Suppose over the next year Ball has a return of 12.5%, Lowes has a return of 21%, and Abbott Labs has a return of -10%.
We must first determine the weight of each stock in the portfolio:
ABT = ($50 x 200) / $20,000 = 50%LOW = ($30 x 200) / $20,000 = 30%BLL = ($40 x 100) / $20,000 = 20%the expected return of the portfolio = (ABT x return) + (LOW x return) + (BLL x return) = (50% x -0.1) + (30% x 0.21) + (20% x .125) = -5% + 6.3% + 2.5% = 3.8%
In which exchange rate system is the exchange rate determined entirely by the supply of and demand for a currency
Answer: Floating exchange rate system.
Explanation:
Floating exchange rate system is one in which the exchange rate is determined entirely by the supply of and demand for a currency.
In floating exchange rate system, the value of a currency fluctuates based on the happeninge that occur in the foreign exchange market.
Answer:
Managed -> exchange rate determined by both government intervention and supply and demand
Floating -> exchange rate determined by demand and supply of foreign currency
Fixed -> exchange rate pegged to the value of another nation's currency
Explanation:
A__________produces finished-goods inventory in advance of customer demand using a forecast of sales.
Answer:
Push system.
Explanation:
A push system produces finished-goods inventory in advance of customer demand using a forecast of sales and as such it is categorized as a make to stock because the production of goods are not based on actual demand by the consumers.
Under a push system, manufacturing is strictly based on a projected production plan and the flow of information between the manufacturer and the market is in the same direction with those of raw materials used.
The transportation model, when applied to location analysis: maximizes revenues. minimizes total fixed costs. minimizes total production and transportation costs. minimizes total transportation costs. minimizes the movement of goods.
Answer:
Correct Answer:
4. minimizes total transportation costs.
Explanation:
When a good transportation method is applied, it helps in minimizing the transportation cost involved in moving goods and services from one location to another. For example, it cost 2 million dollars to transport a particular product. With good transportation model, it would definitely be cheaper.
Suppose you have $ cash today and you can invest it to become worth $ in years. What is the present purchasing power equivalent of this $ when the average inflation rate over the first years is % per year, and over the last years it will be % per year?
Answer: $900,599.04
Explanation:
The present purchasing power equivalent is the present worth of this investment.
The investment will earn 5% for the first 7 years and then 9% for the next 10.
As there are different rates, the present worth calculation will have to reflect that.
At the end of the first 7 years, the present worth of the invested amount given 10 more years of investing at 9%. The Present worth is;
= 3,000,000(Present worth factor, 9%, 10 years)
= 3,000,000 * 0.4224
= $1,267,200
Then what is the Present worth of $1,267,200 in the current year given that it will be invested for 7 years at 5% to get to $1,267,200.
= 1,267,200 (Present worth factor, 5%, 7 years)
= 1,267,200 * 0.7107
= $900,599.04
For the current year ended March 31, Cosgrove Company expects fixed costs of $27,600,000, a unit variable cost of $805, and a unit selling price of $1,150.a. Compute the anticipated break-even sales (units).unitsb. Compute the sales (units) required to realize operating income of $5,175,000.units
Answer:
Instructions are below.
Explanation:
Giving the following information:
Fixed costs= $27,600,000
Unitary variable cost= $805
Unit selling price= $1,150
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 27,600,000 / (1,150 - 805)
Break-even point in units= 80,000 units
Desired income= $5,175,000
Break-even point in units= (fixed costs + desired profit) / contribution margin per unit
Break-even point in units= (27,600,000 + 5,175,000) / 345
Break-even point in units= 95,000 units
Consumer concern with the standards and believability of advertising may have spread around the world more swiftly than have many marketing techniques due to
Answer:
False advertising
Explanation:
False advertising refers to that advertising in which the misleading information is passed to the final consumers so that the company could earn more and more profits as there is one motive i.e. to increase sales as much the company wants
Therefore according to the given situation, the advertising spread around the world quickly due to the false advertising.
The production sector would NOT include Group of answer choices a Florida orange grove a California wine grower a meat packing plant
Answer: Meat packing plant
Explanation:
The options to the question are:
A. California wine grower
B. meat packing plant
C. horticultural nursery
D. Florida orange grove
E. none of the above
Of all the options given in the question, the correct answer is meat packing plant. It should be noted that the meat packaging plant will not be part of the production sector due to the fact that no productive activities are taking place, it only involves in services.
