The Sweet Dairy Air

Question 1                                                                                                                                          1.5 out of 1.5 points

Daffy Duct, Inc., has the capacity to produce 12,000 cases of duct tape per year but only produces and sells 10,000 cases at $50 per case. The direct materials equals $190,000, direct labor equals $100,000, and overhead equals $100,000. Sixty percent of the manufacturing overhead is variable. The forty percent of fixed overhead is allocated equally to all products.

Dewey, Cheatum & Howe has offered to purchase 1,000 cases but at a reduced price of $40 per case.  What is the additional profit (loss) of accepting this offer?

Question 2                                                                                                                          1.125 out of 1.5 points

 The Sweet Dairy Air, Inc., makes and sells ice cream cones. Management is trying to decide whether to have its hourly employees produce the ice cream cones or purchase the cones from an outside vendor. For each of the following items, indicate if it is relevant or irrelevant to this decision.       

Question 3                                                                                                                          1.5 out of 1.5 points

 BBQ Tanning Beds, Inc., produces and sells tanning beds.

Selling Price        $200

Direct Materials and Direct Labor              $120

Allocated Fixed Manufacturing Costs      $300,000

What will the company’s breakeven point in units equal if BBQ Tanning Beds were to replace some of its hourly employees with a machine? The labor costs will reduce the cost per bed by $20 but the depreciation on the machine will add $100,000 to the manufacturing costs.

Question 4                                                                                                                          1.5 out of 1.5 points

 Quiche & Tell, Inc., is a catering business. Direct labor costs are $15 per hour and overhead is allocated to jobs at a rate of $10 per direct labor hour. Catering for theEggsetera, Inc. party cost $1,000 for direct materials and took 20 direct labor hours. Calculate the total cost of the Eggsetera’s party.

Question 5                                                                                                                          1.5 out of 1.5 points       

 Big Seats has the capacity to produce 100,000 sofas per year but only produces 80,000 sofas per year. The sale price is $1,000 each. Direct materials equals $300 per sofa, direct labor equals $200 per sofa, and allocated overhead equals $100,000 per year. Buy & Large offers to buy an additional 1,000 sofas but is only willing to pay $800 per sofa. What is the additional profit (loss) of accepting the offer?

Question 6                                                                                                                          1.5 out of 1.5 points

 Lawn and Order Company manufactures industrial sprinklers and uses an activity-based costing system to allocate overhead to its products. Each sprinkler consists of 6 separate parts totaling $3 in direct materials, $2 in direct labor and requires 1 hour of machine time to produce. Additional information follows:

Overhead Cost Pools

Cost Drivers        Allocation Overhead Rate

Materials handling           Number of parts              $0.40 per part

Machining           Machine hours  $1.50 per machine hour

Assembling         Number of parts              $0.50 per part

Inspecting

Number of finished units             $0.30 per finished unit

Determine the amount of overhead allocated to each sprinkler.

Question 7                                                                                                                                          1.5 out of 1.5 points

 Match the cost classification needed for each of the following managerial decisions (using each only once).                                       

Question 8                                                                                                                                          1.5 out of 1.5 points

 Microhard produces tablets, laptops and televisions. Microhard typically sells 1,000 tablets a year. The tablet information is as follows:

Selling price per unit       $70

Direct material cost per unit        $30

Direct labor cost per unit              $10

Total unavoidable allocated overhead    $48,000

How much would Net Income decrease if Microhard were to eliminate the tablets?

Question 9                                                                                                                                          1.5 out of 1.5 points

For a manufacturing company, which of the following is an example of a period cost rather than a product cost?                                              

Question 10                                                                                                                       1.5 out of 1.5 points

 Daily Kneads, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $20,000 for 20,000 pounds of the product. The costs per pound to make this product include:

 Cost per Pound

Direct Labor        $0.50

Direct Materials                $0.50

Allocated Unavoidable Corporate Overhead       $0.50

Calculate the relevant incremental cost per pound of making the product. Do not include a dollar sign ($) in your answer.

