Answers
Answer: The firm's output will therefore decrease from 9 units to 8 units.
Explanation:
This firm most likely operates in a competitive market where price is the same as marginal revenue.
In such a market, firms will try to maximize output by selling at a level where Price is equal to Marginal cost and if they cannot get here, they try to make them as close as possible so long as marginal cost does not exceed price.
As this is the case, when the price was $52, the closest Marginal cost that isn't higher than price was $45 for an output level of 9 units.
If the product falls to $42, the closest marginal cost that isn't higher than the cost is $38 for 8 units.
The firm's output will therefore decrease from 9 units to 8 units.
Related Questions
Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% of the first $128,400 earned each calendar year, and the FICA tax rate for Medicare is 1.45% of all earnings for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. His net pay for the month is:_________
A) $3,857.30
B) $3,510.14
C) $4,538.00
D) $3,162.98
E) $4,190.84
Answers
Answer: $3,510.14
Explanation:
Trey Morgan's net pay will be amount remaining after deducting the FICA taxes for Social security and Medicare and the Federal income tax withheld.
The net pay is therefore:
= 4,538 - (4,538 * 6.2%) - (4,538 * 1.45%) - 680.70
= 4,538 - 281.356 - 65.801 - 680.70
= $3,510.14
A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the merchandise return on July 7 is:
Answers
Answer:
Date Account Titles and Explanation Debit Credit
Accounts Payable $1,600
($1,800 - $200)
Merchandise inventory $32
(2% * $1,600)
Cash $1,568
(To record the merchandise return)
A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method.
The journal entry to record the merchandise return on July 7 using the perpetual inventory system and the gross method would be as follows:
Date: July 7
Merchandise Returns and Allowances $200
Accounts Payable $200
Explanation:
The Merchandise Returns and Allowances account is used to record returns of merchandise to the supplier. By crediting the Accounts Payable account, it reduces the amount owed to the supplier for the returned merchandise.
In this entry, the company is reducing the Accounts Payable by $200 due to the returned merchandise worth $200.
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Katrina needs to use her communication and conflict management skills every day with her team. What stage of development is her team in?
Answers
Answer:
forming
Explanation:
Storming - stage 2
Decisions don't come easily within group. Team members vie for position as they attempt to establish themselves in relation to other team members and the leader, who might receive challenges from team members. Clarity of purpose increases but plenty of uncertainties persist. Cliques and factions form and there may be power struggles. The team needs to be focused on its goals to avoid becoming distracted by relationships and emotional issues. Compromises may be required to enable progress. Leader coaches (similar to Situational Leadership® 'Selling' mode).
As per the description provided, the stage of team development at which Katrina's team would be:
- Storming stage
The team development has been divided into five stages:
FormingStormingNormingPerformingAdjourningThe storming stage is described as the stage where every member comes up with his/her ideas and attempts to impress their peers.
This leads to competition among the members of the team and the development of conflicts.
Therefore, the leaders like Katrina intrude in order to resolve the disagreements and handle competition to ensure that the project goes in the right direction.
Thus, the 'storming' stage is the correct answer.
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) What are the source documents for direct materials, direct labor, and manufacturing overhead costs assigned to this job
Answers
Answer:
As the details of the job are not included, I shall use the general source documents for these costs.
Direct Materials ⇒ Material requisition slip/document
These are documents that list out the materials that are needed for the production of the good in question. It is sent to inventory where the materials would be acquired from.
Direct Labor ⇒ Time sheets / Records
The company will have some form of time sheet or other recoding document that workers can use to clock the the time they worked on the good.
Manufacturing Overhead Cost ⇒ Predetermined rate.
For manufacturing overheads, a predetermined rate is usually used to apportion the cost.
When Susan, the CEO of Gregarious Simulation Systems, expanded her operations to a different international market, she was surprised to see how little competition she faced. In her home country, the competition for simulation systems is incredibly fierce. As a result of her international expansion, her firm has been able to easily position themselves as a major player. Which of the four categories of Porter's Diamond framework best explains this advantage?
a. competitive intensity in the focal industry
b. related and supporting industries/complementors
c. demand conditions
d. factor conditions
Answers
Answer: A competitive intensity in the focal industry.
Explanation:
Porter's competitive intensity explains the level of rivalry that exists in a particular industry. The competitive intensity is influenced by different factors, such as the fixed cost, concentration of the industry, switching cost, rate of industrial growth etc.