When preparing government-wide financial statements,the modified accrual basis governmental funds are adjusted for all of the following events except?
A) Change in current assets and current liabilities from year to year
B) Long-term debt related events
C) Internal service fund activities
D) Interfund activities
Answer: Change in current assets and current liabilities from year to year
Explanation:
It should be noted that when preparing government-wide financial statements, the modified accrual basis governmental funds are adjusted for the long-term debt related events, the internal service fund activities and the interfund activities.
Therefore the correct option is A as th modified accrual basis government funds are not adjusted for the change in current assets and current liabilities from year to year.
According to the Prebisch-Singer hypothesis, this fate has befallen many developing countries given the general decline in commodity prices in relation to the price of manufactured goods.A) TrueB) False
Answer: True
Explanation;
Generally, manufactured goods cost more than the commodity goods that they were manufactured from due to the value that has been added to them. This is what the Prebisch-Singer hypothesis argues, that commodity prices decline overtime in relation to manufacturing good prices.
This is a fate that has befallen many developing countries as many of them export commodity goods to developed countries who then add value to them, turning them into manufactured goods and then selling them back to developing countries at a higher price thereby negatively affecting their balance of trade.
A year ago, you purchased 300 shares of Stellar Wood Products, Inc. stock at a price of $8.62 per share. The stock pays an annual dividend of $0.10 per share. Today, you sold all of your shares for $4.80 per share. What is your total dollar return on this investment
Answer:
Total Dollar Return -$1,116
Explanation:
Calculation for the total dollar return on this investment
First step is to find the Total Selling Price using this formula
Total Selling Price= Shares purchased *Price per share sold
Let plug in the
Total Selling Price= 300*4.80
Total Selling Price= $1,440
The next step is to calculate for the total dollar return the investment using this formula
Total Dollar Return = Selling Price +Annual Dividend - Purchase Price
Let plug in the formula
Total Dollar Return = $1,440 + (300 shares ×$0.10 per share) - (300 shares *$8.62 per share)
Total Dollar Return=$1,440+$30-$2,586
Total Dollar Return = -$1,116
Therefore the total dollar return on this investment will be -$1,116
On the first day of the fiscal year, a company issues a $8,800,000, 7%, 10-year bond that pays semiannual interest of $308,000 ($8,800,000 × 7% × ½), receiving cash of $7,655,303. Required:Journalize the first interest payment and the amortization of the related bond discount.
Answer and Explanation:
The journal entry is shown below:
Interest expense $403,391
To Cash $308,000
To Discount on note payable $95,391
{($8,800,000 - $7,655,303) ÷ 12}
Here we debited the interest expense as it increased the expenses and credited the cash as it decreased the assets and credited the discount on note payable
Martha, who is single, has a main home in Houston. In the current year, she rented it for 10 days, receiving $5,000 in rental income. Martha paid $20,000 in mortgage interest and $10,000 in real estate taxes on her home in the current year. What is the net effect of these items on her adjusted gross income g
Answer:
$5,000 increase
Explanation:
As Martha has the main home in Houston and in the current year she rented it for only 10 days, this means that house is rented for less than 14 days and will be still treated as her personal residence, therefore, no deduction will be available for Martha against her rental income. Martha's Adjusted gross income will be increased by an amount of $5,000.
Which ratios measure the extent of a firm’s financing with debt relative to equity and its ability to cover interest and fixed charges?
Answer:
Debt to Equity ratio and Times Interest Earned (TIE) ratio
Explanation:
The Debt to Equity ratio measures the extent of a firm’s financing with debt relative to equity
Formulae :
Debt to Equity ratio = Total Debt ÷ Total Equity
The Times Interest Earned (TIE) ratio measures the ability of a firm ability to cover interest and fixed charges
Formulae :
Times Interest Earned (TIE) ratio = Earnings Before Interest and Tax ÷ Interest
All of the following actions by a custodian in an account opened under the Uniform Gifts to Minors Act are permitted except:_______.
A. donating funds to the account to make additional investments
B. withdrawing funds from the account for the custodian's use
C. managing the investments in the account with the objective of generating enough income for college tuition
D. selling securities in the account to generate proceeds for other investments
Answer: B. withdrawing funds from the account for the custodian's use
Explanation:
Under the Uniform Gifts to Minors Act, the Custodian's duty is to manage the account for the minor and allocate the assets within in such a way that it will bring about the best returns for the minor.
Custodians should not abuse this power for their own benefit or gain which is why the custodian withdrawing funds from the account for their own use is a violation of the act.