Question 11                                                                                                                                       1.5 out of 1.5 points

 Which of the following should NOT be used to evaluate the production manager’s performance?                                           

Question 12                                                                                                                                       1.5 out of 1.5 points

 Optimeyes, Inc., makes glasses and contact lenses in the same factory. The glasses’ costs consist of the following:

Glasses Glass     $400,000

Factory Rent      20,000

Allocated Glue  400

Factory Supervisor Salary             5,000

Wages Charged to Glasses           60,000

Metal and Miniature Screws traced to each pair of glasses            80,000

Calculate the Indirect Costs for Glasses.

Question 13                                                                                                                                       1.5 out of 1.5 points

 Buy & Large, Inc.’s, Purchasing Department’s estimated annual costs are $400,000 and the number of purchase orders written is 800,000. The Shoe Department has requested 200,000 purchases during the year for a total of $4,000,000 in purchases.  How much of the Purchasing Department’s cost should be allocated to the Shoe Department?

Question 14                                                                                                                                       1.5 out of 1.5 points

 Quiche & Tell, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $15,000 for 3,000 quiches. The costs per quiche to make include:

 Cost per Quiche

Allocated Corporate Overhead  $1

Direct Labor        $2

Direct Materials                $1

Manager’s Salary              $3

If Quiche & Tell outsources, what is the savings (or loss) per quiche?

Question 15                                                                                                                                       1.5 out of 1.5 points

 Which of the following is relevant to Limited’s decision to accept a special order at a lower price?

Question 16                                                                                                                                       1.5 out of 1.5 points

A product should be eliminated if its _____.                                      

Question 17                                                                                                                                       1.5 out of 1.5 points

 Cyclogy Bikes, Inc., manufactures bikes. Identify each of its costs as a Direct Cost or an Indirect Cost .                                    

Question 18                                                                                                                                       1.5 out of 1.5 points

 French Confection, Inc., allocates overhead using direct labor hours as the allocation activity.  The following information was estimated at the beginning of the year:

Estimated Manufacturing Overhead       $400,000

Estimated Machine Hours            4,000

Estimated Direct Labor Hours     5,000

During the year, the bakery department used 800 machine hours and 2,000 direct labor hours.  How much manufacturing overhead was allocated to the bakery department during the year?

Question 19                                                                                                                                       1.5 out of 1.5 points

Put the following steps in an Activity-Based-Costing system in the proper order.                                              

Question 20                                                                                                                                       0 out of 1.5 points          

 Seed Food, Inc. expects to sell 20,000 bags of flaxseed to at a price of $20 per bag. Direct materials equal $10 per bag, direct labor equals $5 per bag and allocated overhead is fixed and will equal $60,000 per month. Seed Food is considering buying a bagging machine to reduce the time spent filling the bags manually. The depreciation of the machine will increase overhead by $10,000 per year, but the direct labor cost per case is expected to decrease by $2. What would be the change in operating income if it bought the machine?

FIN 3331 Assignment

FIN 3331 Assignment

Emily Smith just received a promotion at work that increased her annual salary to $42,000. She is eligible to participate in her employer’s 401(k) retirement plan to which the employer matches, dollar for dollar, workers’ contributions up to 5% of salary. However, Emily wants to buy a new $25,000 car in 3 years, and she wants to have enough money to make a $10,000 down payment on the car and finance the balance. Fortunately, she expects a sizable bonus this year that she hopes will cover that down payment in 3 years.

A wedding is also in her plans. Emily and her boyfriend, Paul, have set a wedding date two years in the future, after he finishes medical school. In addition, Emily and Paul want to buy a home of their own in 5 years. This might be possible because two years later, Emily will be eligible to access a trust fund left to her as an inheritance by her late grandfather. Her trust fund has$80,000 invested at an interest rate of 5%.

