Other things equal, compared to using the first-in-first-out (FIFO) inventory cost method, using the last-in-first-out (LIFO) method in a rising price environment will result in a higher:____________
A. quick ratio.
B. inventory turnover ratio.
C. gross profit margin.

Answers

Answer 1

Answer:

B. inventory turnover ratio.

Explanation:

My best guess is that the inventory turnover ratio will be greater when LIFO is used during rising price environment because COGS will be higher and the inventory costs will be lower under LIFO than under FIFO.

Hope its correct.

This article seems to agree to some extent: https://smallbusiness.chron.com/impact-inflation-inventory-turnover-66227.html


Related Questions

Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a sole proprietorship. What is one advantage to Jeremy of setting up his business as a sole proprietorship

Answers

Complete Question:

a. As a sole proprietor, Jeremy would face limited liability.

b. As a sole proprietor, Jeremy would have both ownership and control over the business.

c. As a sole proprietor, Jeremy would have the ability to share risk with shareholders.

d. All of the above would be advantages of setting up his business as a sole proprietorship.

Answer:

b. As a sole proprietor, Jeremy would have both ownership and control over the business.

Explanation:

A sole proprietorship business is a type of business that is owned by a single person and as such their profits are taxed once as personal income tax. Thus, it is a type of business that is typically owned by an individual or one person and as a result, this single individual is solely responsible for its debts.

Generally, a major advantage of sole proprietorship is that the owner has an absolute control over the business and would be the only one to define how it's shall be run.

Hence, an advantage to Jeremy of setting up his business as a sole proprietorship is that he would have both ownership and control over the business.

Pina Colada Corp. does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $Unresolved. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes

Answers

Answer:

b. $2,616

Explanation:

Missing word "Total receipts for February amounted to $46216. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes? O $2773 O "$2616 O $2608 O It cannot be determined.

Sales tax = Total receipt * Tax rate

Sales tax = Total receipt * 6/106

Sales tax = $46,216 * 6/106

Sales tax = $2,616

So, the amount that must be remitted to the state for February's sales taxes is $2,616.

Investors require an after-tax rate of return of 10% on their stock investments. Assume that the tax rate on dividends is 30% while capital gains escape taxation. A firm will pay a $2 per share dividend 1 year from now, after which the firm's stock is expected to sell at a price of $30.

Required:
a. Find the current price of the stock.
b. Find the expected before-tax rate of return for a 1-year holding period.
c. Now suppose that the dividend will be $3 per share. If the expected after-tax rate of return is still 10%, and investors still expect the stock to sell at $20 in 1 year, at what price must the stock now sell?
d. What is the before-tax of return? Why is it now higher than in part (b)?

Answers

Answer:

a. $28.5

b. 12.28%

c.  $29.18

d. 13.09%

Explanation:

a. let current price = p

p*1.10 = 2(1-0.3)+30

= 1.4+30/1.10

= 31.4/1.10

= 28.5

the current price of the stock is approximately 28.5 dollars

b. (30+2 /28.5)-1

= 32/28.5 - 1

= 0.1228

= 12.28%

expected before tax rate is 12.28%

c. 3(1-0.3)+30 / 1.10

= 3*0.7+30/1.10

= $29.18

d. before tax rate of return

= (3$ + 30-29.18)/29.18

= 0.1309

= 13.09%

it is now higher here given that given that a greater dividend causes more tax burden.

Chavez Corporation reported the following data for the month of July: Inventories: Beginning Ending Raw materials $46,000 $39,500 Work in process $25,500 $36,000 Finished goods $41,500 $56,500 Additional information: Raw materials purchases $75,500 Direct labor cost $100,500 Manufacturing overhead cost incurred $68,500 Indirect materials included in manufacturing overhead cost incurred $11,800 Manufacturing overhead cost applied to Work in Process $67,500 Any underapplied or overapplied manufacturing overhead is closed out to cost of goods sold. The cost of goods manufactured for July is:

Answers

Answer:

Cost of goods manufactured= $228,700

Explanation:

To calculate the cost of goods manufactured, we need to use the following formula:

cost of goods manufactured= beginning WIP + direct materials + direct labor + allocated manufacturing overhead - Ending WIP

cost of goods manufactured= 25,500 + (46,000 + 75,500 - 39,500) + 100,500 + (68,500 - 11,800) - 36,000

cost of goods manufactured= $228,700

We deduct the indirect material from overhead because it is already incorporated into direct materials.