College Logos buys logo-imprinted merchandise and then sells it to university bookstores. Sales are expected to be $ 2 comma 009 comma 000 in September, $ 2 comma 240 comma 000 in October, $ 2 comma 379 comma 000 in November, and $ 2 comma 520,000 in December. College Logos sets its prices to earn an average 40% gross profit on sales revenue. The company does not want inventory to fall below $ 425 comma 000 plus 15% of the next month's cost of goods sold.Required:Prepare a cost of goods sold, inventory, and purchases budget for the months of October and November.
Answer:
College Logos
Cost of goods sold, inventory, and purchases budget for the months of October and November:
October November
Sales $ 2,240,000 $ 2,379,000
Cost of goods sold 60% 1,344,000 1,427,400
Gross profit, 40% of sales $896,000 $951,600
Inventory Budget:
Ending Inventory $626,600 $639,110
Beginning Inventory $606,810 $626,600
Purchases Budget:
Ending Inventory $626,600 $639,110
Cost of goods sold 1,344,000 1,427,400
Cost of goods available for sale $1,970,600 $2,066,510
less Beginning Inventory $606,810 $626,600
Purchases $1,363,790 $1,439,910
Explanation:
a) Data and Calculations:
September October November December
Sales $ 2,009,000 $ 2,240,000 $ 2,379,000 $ 2,520,000
Cost of goods
sold 60% 1,205,400 1,344,000 1,427,400 1,512,000
Gross profit $803,600 $896,000 $951,600 $1,008,000
Ending Inventory $606,810 $626,600 $639,110 $651,800
Beginning Inventory $606,810 $626,600 $639,110
Purchases:
Ending Inventory $606,810 $626,600 $639,110 $651,800
Cost of goods
sold 1,205,400 1,344,000 1,427,400 1,512,000
Cost of goods available
for sale $1,812,210 $1,970,600 $2,066,510 $2,163,800
less Beginning Inventory $606,810 $626,600 $639,110
Purchases $1,363,790 $1,439,910 $1,524,690
Seadrill Engineering licenses software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides after sales consulting services and support to ensure smooth operation of the software over the license period of 5 years. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction on the date software is sold includes
Answer:
Dr Cash 420,000
Cr Sales Revenue (software) 300,000
Cr Unearned Service Revenue 120,000
Explanation:
software license $300,000
consulting services and support $120,000
total transaction cost $420,000
The recorded transaction should be:
Dr Cash 420,000
Cr Sales Revenue (software) 300,000
Cr Unearned Service Revenue 120,000
Cash account should be debited, since it's an asset. Sales revenue should be credited since it increases equity. Unearned revenue is a type of liability, so it should be credited.
Suppose the real interest rate is 2.8%, and the inflation rate is 7%. (1) How much do you need to invest now in order to get $100 in a year? Please show two approaches to calculate the answers. (Round your final answer to two decimal places) (2) Suppose the U.S. Treasury issues 5% coupon, 3-year TIPS (Treasury Inflation-Protected Securities). What are the real cash flows on the 3-year TIPS each year? What are the nominal cash flows on the 3-years TIPS each year? (Round your final answers to two decimal places)
Answer:
1)
approach 1, using the approximate real and nominal interest rates:
nominal interest rate = real interest rate + inflation rate = 2.8% + 7% = 9.8%
present value = $100 / (1 + 9.8%) = $91.07
approach 2, using the exact real and nominal interest rates:
(1 + i) = (1 + r) × (1 + π)
(1 + i) = (1 + 2.8%) x (1 + 7%) = 1.09996
i = 1.09996 - 1 = 0.09996 = 9.996%
present value = $100 / (1 + 9.996%) = $90.91
2)
assuming a $1,000 TIPS, nominal cash flow year 1 = $50
new face value = $1,070
nominal cash flow year 2 = $53.50
new face value = $1,144.90
nominal cash flows year 3 = $57.25 + ($1,144.90 x 1.07) = $1,282.29
assuming a $1,000 TIPS, real cash flow year 1 = $50 / 1.07 = $46.73
new face value = $1,070
real cash flow year 2 = $53.50 / 1.07² = $46.73
new face value = $1,144.90
real cash flows year 3 = [$57.25 + ($1,144.90 x 1.07)] / 1.07³ = $1,282.29 / 1.07³ = $1,046.73
Muckenthaler Company sells product 2005WSC for $30 per unit. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $3, and the normal profit is 40% of selling price. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market
Answer:
The product 2005WSC should be reported at $26 per unit.