1.      Justify Emily’s participation in her employer’s 401(k) plan using the time value of money concepts by calculating the actualannual return on her own contributions. She will contribute $1,000 per year to her 401(k) for 25 years and the employer will match dollar for dollar. Assume that her 401(k) earns 6% per year for 25 years and all contributions are made at the end of each year.

2.      Calculate the amount of money that Emily needs to set aside from her bonus this year to cover the down payment on a new car, assuming she can earn 4% on her savings. What if she could earn 10% on her savings?

3.      What will be the value of Emily’s trust fund in 36 years, assuming she takes possession of $20,000 in 2 years for her wedding, and leaves the remaining amount of money untouched where it is currently invested?

4.      Suggest at least two conditions that Emily and Paul could take to accumulate more for their retirement.

5.      Suppose that Emily and Paul purchase a $200,000 home in 5 years and make $40,000 down payment immediately. Find the monthly mortgage payment assuming that the remaining balance is financed at a 3% fixed rate for 15 years. What if its mortgage term is 30 years?

6.      What can you conclude about the relationship between the mortgage term and the amount of the monthly payment? From Question 5, is the monthly payment with the 30-year term half as large as the monthly payment with the 15-year term? Explain.

Use the following information to answer the following questions.

                 ABC, Inc. Income Statement (in thousands)

                                        December 31, 2014

Sales                                                                                     $200,000

Cost of goods sold                                                              140,000

Gross profit on sales                                                            60,000

Operating expenses                                                             56,000

Operating income (EBIT)                                                      4,000

Interest expense                                                                       1,000

Earnings before tax                                                                 3,000

Income tax                                                                                 1,050

Net income available to common stockholders          $1,950

Number of shares outstanding                                            1, 500

Market price per share                  $22

                    ABC, Inc. Balance Sheet (in thousands)

                                        December 31, 2014

Assets

Cash                                                                                         $2,000

Accounts receivable                                                             17,800

Inventories                                                                                8,700

Total current assets                                                              28,500

Gross fixed assets                                                                 70,000

Accumulated depreciation                                                26,500

Net fixed assets                                                                     43,500

Total assets                                                                          $72,000

Liabilities and Equity

Accounts payable                                                              $18,000

Accruals                                                                                  13,350

Total current liabilities                                                       31,350

Long-term debt                                                                        8,250

Total liabilities                                                                      39,600

Common stock (par value and paid in capital)            2,000

Retained earnings                                                                30,400

Total stockholders’ equity                                                  32,400

Total liabilities and equity                                              $72,000

Industry Key Ratios

                                             Industry Average Ratios

Current ratio                                          1.1

Quick ratio                                           0.60

Days Sales Outstanding (DSO)      25 days

Fixed assets turnover                          5.8

Total asset turnover                          2.95

Liabilities-to-assets ratio                 65%

Times-interest-earned                        3.2

Net profit margin                             1.3%

Return on equity                            7.32%

Price/earnings ratio                     20.38

Market/book ratio                         3.19

1.      Calculate current ratio and acid test ratio for the firm.

2.      Calculate DSO, fixed assets turnover, and total asset turnover for the firm.

3.      Calculate liabilities-to-assets ratio and times-interest-earned ratio for the firm.

4.      Calculate net profit margin and return on equity for the firm.

5.      Evaluate the performance of the firmin the following areas:

Liquidity management

Asset management

Debt management

Profitability management

When you explain the firm’s strength or weakness in each area, you must support your arguments through the evaluative reasoning process by providing reasons, methods, criteria, or assumptions behind the claims made.

6.      Deductive reasoning starts with a general principle and deduces that it applies to a specific case. Deductive reasoning moves with exacting precision from the assumed truth of a set of premises to a conclusion which cannot be false if those premises are true. Explain the deductive reasoning process applied to analyze thefirm’s performance.