Therefore, from the information given, since the company expanded her operations to a different international market, and the subsequent little competition that was faced, this is explained by the competitive intensity in the focal industry.
Therefore, the correct option is A.
Grace Company gathered the following reconciling information in preparing its July bank reconciliation: Cash balance per books, 7/31 $4,500 Deposits in transit 150 Notes receivable and interest collected by bank 850 Bank charge for check printing 20 Outstanding checks 2,000 NSF check 170 The adjusted cash balance per the books on July 31 is____.a. $5,010.
b. $3,310.
c. $3,460.
d. $5,160.
Answers
Answer:
d. $5,160
Explanation:
Calculation to determine what The adjusted cash balance per the books on July 31 is
Cash balance per books, 7/31 $4,500
Add Notes receivable and interest collected by bank $850
Less Bank charge for check printing ($20)
Less NSF check ($170)
Cash balance per the books on July 31 $5,160
Therefore The adjusted cash balance per the books on July 31 is $5,160
Grays Company uses a perpetual inventory system. On May 1, the company had inventory of 20 units at a cost of $8 each. On May 3, it purchased 30 units at $10 each. 22 units are sold on May 6. Under the weighted average inventory costing method, what amount will be reported as cost of goods sold for the 22 units that were sold
Answers
Answer: $9.20
Explanation:
Using the weighted average inventory costing method, the price is abased on the number of units and their price.
The above inventory cost would be calculated as follows:
= [ (Opening units * Cost of units) + (Units purchased * Cost of purchase) ] / Total units in inventory
= [ (20 * 8) + (30 * 10) ] / (20 units + 30 units)
= [ 160 + 300 ] / 50
= $9.20
Lusk Corporation produces and sells 15,400 units of Product X each month. The selling price of Product X is $24 per unit, and variable expenses are $18 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $73,000 of the $104,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the annual financial advantage (disadvantage) for the company of eliminating this product should be:_______.
a. ($61,400)
b. $11,600
c. $42,600
d. ($42,600)
Answers
Answer: A
Explanation: 61,400 hope you have a great day
Find the percentage change in price in each of the following examples using the mid-point method.
Instructions: Round your answers to two decimal places. If you are entering a negative number be sure to include a negative sign (-) in front of that number.
a. The price of a $4 sandwich increases to $5: percent
b. A sale discounts the price of a sofa from $750 to $500: percent
Answers
Answer:
0.22
-0.40
Explanation:
midpoint change in price = change in price / average of both price
a. change in price = (5 - 4) = 1
average of both prices = 0.5 (4 + 5) = 4.50
midpoint change in price = 1/ 4.5 = 0.22
b. change in price = (500 - 750) = -250
average of both prices = 0.5(750 + 500) = 625
-250 / 625 = -0.4
Assume that the demand for bicycles increases significantly at the same time that there is an increase in the number of people qualified to make bicycles. What would happen to the market equilibrium quantity of labor and wage rate for the labor to produce bicycles
Answers
Answer: The quantity of labor increases, and the effect on the wage rate is indeterminate.
Explanation:
The supply of people who can make bicycles has increased at the same time the demand for bicycles has increased. The supply curve would therefore shift to the right and so would the demand curve for labor. They will intersect at a new point where the quantity of labor has now increased.
Unfortunately, the effect on the wag rate would be indeterminate because the wage rate might just stay the same on account of the supply increasing along with the demand instead of either of them increasing unilaterally. When tis happens, the change is said to be indeterminate.
Place and convenience are connected by a core linkage. While GoPro was able to get the product into locations where customers could find it, it made an error when production problems forced it to
Answers
Question Completion with Options:
a. ignore convenience stores in its distribution network.
b. deliver fewer cameras than were needed during a holiday season.
c. miss the customer connection by emphasizing place over convenience.
d. exert too much power in the distribution network.
Answer:
GoPro
production problems forced it to
b. deliver fewer cameras than were needed during a holiday season.
Explanation:
Shortages are avoided by producers as much as possible in order not to cause disequilibrium in the market. Shortages are not the same as scarcity. They are temporary setbacks when the quantity demanded outstrips the quantity supplied at the equilibrium market price. The backlashes result in lost sales and revenue for suppliers. Shortages may clear ways for competitors to enter the market to meet the unsatisfied demand.
i have a resturant which is famous for hydrabdi biryani but the ingredients are not avilable in the resturant suddenly if the guest will be came how i will manage it
Answers
According to this __________ perspective, international trade is unfair. The international system is inherently biased against developing countries.