Explanation:
The lower-of-cost-or-market (LCM) method is a method of recording the inventory of a company which requires that the inventory cost of the company must recorded at whichever is lower between the inventory's original cost or current market price.
Applying lower-of-cost-or-market, the amount per unit at whcih product 2005WSC should be reported can be determined as follows:
Net realizable value (NRV) = Selling price per unit - Cost of disposal per unit = $30 - $3 = $27
Replacement cost (RC) = $26
NRV - Profit Margin = $27 - ($30 * 40%) = $15
Cost per unit = $27
Note that the market is the middle value of Net realizable value (NRV), $27; Replacement cost (RC), $26; and "NRV - Profit Margin", $15. Since the Replacement cost (RC) of $26 is the middle value, that the market value.
Since the market value of $26 per unit is lower than Cost per unit of $27, by applying lower-of-cost-or-market, the product 2005WSC should be reported at $26 per unit.
The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $10, all of which was reinvested in the company. The firm’s expected ROE for the next five years is 20% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm’s ROE on new investments is expected to fall to 15%, and the company is expected to start paying out 40% of its earnings in cash dividends, which it will continue to do forever after. DEQS’s market capitalization rate is 15% per year. a. What is your estimate of DEQS’s intrinsic value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? (Round your dollar value to 2 decimal places.) Because there is (Click to select) , the entire return must be in (Click to select) . c. What do you expect to happen to price in the following year? (Round your dollar value to 2 decimal places.)
Answer:
a) $94.88
b) in 1 year, the intrinsic price of the stocks should increase to $109.11
Explanation:
year dividend EPS
0 0 $10
1 0 $12
2 0 $14.40
3 0 $17.28
4 0 $20.736
5 0 $24.8832
6 $11.45 $28.61568
growth rate up to year 5 = 20%
ROE growth rate starting year 6 = 15%
dividend growth rate starting year 6 = 15% x (1 - 40%) = 9%
cost of equity = 15%
horizon value at year 5 = $11.45 / (15% - 9%) = $190.83
current intrinsic value per stock = $190.83 / 1.15⁵ = $94.88
intrinsic price in 1 year = $190.83 / 1.15⁴ = $109.11
The estimate of DEQS’s intrinsic value per share is $94.88. Also, in 1 year, the intrinsic price of the stocks will increase to $109.11.
Based on the information given, the dividend and the earnings per share are given below:
year dividend EPS
0 0 $10
1 0 $12
2 0 $14.40
3 0 $17.28
4 0 $20.736
5 0 $24.88
6 $11.45 $28.616
Growth rate up to year 5 = 20%ROE growth rate starting year 6 = 15%Cost of equity = 15%Therefore, the dividend growth rate starting year 6 will be:
= 15% x (1 - 40%)
= 15% × 60%
= 9%
Therefore, the horizon value at year 5 will be:
= $11.45 / (15% - 9%)
= $11.45 / 6%
= $190.83
Then, the current intrinsic value per stock will be:
= $190.83 / 1.15⁵
= $94.88
The intrinsic price in 1 year will be:
= $190.83 / 1.15⁴
= $109.11
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Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:
Standard Quantity or Hours Standard Price or Rate Standard Cost
Direct materials 5.50 pounds $ 2.50 per pound $ 13.75
Direct labor 0.50 hours $ 6.50 per hour $ 3.25
During the most recent month, the following activity was recorded:
1. Ten thousand six hundred pounds of material were purchased at a cost of $2.40 per pound.
2. The company produced only 1,060 units, using 9,540 pounds of material. (The rest of the material purchased remained in raw materials inventory.)
3. 630 hours of direct labor time were recorded at a total labor cost of $7,560.
Required:
Compute the materials price and quantity variances for the month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)
Answer:
Instructions are below.
Explanation:
Giving the following information:
Direct materials 5.50 pounds $ 2.50 per pound.
Actual:
1. 10,600 were purchased for $2.40 per pound.
2. The company produced only 1,060 units, using 9,540 pounds of material.
To calculate the direct material price and quantity variance, we need to use the following formulas:
Direct material price variance= (standard price - actual price)*actual quantity
Direct material price variance= (2.5 - 2.4)*10,600
Direct material price variance= $1,060 favorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
standard quantity= 1,060*5.5= 5,830
Direct material quantity variance= (5,830 - 9,540)*2.5
Direct material quantity variance= $9,275 unfavorable
If a corporation issues shares of $1 par value common stock for , the journal entry would include a credit to:
The question is incomplete. The complete question is,
If a corporation issues 10,000 shares of $1 par value common stock for $9000, the journal entry would include a credit to:
A) Common Stock for $9000.