Dotsero Technology, Inc. has a job-order costing system. The company uses predetermined overhead rates Iin apply manufacturing overhead cost to individual jobs. The predetermined overhead rate in department A is based on machine-hours, and the rate in department B is based on direct material cost. At the beginning of the most recent year, the company's management made the following estimates for the year:Department A Department BMachine-hours............................ 70,000 19,000Direct labor-hours........................ 30,000 60,000Direct materials cost..................... 195,000 282,000Direct labor cost.......................... 260,000 520,000Manufacturing overhead cost............ 420,000 705,000Compute the predeterminded overhead rates for department A and department B.

Answers

Answer:

                                                     Dept. A            Dept. B

Machine hours                            70,000

Direct Material Cost                                                 282,000

Manufacturing overhead            420,000             705,000

Predetermined OH rate    420,000 / 70,000     705,000/282,000

                                           = 6.00 per MH             = 2.50 per dollar of DM cost

A company has annual sales of $32,000 and accounts receivables of $2,200. The gross profit margin is 31.3%. The receivable days estimated from the data above is ______.

Answers

Answer: 80.17 days

Explanation:

The Receivable days estimated is calculated by the formula:

= Accounts receivable * 365 / (Annual sales * Gross profit margin)

= 2,200 * 365/ (32,000 * 31.3%)

= 2,200 * 0.03644169329

= 80.17 days

For Sanborn Co., sales is $1,000,000, fixed expenses are $300,000, and the contribution margin per unit is $60. What is the break-even point? g

Answers

Answer:

Break-even point in units= 5,000

Explanation:

Giving the following information:

Sales= $1,000,000

Fixed expenses= $300,000

Contribution margin per unit= $60

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= 300,000 / 60

Break-even point in units= 5,000

Innovative Consulting Co. has the following accounts in its ledger: Cash, Accounts Receivable, Supplies, Office Equipment, Accounts Payable, Common Stock, Retained Earnings, Dividends, Fees Earned, Rent Expense, Advertising Expense, Utilities Expense, Miscellaneous Expense. Journalize the following selected transactions for October 20Y2 in a two-column journal. Journal entry explanations may be omitted. If an amount box does not require an entry, leave it blank. Oct. 1. Paid rent for the month, $4,300. 3. Paid advertising expense, $2,750. 5. Paid cash for supplies, $1,180. 6. Purchased office equipment on account, $18,100. 12. Received cash from customers on account, $5,900. 20. Paid creditor on account, $1,730. 27. Paid cash for miscellaneous expenses, $750. 30. Paid telephone bill for the month, $280. 31. Fees earned and billed to customers for the month, $39,300. 31. Paid electricity bill for the month, $470. 31. Paid dividends, $3,000.

Answers

Answer:

Date        Accounts title                        Debit$      Credit$

1-Oct        Rent expense Account          4300

                     Cash account                                      4300

3-Oct       Advertisement expense         2760

                     Cash account                                      2760

5-Oct     Supplies Account                     1180

                    Cash account                                       1180

6-Oct     Office equipment Account      18100

                    Accounts payable                                18100

10-Oct    Cash account                            5900

                    Accounts receivable                            5900

15-Oct     Accounts payable                     1730

                    Cash account                                        1730

27-Oct    Misc expense Account              750

                     Cash account                                      750

30-Oct    Utility expense Account            280

                     Cash account                                      280

31-Oct     Accounts receivable Account  39300

                     Service revenue                                 39300

31-Oct    Utility expense Account            470

                     Cash account                                      470

31-Oct    Jason payne, Drawings            3000

                    Cash account                                        3000

Mark Turney owns Creative Corners. He does his banking at United Federal Bank (UFB) in Tucson, Arizona. The amounts in his general ledger for payroll taxes and the employee's withholding of Social Security, Medicare, and federal income tax as of April 15 of the current year show the following: Social Security tax payable (employer and employee), $3,020; Medicare tax payable (employer and employee), $734; FUTA tax payable, $84; SUTA tax payable, $414; and Employees income tax payable, $4,622. Journalize the payment of the Form 941 deposit to UFB and the payment of the SUTA tax to the State of Arizona as of April 15, 20--.