Answers
Answer:
structuralism
Explanation:
The theory approach with respect to the social structure is known as the structuralism that studied the non-conscious regularities of expression done by the human i.e. it is non-observable structure that contains observable impact on the behavior, society & the culture
So as per the given situation, it is a structuralism
And, the same should be considered
According to the National Association of Colleges and Employers (NACE) survey, some of the skills that employers seek include:
Answers
Answer:
1) Problem solving skills
2) Teamwork abilities
3) Strong work ethic
4) Analytic / Quantitative Skills
Explanation:
As reported by the National Association of Colleges and Employers (NACE), during their survey on skills employers seek in candidates. They have found that the most important skills employers seek in a candidate's resume aside from a good GPA are problem-solving skills and the ability to work in a team.
Other top skills that employers want are a strong work ethic and analytical/quantitative skills. These skills were among the top six in the last year's report of NACE. While this year they have become the top four most wanted skills by an employer.
There are other skills as well that employers seek such as Communication Skills (written), Leadership, Communication Skills (Verbal), Initiative, etc. However, they are not as important as the top four skills mentioned above.
NAME During August, the following transactions were recorded at Gurdeep Corporation. The company uses process costing. (1) Raw materials that cost $24,500 are withdrawn from the storeroom for use in the Assembly Department. All of these raw materials are classified as direct materials. (2) Direct labor costs of $29,000 are incurred, but not yet paid, in the Assembly Department. (3) Manufacturing overhead of $58,900 is applied in the Assembly Department using the department's predetermined overhead rate. (4) Units with a carrying cost of $101,200 finish processing in the Assembly Department and are transferred to the Painting Department for further processing. (5) Units with a carrying cost of $106,100 finish processing in the Painting Department, the final step in the production process, and are transferred to the finished goods warehouse. (6) Finished goods with a carrying cost of $95,100 are sold. Required: Prepare journal entries for each of the transactions listed above. Account Description Debit $ Credit $ (1) To record direct materials issued to production Account Description Debit $ Credit $ (2) To record direct labor costs incurred but not paid. Account Description Debit $ Credit $ (3) To record application of manufacturing overhead Account Description Debit $ Credit $ (4) To record cost of goods completed by Assembly and transferred to Painting Account Description Debit $ Credit $ (5) To record cost of goods completed in Painting and transferred to Finished Goods warehouse Account Description Debit $ Credit $ (6) To record cost of goods sold
Answers
Answer:
Gurdeep Corporation
Journal Entries:
Account Titles Debit Credit
(1) Work in Process (Assembly) $24,500
Raw Materials $24,500
To record direct materials issued to production.
Account Titles Debit Credit
(2) Work in Process (Assembly) $29,000
Payroll Payable $29,000
To record direct labor costs incurred but not paid.
Account Titles Debit Credit
(3) Work in Process (Assembly) $58,900
Manufacturing Overhead $58,900
To record application of manufacturing overhead.
Account Titles Debit Credit
(4) Work in Process (Painting) $101,200
Work in Process (Assembly) $101,200
To record cost of goods completed by Assembly and transferred to Painting.
Account Titles Debit Credit
(5) Finished Goods Inventory $106,100
Work in Process (Painting) $106,100
To record cost of goods completed in Painting and transferred to Finished Goods warehouse.
Account Titles Debit Credit
(6) Cost of Goods Sold $95,100
Finished Goods Inventory $95,100
To record cost of goods sold
Explanation:
a) Data and Analysis:
(1) Work in Process (Assembly) $24,500 Raw Materials $24,500
(2) Work in Process (Assembly) $29,000 Payroll Payable $29,000
(3) Work in Process (Assembly) $58,900 Manufacturing Overhead $58,900
(4) Work in Process (Painting) $101,200 Work in Process (Assembly) $101,200
(5) Finished Goods Inventory $106,100 Work in Process (Painting) $106,100
(6) Cost of Goods Sold $95,100 Finished Goods Inventory $95,100
Both IFRS and U.S. GAAP allow deferred taxes to be: presented as noncurrent on the balance sheet. measured using a substantially enacted tax rate. recognized in equity after a fixed asset revaluation.
Answers
Answer:
presented as noncurrent on the balance sheet.