B) Paid-in Capital in Excess of Par—Common for $9000.
C) Common Stock for $10,000.
D) Retained Earnings for $10,000
Answer:
The common stock is credited for $10000. Thus option C is the correct answer
Explanation:
The journal entry to record the issuance of shares below par value will be,
Cash 9000 Dr
Paid in Cap in excess of par-Common stock 1000 Dr
Common stock 10000 Cr
Thus, the common stock is credited for the complete amount of $10000.
The cash received is $9000 and there is a shortage of $1000 which is adjusted by debited the paid in capital in excess of par account.
4. Giving specific examples of global companies, discuss the following concepts which are contemporary issues of concern to Global Businesses: a) Corporate Social Responsibility b) Off-shoring c) Business Sustainability
Answer:
a) Corporate Social Responsibility
This is a type of international private business that is self-regulated which helps a company to become socially responsible, that is, giving back to the society through philanthropic activities which may include volunteer work or environmental activism.
b) Off-Shoring
Offshoring is simply taking advantage of difference in the cost of production or labor to relocate a business to another country in order to get cheaper labor for manufacturing operations.
Typically, it moves the production of materials from a country where such materials are expensive to another country where the materials are cheap in order to save costs.
c) Business Sustainability
This is simply taking care of all the major facets of a business in order to ensure that the success they have enjoyed in the past is sustained.
These facets could include management of social and economic demands to ensure optimal performance.
A business that is sustainable has a very little negative impact, rather it impacts its immediate environment positively.
2. Which of the following is not an accurate statement as concerns competing in the markets of foreign countries? A. A multi-country strategy is generally superior to a global strategy. B. There are country-to-country differences in consumer buying habits and buyer tastes and preferences. C. A company must contend with fluctuating exchange rates and country-tocountry variations in host government restrictions and requirements. D. Product designs suitable for one country are often inappropriate in another. E. Market growth rates vary from country to country.
Answer:
A. A multi-country strategy is generally superior to a global strategy.
Explanation:
Foreign countries are the countries that are established in a foreign. Each and every foreign country has different consumer preference, buying power, taste and preferences.
Also there are no fixed exchanged rates plus the designs of the product are not fixed for another country as it depends on the customer demand which type of product they needed. Moreover, the growth rate is also different in different countries
Hence, option A is correct
TB MC Qu. 6-107 Mcmurtry Corporation sells a product for ... Mcmurtry Corporation sells a product for $250 per unit. The product's current sales are 13,600 units and its break-even sales are 10,608 units. The margin of safety as a percentage of sales is closest to:
Answer:
The answer is 22%
Explanation:
Margin of Safety equals:
(Current sales level - break-even point) ÷ Current sales level
Break-even sales = $2,652,000 (10,608 units x $250 per unit)
Current sales = $3,400,000 (13,600 units x $250 per unit)
Therefore, Margin of Safety is:
($3,400,000 - $2,652,000) ÷ $3,400,000
= 0.22
Expressed as a percentage = 22%
A company is considering replacing an old piece of machinery, which cost $400,000 and has $175,000 of accumulated depreciation to date, with a new machine that has a purchase price of $550,000. The old machine could be sold for $250,000. The annual variable production costs associated with the old machine are estimated to be $72,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $24,000 per year for eight years.
Required:
a. Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
b. What is the sunk cost in this situation?
Answer:
Company A
a. Differential Analysis dated May 29
Alternative 1 Alternative 2
Opportunity cost $250,000 $550,000
Variable production costs 580,000 192,000
Total cost $830,000 $742,000
b. Sunk cost in this situation is: $225,000 ($400,000 - $175,000) cost of the old machine.
Explanation:
Company A's relevant cost for the old machine is the opportunity cost that it will lose if it continues with Alternative 1 or continued use of the old machine and the additional cost for the new machine for Alternative 2. Also relevant is the variable production costs that would be incurred if the old or new machine is used.
Company A's sunk cost is the cost of the old machine minus accumulated depreciation. Sunk cost is not relevant for decision making under differential analysis.
Company A's differential analysis is a managerial tool that is used to differentiate one decision alternative from another. In this analysis, only relevant costs are considered. A relevant cost in this case is cost that its inclusion or elimination makes a difference in the decision outcome.