Answers

Answer and Explanation:

The journal entries are shown below

On 15-Apr

FICA social Security tax payable Dr. $3,020  

FICA medicare tax payable Dr. $734  

Federal Income tax payableDr. $4,622  

               To Cash account $8,376

(Being cash paid)

on 15-Apr

State Unemployment tax payable Dr.$414  

         to Cash account $414

(being cash paid)

On 15-Apr

Federal Unemployment tax payable Dr. $84  

      To Cash account $84

(being cash paid is recorded)

Part E14 is used by M Corporation to make one of its products. A total of 19,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $ 4.10 Direct labor $ 8.70 Variable manufacturing overhead $ 9.20 Supervisor's salary $ 4.60 Depreciation of special equipment $ 3.00 Allocated general overhead $ 8.20 An outside supplier has offered to make the part and sell it to the company for $29.50 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition, the space used to make part E14 could be used to make more of one of the company's other products, generating an additional segment margin of $31,000 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part E14 from the outside supplier should be:

Answers

Answer: ($24100)

Explanation:

The annual financial advantage (disadvantage) for the company goes thus:

The relevant cost to produce will be:

= ($4.10 × 19,000) + ($8.70 × 19,000) + ($9.20 × 19,000) + ($4.60 × 19,000) + $31,000

= $77900 + $165300 + $174800 + $87400 + $31000

= $536,400

The relevant costs to buy will be:

= 19,000 × $29.5

= $560,500

Since the relevant cost to buy is more than the relevant cost to produce, then the financial disadvantage will be:

= $560500 - $536,400

= $24,100

The answer is ($24,100)

To report insights, researchers must combine their knowledge of business with their intimate knowledge of the research sponsor-manager gained while conducting the research.
A. True
B. False

Answers

Answer:

A. True

Explanation:

Any time you present a research report, you are combining your previous knowledge with new insights and knowledge gained while preparing the report. This applies to basically every type of new report that you prepare and even updates of prior reports. Sometimes the conditions change between the time the original report was made and the next periodic report.

The statement that researchers needs to add the knowledge of business as well as that of intimate research sponsor-manager to report insights is True.

Insights serves as the interpretations of raw data which contains some meaning in a particular context to the audience.

As a researcher, that want to report an insight, there is a need to combine the knowledge gained from sponsor-manager and knowledge from business during the research.

Therefore, the statement is True.

Learn more

https://brainly.com/question/25710242

________ would be hurt by unexpected inflation. a. A firm that purchased inputs with a two-year contract b. A worker whose wage increases with inflation c. A worker who signed a two-year wage contract d. A firm who hired a worker on a two-year wage contract

Answers

Answer:

a firm who hired a worker

Explanation:

on a two year wage contract

A firm that hired a worker on a two-year wage contract would be hurt by unexpected inflation. Thus, option D is correct.

What is inflation?

Inflation, in financial aspects, aggregates expansions in the stockpile of cash, in cash salaries, or in costs. Expansion is by and large considered an exorbitant ascent in the general degree of costs.

While high expansion is by and large thought to be hurtful, a few financial experts accept that a modest quantity of expansion can assist with driving monetary development.

Inter worker was having job security for at least 2 years but due to inflation, he might not have a job. This is the most unexpected thing that the person could experience. As it will be treated as something that has caused hindrances in his planning.

Therefore, option D is correct.

Learn more about Inflation, here:

https://brainly.com/question/29308595

#SPJ6

what is gompertz function​

Answers

Answer:

The Gompertz curve or Gompertz function is a type of mathematical model for a time series, named after Benjamin Gompertz (1779–1865). It is a sigmoid function which describes growth as being slowest at the start and end of a given time period. ... It is a special case of the generalised logistic function.

Canton Company sells a motor that carries a 60-day unconditional warranty against product failure. From prior years' experience, Canton estimates that 3% of units sold each period will require repair at an average cost of $160 per unit. During the current period, Canton sold 100,000 units and repaired 2,400 of those units. (a) How much warranty expense must Canton report in its cur

Answers

Answer:

$480,000

Explanation:

Calculation to determine much warranty expense must Canton report

Using this formula

Warranty expense=Average cost per unit*Unit sold*Estimated percentage of units sold

Let plug in the formula

Warranty expense= $160*100,000*3%

Warranty expense=$480,000

Therefore warranty expense that Canton must report is $480,000

Klean Fiber Company is the creator of Y-Go, a technology that weaves silver into its fabrics to kill bacteria and odor on clothing while managing heat. Y-Go has become very popular in undergarments for sports activities. Operating at capacity, the company can produce 1,053,000 Y-Go undergarments a year. The per unit and the total costs for an individual garment when the company operates at full capacity are as follows.