Explanation:
GAAP is an acronym for Generally Accepted Accounting Principles, it was adopted by the U.S. Securities and Exchange Commission (SEC) and is the comprehensive accounting rules and standard used in recording and reporting financial information.
The IFRS is an acronym for International Financial Reporting Standards,International Financial Reporting Standards, it is a set of accounting rules that ensure financial statements are consistent, transparent and comparable globally.
Both IFRS and U.S. GAAP allow deferred taxes to be presented as noncurrent on the balance sheet.
New lithographic equipment, acquired at a cost of $859,200 on March 1 of Year 1 (beginning of the fiscal year), has an estimated useful life of five years and an estimated residual value of $96,660. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected.
Required:
a. Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method. Round your answers to the nearest whole dollar.
b. Journalize the entry to record the sale assuming the manager chose the double-declining-balance method.
Answers
Answer and Explanation:
The calculation and the journal entry is given below:
a)
Depreciation expense= (Original cost - Residual Value) ÷ Estimated useful life
= $(859200 - 96660) ÷ 5
= $152508
Year Depreciation Expense Accumulated depreciation Book Value,
1 $152508 $152508 $706692
2 152508 305016 554184
3 152508 457524 401676
4 152508 610032 249168
5 152508 762540 96660
b)
Depreciation rate is
= 100 ÷ 5 × 2
= 40%
Year Depreciation Expense Accumulated depreciation Book Value,
1 $343680 $343680 $515520
( 40% of 859200)
2 206208 549888 309312
(40% of 515520)
3 123725 673613 185587
4 74235 747848 111352
5 14692 762540 96660
(111352-96660)
c)
The journal entry is
Cash $141422.00
Accumulated depreciation- Equipment $747848.00
To Gain on sale of Equipment $30070.00
To Equipment $859200.00
(Being the sale of equipment is recorded)
Give the six steps involved in the decision making process
Answers
Answer:
DECIDE
Explanation:
D - define the problem
E - establish the criteria
C - consider all alternatives
I - identify the best alternative
D - develop and implement a plan of action
E - evaluate and monitor the solution and give feedback when necessary
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You have an opportunity to work three hours of overtime and earn an extra $99 gross income. However, a total of $32 will be taken out for federal, state, and local taxes. You parked in the parking garage and will have to pay $6.50 total to park for the additional hours. You also didn't pack an extra meal, which you already have in the refrigerator at home; so you will have to spend $12 for food. You will also have to pay $55 for additional daycare for your children. According to the marginal principle and everything else equal (ceteris paribus); will you work the overtime? Why or why not? (Show your work) (10 %)
Answers
Answer:
no
the marginal benefit of working overtime in terms of income is less than the marginal cost of working overtime
Explanation:
According to the marginal cost principle, i would be willing to work if marginal benefit exceeds marginal cost
Marginal cost = 32 + 6.5 + 12 + 55 = 105.50
Marginal benefit = 99
the marginal benefit of working overtime in terms of income is less than the marginal cost of working overtime. So, i won't work overtime
which of the following would most likely be considered a short term goal
Answers
Bakeing 24 cookies for tomorrows bakesale
Finish knitting a quilt by this sunday
ect
Chabot Company had the following results last year: net operating income, $2,160; turnover, 5; and return on investment 18%. Chabot Company's average operating assets were: a. $300,000. b. $60,000. c. $10,800. d. $12,000.
Answers
If Karla spent $200 on Wednesday to have the windows in her building washed, recorded the
accounting event that afternoon and on Friday paid $550 for a repair to the water heater
and recorded that event on Friday evening, which of the accounting principles below is she
following?
Answers
Answer:
Accrual Principle
Explanation:
The accrual principle is when a transaction is recorded in the time period that it occurs. In this case, recording a Friday transaction on Friday.
TR Company conducts business exclusively in State V, which levies a 5 percent sales and use tax on goods purchased or consumed in-state. This year, TR bought equipment in State B. The cost of the equipment was $90,000, and TR paid $5,400 sales tax to State B. TR also bought machinery in State D. The cost of the machinery was $200,000, and TR paid $7,000 sales tax to State D.
Required:
a. How much use tax does TR Company owe to State V with respect to the equipment bought in State B?
b. How much use tax does TR Company owe to State V with respect to the machinery bought in State D?