Per Undergarment Total
Direct materials $1.96 $2,063,880
Direct labor 0.47 494,910
Variable manufacturing overhead 0.98 1,031,940
Fixed manufacturing overhead 1.41 1,484,730
Variable selling expenses 0.38 400,140
Totals $5.20 $5,475,600

The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 249,700 Y-Go undergarments for soldiers in extremely warm climates. The Army would pay the unit cost for direct materials, direct labor, and variable manufacturing overhead costs. In addition, the Army has agreed to pay an additional $1.01 per undergarment to cover all other costs and provide a profit. Presently, Klean Fiber is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Klean Fiber accepts the Army’s offer, it will not incur any variable selling expenses related to this order.

Required:
Prepare an incremental analysis for the Klean Fiber.

Answers

Answer:

Klean Fiber Company

Incremental Analysis for the

Special order by the U.S. Army:

Units to be purchased =            249,700

Sales Revenue                               $4.42

Variable costs:

Direct materials                              $1.96

Direct labor                                      0.47

Variable manufacturing overhead 0.98

Total variable costs                         3.41

Additional for contribution margin  1.01

Contribution margin =               $252,197 ($1.01 * 249,700)

Explanation:

a) Data and Calculations:

Annual production capacity = 1,053,000

                                           Per Undergarment          Total

Direct materials                              $1.96              $2,063,880

Direct labor                                      0.47                     494,910

Variable manufacturing overhead 0.98                  1,031,940

Fixed manufacturing overhead       1.41                  1,484,730

Variable selling expenses              0.38                    400,140

Totals                                            $5.20             $5,475,600

Zero-coupon risk-free bonds are available with the following maturities and yield rates (effective, annual):

Maturity(in years) Yield %
1 6
2 6.5
3 7

You need to buy corn for producing ethanol. You want to purchase 10,000 bushels one year from now, 15,000 bushels two years from now, and 20,000 bushels three years from now. The current forward prices, per bushel, are $3.89, $4.11, and $4.16 for one, two, and three years respectively. You want to enter into a commodity swap to lock in these prices. Which of the following sequences of payments at times one, two, and three will NOT be acceptable to you and to the corn supplier?

a. $38,900; $61,650; $83,200
b. $39,083; $61,650; $82,039
c. $40,777; $61,166; $81,554
d. $41,892; $62,340; $78,997
e. $60,184; $60,184; $60,184 73.2

Answers

Answer:

e. $60,184; $60,184; $60,184

Explanation:

Corn supplier will have yields of 6 in year 1 and 6.5 in year 2, if it will purchase bushels now he will have to pay $39,083 now or $38,900 2 years later. The corn supplier will not accept the price below this and we will not pay price above this. The Medicare price should be determined and set.

An outside supplier offers to provide Factor with all the units it needs at $44.45 per unit. If Factor buys from the supplier, the company will still incur 70% of its overhead. Factor should choose to:

Answers

Answer:

Factor must opt to agree as well as purchase the deal from the provider. A further explanation is provided below.

Explanation:

The given problem seems to be incomplete. Find the attachment of the complete question below.

Given:

Direct material,

= $8.70  

Direct labor,

= 24.70  

Overhead,

= 43.50

Now,

If the offer is accepted, the cost per unit will be:

= [tex]44.45 + (43.50\times 70 \ percentage)[/tex]

= [tex]44.45 + 30.45[/tex]

= [tex]74.90[/tex] ($)

Thus the above is the correct answer.

Apple Computers Issued a 30-year $8,000,000 bond on January 1, 20xx with a 5% stated interest rated. Interest is paid semiannually on June 30 and December 31st. What is the amount that Apple Computers would record as interest expense on June 30, 20xx (the first interest payment), assuming that no interest expense has been recorded since the bond was issued on January 1st?

Answers

Answer:

$200,000

Explanation:

Now, it is assumed here that the bonds are issued at par.

First interest payment = Face Value * Stated Interest Rate * Half yearly

First interest payment = $8,000,000 * 5% * 1/2

First interest payment = $200,000

So, the amount that Apple Computers would record as interest expense on June 30 is $200,000.

Charles Corporation produces and sells a single product. Data concerning that product appear below:
Per Unit Percent of Sales
Selling Price $190 100%
Variable Expenses 38 20%
Contribution Margin 152 80%
Fixed expenses are $87,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by $28. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change?

Answers

The answer is no o 872 because

The Central Division of National Inc. has operating income of $16,000 on sales revenue of $155,000. Divisional operating assets are $84,600, and management of National has determined that a minimum return of 12% should be expected from all investments.

Required:
a. Using the DuPont model, calculate The Central Division’s margin, turnover, and ROI.
b. Calculate The Central Division's residual income.

Answers

Answer:

.

Explanation:

SpyingEyes, Inc., a large data intelligence company, has storage technology at multiple sites that store redundant data from its servers at the main office. What risk management strategies has the company primarily implemented?

Answers

Answer:

Avoid it risk management strategies

Explanation:

As the name suggests, In Avoid it risk management strategies the organisation takes every feasible step to stop any mismanagement from happening altogether. In other words, this strategy is based on strict monitoring and preparedness in advance.

Thus, from the above we can conclude that the above case illustrates avoid it risk management strategy.

You would use scenario analysis when:________.
a. Testing how an increase in revenue growth affects the share price
b. Performing what-if analysis to support business planning
c. Assessing which assumption has the biggest impact on the model
d. Comparing different business cases about the future with multiple variables changed

Answers

Answer:

d. Comparing different business cases about the future with multiple variables changed

Explanation:

I would start off by defining scenario analysis first. Scenario analysis can be defined as a process whereby future values of a portfolio investment can be predicted given that an event may occur or may not occur. In other words, it is a way of knowing what would happen to the values of a portfolio if a particular event occurs or if the event doesnt occur.

Given this explanation, the right answer to this question is option d, Comparing different business cases about the future with multiple variables changed

If the efficient market hypothesis is true, price changes are independent and biased. Group of answer choices

Answers

Answer:

Price changes are independent but not biased in efficient market hypothesis.

Explanation:

In simple words, the efficient-market hypothesis asserts that asset prices represent all relevant knowledge.  Because market rates must only respond to fresh knowledge it is difficult to continuously "beat the market" on something like a risk-adjusted approach.

Thus the given statement is partially true.

Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 5% charge on sales for using its card. On May 26, Brinker had $6,200 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit

Answers

Answer:

Date      Account titles and explanation              Debit      Credit

May 20  Cash ($6,200 - $310)                              $5,890

              Credit card expenses ($6,200*5%)       $310

                    Sales                                                                    $6,200

               (To record the deposit)

Task performance is defined as: Activities that transform raw materials into the goods and services that are produced by the organization. Activities that help with the transformation process by replenishing the supply of raw materials. A and B Offering help and cooperating with others.

Answers

Answer:

The correct option is A and B.

Explanation:

Task performance can be described as actions that convert raw materials into the goods and services which a company produces, as well as actions that aid in the conversion process by restocking raw materials, distributing finished products, or providing critical planning, supervising, staff functions, or coordination that promote effective and efficient functioning of the organization.

Based on the description above, the correct option is A and B. That is, task performance is defined as activities that transform raw materials into the goods and services that are produced by the organization, and activities that help with the transformation process by replenishing the supply of raw materials.

A bailment is different from a gift because:___.
a. a gift requires consideration, but a bailment does not.
b. a gift is always a contract, but a bailment is generally not a contract.
c. a gift requires delivery, but a bailment does not.
d. in a bailment, only possession of the property is transferred to the bailee, whereas with a gift, both possession and ownership must pass to the donee.

Answers

Answer: d. in a bailment, only possession of the property is transferred to the bailee, whereas with a gift, both possession and ownership must pass to the donee.

Explanation:

When you give a person a gift, you are giving the person both ownership of that gift and the possession as well. For instance, if you give a person a car as a gift, that person now owns the car and will use it as they please.

With a bailment, there is no transfer of ownership. The bailor is simply giving the bailee possession of the property in question which means that after the bailee is done with the property, they have to return it back to the bailor.

Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck

Answers

Answer: See explanation

Explanation:

The journal entry to record the purchase of the truck will be:

Dr Trucks $54641

Dr Discount on Notes Payable $25359

Cr Notes Payable $80000

Note:

Face value of Note = $80000

× PV factor = 1/1.10⁴ = 0.68301

Present value of Face value of Note = $54641

Fortuna Company is preparing its statement of cash flows. Cash disbursements during the year included:

Answers

Answer: $100,000

Explanation:

Financing activities are those that relate with how the company finances its operations and includes cashflows related to equity and long term liability.