Answers
Answer:
a. Particulars Amount
Value of property purchased in State B A $90,000
Tax rate in State V B 5%
Pre-Credit use tax C (A*B) $4,500
Credit Sales tax paid to State B D ($5,400)
Use tax owed to State V E (C+D) $0
b. Particulars Amount
Value of property purchased in State D A $200,000
Tax rate in State V B 5%
Pre-credit use tax C (A*B) $10,000
Credit Sales tax paid to State D D ($7,000)
Use tax owed to State V E (C+D) $3,000
Bellingham Company produces a product that requires 6 standard pounds per unit. The standard price is $3 per pound. If 4,800 units required 29,700 pounds, which were purchased at $2.88 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) total direct materials cost variance? Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. a. Direct materials price variance $fill in the blank 1 b. Direct materials quantity variance $fill in the blank 3 c. Total direct materials cost variance $fill in the blank 5
Answers
Answer:
Results are below.
Explanation:
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= (3 - 2.88)*29,700
Direct material price variance= $3,564 favorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
Direct material quantity variance= (6*4,800 - 29,700)*3
Direct material quantity variance= (28,800 - 29,700)*3
Direct material quantity variance= $2,700 unfavorable
Now, the total direct material variation:
total direct material variation= 3,564 - 2,700
total direct material variation= $864 favorable
Based on the following information from Scranton Company's balance sheet, calculate the current ratio.
Current assets $87,000
Investments 50,000
Plant assets 220,000
Current liabilities 39,000
Long-term liabilities 90,000
Retained earnings 228,000
Answers
Answer:
2.23
Explanation:
Calculation to determine the current ratio
Using this formula
Current Ratio = Current Assets / Current Liabilities
Where,
Current Assets = $87,000
Current Liabilities = $39,000
Let plug in the formula
Current Ratio = $87,000 / $39,000
Current Ratio = 2.23
Therefore Current Ratio is 2.23
Norton Company reported total sales revenue of $55,000, total expenses of $45,000, and net income of $10,000 on its income statement for the year ended December 31, 2010. During 2010, accounts receivable increased by $4,000, merchandise inventory increased by $6,000, accounts payable decreased by $2,000, and depreciation of $18,000 was recorded. Therefore, based only on this information, the net cash flow from operating activities using the indirect method for 2010 was:
Answers
Answer:
By calculation the answer is $16,000.
Norton Company reported total sales revenue of $55,000, total expenses of $45,000, and net income of $10,000 on its income statement for the year ended December 31, 2010. To calculate the net cash flow from operating activities using the indirect method.
The net income and then adjust for changes in working capital and non-cash expenses.
Net Income: $10,000
Adjustments for Changes in Working Capital:
Increase in Accounts Receivable: $4,000
Increase in Merchandise Inventory: $6,000
Decrease in Accounts Payable: $2,000
Adjustments for Non-cash Expenses:
Depreciation: $18,000
Net Cash Flow from Operating Activities:
Net Income + Adjustments for Changes in Working Capital + Adjustments for Non-cash Expenses
$10,000 - $4,000 - $6,000 + $2,000 + $18,000
$10,000 - $8,000 + $2,000 + $18,000
Net Cash Flow from Operating Activities = $22,000
Therefore, based on the given information, the net cash flow from operating activities using the indirect method for 2010 was $22,000.
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Estrada Corporation produced 204,000 watches that it sold for $18 each. The company determined that fixed manufacturing cost per unit was $9 per watch. The company reported a $816,000 gross margin on its financial statements. Required Determine the variable cost per unit, the total variable product cost, and the total contribution margin.
Answers
Variable cost per unit
Total sales 204,000 x $18 = $3,672,000
Gross margin (given) $816,000
COGS=Total Sales -Gross Margin ($3,672,000-816,000)= $2,856,000
Total Fixed Cost 204,000 x $9 = $1,836,000
COGS Total variable cost + total fixed cost 2,856,000-1,836,000=$1,020,000
variable cost per unit (1020,000/204,000)= $5
Contribution margin $2,652,000
Given:
Number of watch produced = 204,000
Selling price of each watch = $18
Fixed cost = $9 per watch
Gross margin = $816,000
Find:
Variable cost per unit
Total variable product cost
Total contribution margin
Computation:
Total sales Value = 204,000 × $18
Total sales Value = $3,672,000
Cost of goods sold = Total Sales - Gross Margin
Cost of goods sold = $3,672,000 - $816,000
Cost of goods sold = $2,856,000
Total Fixed Cost = 204,000 × $9
Total Fixed Cost = $1,836,000
Cost of goods sold = Total variable cost + Total fixed cost
So,
Total variable cost = $2,856,000 - $1,836,000
Total variable cost = $1,020,000
Variable cost per unit = $1020,000 / 204,000
Total variable cost = $5
Contribution margin = $3,672,000 - $1,020,000
Contribution margin = $2,652,000
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Clonex Labs, Incorporated, uses the weighted-average method in its process costing system. The following data are available for one department for October:
Units Percent Completed Materials Conversion Work in process,
October 1 49,000 90% 60%
Work in process, October 31 27,000 69% 46%
The department started 389,000 units into production during the month and transferred 411,000 completed units to the next department.
Required:
Compute the equivalent units of production for October. Show your complete solution.
Answers
Answer:
Materials 429,630
Conversion 423,420
Explanation:
Computation for the equivalent units of production for October.
MATERIALS
Equivalent units of production= 411,000 + (27,000*69%)
Equivalent units of production=411,000 + 18,630
Equivalent units of production= 429,630
CONVERSION
Equivalent units of production= 411,000 +(27,000*46%)
Equivalent units of production =411,000+12,320
Equivalent units of production= 423,420
Therefore the equivalent units of production for October is:
Materials 429,630
Conversion 423,420
Jay and Carrie Garrett operate a small retail store in a college town that sells only house plants and accessories, which they named The Plantatarium. Their initial feeling when they went into business was that virtually everyone was a potential customer for house plants. Subsequent market research conducted for them painted a different picture. This research identified three particularly strong market segments. The first was college students ages 18-24. The next segment was retired seniors ages 65-80. The third segment was professional offices for doctors, accountants, and lawyers. The college students liked houseplants because they dressed up their living spaces. The senior liked them because they became the focus of a hobby. The professionals did not buy them for any reason other than décor.
The Plantatarium promotes itself in different media using the phrase "An out-of-this-world selection of unique plants." This phrase is a reflection of the firm's :___________
a. positioning strategy.
b. VALS profile.
c. target market.
d. demographics.
Answers
Answer:
a. positioning strategy.
Explanation:
A positioning strategy is about how to position your product or service in your potential customers' minds. In other words, how do you want your customers to see your company?
This particular phrase is meant to make customers think that they can find different and unique plants in the Plantatarium.
The Nelson Company has $1,196,000 in current assets and $460,000 in current liabilities. Its initial inventory level is $325,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0
Answers
Answer:
The amount by which Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0 is $138,000.
Explanation:
From the question, we have:
Initial current assets = $1,196,000
Initial current liabilities = $460,000
Initial inventory level = $325,000
Targeted current ratio = 2.0
Therefore, we have:
Initial current ratio = Initial current assets / Initial current liabilities = $1,196,000 / $460,000 = 2.60
New current liabilities = Initial current assets / Targeted current ratio = $1,196,000 / 2 = $598,000
Expected amount of increase in short-term debt = New current liabilities - Initial current liabilities = $598,000 - $460,000 = $138,000
By implication, we have:
Expected amount of increase in inventory level = Expected amount of increase in short-term debt = $138,000
New inventory level = Initial inventory level + Expected amount of increase in inventory level = $325,000 + $138,000 = $463,000
New current assets = Initial current assets + Expected amount of increase in inventory level = $1,196,000 +$138,000 = $1,334,000
We can now check as follows:
New current ratio = New current assets / New current liabilities = $1,334,000 / $598,000 = 2.23
Therefore, the amount by which Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0 is $138,000.
Nelson's short-term debt can increase up to $276,000
The given information includes:
Current Assets = $1,196,000
Current liabilities = $460,000
So, when x amount is borrowed for short term and invested in inventory, then the Revised Current assets = 1,196,000 + x and Revised Current liabilities = 460,000 + x
Lets understand that Revised Current ratio should be 2.0.
We all know that Current ratio = Current Assets / Current liabilities
Now, we input the values
2.0 = $1,196,000 + x / $460,000 + x
$1,196,000 + x = 2.0x($460,000 + x)
$1,196,000 + x = 920,000 + 2x
2x - x = $1,196,000 - $920,000
x = $276,000
In conclusion, the amount of Nelson Short term debt can increase up to $276,000 without pushing its current ratio below 2.0.
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