The financing activities outflows here total:

= Payment of dividends to stockholders

= $100,000

The two other cashflows are considered investing activities.

Stuart Software has 5.7 percent coupon bonds on the market with 11 years to maturity. The bonds make semiannual payments and currently sell for 93 percent of par. What is the current yield on the bonds

Answers

Answer:

current yield = 6.13%

Explanation:

Given:

The software has 5.7 percent coupon bonds

maturity=11 years

current sell=93 percent of par

The objective is to find the current yield on the bonds

Formula used:

Current yield = [tex]\frac{Annual Coupon payment}{current selling price}*100[/tex]

Solution:

Current selling price=93% of 1000=930

Annual coupon payment= 5.7% of 1000=57

Then,

On substituting the values in the formula,

Current yield = [tex]\frac{57}{930}[/tex]*100

On Simplifying,

Current yield =6.13%

Therefore,

Current yield =6.13%

MSI is considering eliminating a product from its ToddleTown Tours collection. This collection is aimed at children one to three years of age and includes "tours" of a hypothetical town. Two products, The Pet Store Parade and The Grocery Getaway, have impressive sales. However, sales for the third CD in the collection, The Post Office Polka, have lagged the others. Several other CDs are planned for this collection, but none is ready for production.
MSI's information related to the Toddle Town Tours collection follows: Segmented Income Statement for MSI's Toddle Town Tours Product Lines Post Office Parade Getaway _Polka Pet Store Grocery Total Sales revenue Variable costs $110,000 $105,000 $31,000 $246,000 43,000 28,000 118,000 $ 63,000 S 62,000 $ 3,000 $128,000 2,800 16,700 $ 55,800 S 55,300 $ 200 $ 111,300 1,550 12,300 47,000 1000 4 Contribution margin Segment margin Net operating income (loss) Less: Direct Fixed costs 7,200 006,700 Less: Common fixed costs .505350 99,000 50,300 $ 50,050S (1.350) S 5,500 0 $ 50,050 $ (1,350) $99,000 5,250 Allocated based on total sales dollars MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining fixed overhead currently allocated to the POP product would be redistributed to the remaining two products Required 1. Calculate the incremental effect on profit if the POP product is eliminated Effect on Profit 2. Should MSI drop the POP product?

Answers

Answer:

MSI

1. Incremental effect on profit if the POP product is eliminated is:

Profit will be reduced by $200 ($99,000 - $98,800).

2. Yes. MSI should drop the POP product.  POP product is like a dog in the BCG matrix.

Explanation:

a) Data and Calculations:

Segmented Income Statement

for MSI's Toddle Town Tours Product Lines

                                              Pet Store     Grocery      Post Office      Total

                                               Parade      Getaway           Polka           Firm

Total Sales revenue                $110,000      $105,000   $31,000   $246,000

Variable costs                             47,000         43,000     28,000        118,000  

Contribution margin               $ 63,000     $ 62,000    $ 3,000     $128,000

Less: Direct Fixed costs              7,200           6,700        2,800          16,700

Segment margin                    $ 55,800     $ 55,300        $ 200      $ 111,300

Less: Common fixed costs         5,500          5,250         1,550          12,300

Net operating income (loss)  $50,300    $ 50,050     $ (1,350)      $99,000

Segmented Income Statement after POP Elimination

for MSI's Toddle Town Tours Product Lines

                                                  Pet Store     Grocery            Total

                                                    Parade      Getaway            Firm

Total Sales revenue                $110,000      $105,000       $215,000

Variable costs                             47,000         43,000           90,000  

Contribution margin               $ 63,000     $ 62,000        $125,000

Less: Direct Fixed costs              7,200           6,700             13,900

Segment margin                    $ 55,800     $ 55,300          $ 111,100

Less: Common fixed costs         6,275           6,025             12,300

Net operating income (loss) $ 49,525      $ 49,275         $98,800

1. Incremental effect on profit if the POP product is eliminated is:

Profit will be reduced by $200 ($99,000 - $98,800), which is the difference between the allocated fixed cost to POP ($1,550) and its operating loss ($1,350).

2. Yes. MSI should drop the POP product.  POP product is like a dog in the BCG matrix.

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