Answer:
$4,410
Explanation:
Discount refers the amount that is deducted from the usal price of a good sold or service rendered.
From the question, the credit terms 2/10, n/30 implies 2% discount if the amount owed is paid within 10 days while no discount will be enjoyed if the amount owed is paid after 10 days but must be beyond 30 days.
Therefore, the amount owed by Lulu's if the store pays within the discount period, i.e. within 10 days, can be calculated as follows:
Discount = (Purchases - Merchandise returned) * 2% = ($5,500 - $1,000) * 2% = $90
Amount owed = Purchases - Merchandise returned - Discount = $5,500 - $1,000 - 90 = $4,410.
Therefore, the amount owed by Lulu's if the store pays within the discount period is $4,410.
You purchase one MMM July 129 call contract (equaling 100 shares) for a premium of $21. You hold the option until the expiration date, when MMM stock sells for $141 per share. You will realize a ______ on the investment.
Answer:
There is loss of $900 on investment.
Explanation:
The purchase of 1 MMM July 129 call contract at premium = $21
Since it is given that it is held unit the expiration date.
The selling price of MMM stock = $141 per share.
Total number of shares = 100
Total amount paid for share (purchase price) = 129 + 21 = $150
Loss or profit = Market price on expiration date- purchase price
=141-150
= - 9
Total loss = 9 × 100
=900 loss
The following adjusting journal entry does not include an explanation. Select the best explanation for the entry. Supplies Expense 730 Supplies 730 ppppppp?Record purchase of supplies. Adjust supplies inventory to actual. Record sale of supplies. Reduce supplies expense.
Answer:
Adjust supplies inventory to actual.
Explanation:
The adjusting entry to record the adjust supplies inventory to actual is shown below:
Supplies expense $730
To Supplies $730
(Being the supplies inventory is adjusted)
For recording this we debited the supplies expense as it increased the expenses and credited the supplies as it decreased the assets
Therefore the second option is correct
Ohno Company specializes in manufacturing a unique model of bicycle helmet. The model is well accepted by consumers, and the company has enough orders to keep the factory production at 10,000 helmets per month (80% of its full capacity). Ohno’s monthly manufacturing cost and other expense data are as follows. Rent on factory equipment $11,500 Insurance on factory building 1,780 Raw materials (plastics, polystyrene, etc.) 80,800 Utility costs for factory 920 Supplies for general office 320 Wages for assembly line workers 59,700 Depreciation on office equipment 830 Miscellaneous materials (glue, thread, etc.) 1,470 Factory manager’s salary 6,200 Property taxes on factory building 420 Advertising for helmets 14,900 Sales commissions 10,900 Depreciation on factory building 1,640 Prepare an answer sheet with the following column headings. Enter each cost item on your answer sheet, placing the dollar amount under the appropriate headings. Total the dollar amounts in each of the columns. Product Costs Cost Item Direct Materials Direct Labor Manufacturing Overhead Period Costs Rent on factory equipment $ $ $ $ Insurance on factory building Raw materials Utility costs for factory Supplies for general office Wages for assembly line workers Depreciation on office equipment Miscellaneous materials Factory manager’s salary Property taxes on factory building Advertising for helmets Sales commissions Depreciation on factory building $ $ $ $ Compute the cost to produce one helmet. (Round answer to 2 decimal places, e.g. 15.25.)
Answer and Explanation:
The preparation of the answer sheet is presented below;
Product Costs
Cost Item Direct Direct Manufacturing Period
Materials Labor Overhead Costs
Rent on factory
equipment $11,500
Insurance
on factory building $1,780
Raw materials $80,800
Utility costs for factory $920
Supplies for general office $320
Wages for
assembly line workers $59,700
Depreciation on office equipment $830
Miscellaneous materials $1,470
Factory manager’s salary $6,200
Property taxes on factory building $420
Advertising for helmets $14,900
Sales commissions $10,900
Depreciation on factory building $1,640
Total $80,800 $59,700 $23,930 $26,950
Now cost to produce one helmet is
= Total cost to produced ÷ number of helmets produced
= ($80,800 + $59,700 + $23,930) ÷ (10,000)
= ($164,430) ÷ (10,000)
= $16.44
The cost of production per unit is $16.44. The total cost of production divided by the number of helmets produced equals ($80,800 + $59,700 + $23,930) divided by (10,000) equals ($164,430) divided by (10,000) is $16.44 for each helmet produced.
The depreciation cost has been prepared in the image attached below:
Cost of production includes every expense a business has when providing a service or producing a good. It consists of a variety of costs, such as material costs, labor costs, maintenance costs for the factory, and transportation costs.
Taxes levied by the government on a company's manufacturing processes or facilities are also included in production expenses. When evaluating their financial health, enterprises should take the cost of manufacturing into account. The corporation may stop manufacturing of a product to keep within budget if the cost of production is routinely higher than the sales it generates.
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A coal mine cost $ 1 comma 001 comma 000and is estimated to hold 57 comma 000tons of coal. There is no residual value. During the first year of operations, 12 comma 000tons are extracted and sold. Calculate depletion expense for the first year. (Round any intermediate calculations to the nearest cent.)
Answer:
Depletion expenses for the first year is $210736.840
Explanation:
Depletion expenses= (Cost of coal mine - residual value) / Total tons of coal * tons extracted
=(1,001,000 - $0) / 57,000 tons * 12,000 tons
=$210736.8421
=$210736.840
Rational choices: A. are based on a comparison of total benefits and total costs. B. can only be made by those who are economists. C. are made based on expectations of the additional benefits and additional costs involved. D. measure benefits based on the past. E. are always motivated by concern for others.
Answer:
A) are based on a comparison of total benefits and total costs
Rachelle transfers property with a tax basis of $800 and a fair market value of $960 to a corporation in exchange for stock with a fair market value of $765 and $42 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $153 on the property transferred. What is the corporation's tax basis in the property received in the exchange
Answer:
$842
Explanation:
The computation of corporation's tax basis in the property received in the exchange is shown below:-
corporation's tax basis = Fair market value + Transaction
= $800 + $42
= $842
Therefore, The corporation's tax basis should be equivalent to the shareholder's tax basis as the property is transferred for $800 (a substituted basis) and add gain recognized of $42. And If the corporation sells the property for $960, the recognized gain would be $52.
Nelly is creating an executive committee in a large corporation in order to decide how to open a new subsidiary. The committee has representation from the sales, information technology, general management, and warehouse departments. She feels unsure whether to include someone from the accounting department because she thinks that accountants focus only on taxes and do not have much management expertise. What would you suggest
Answer: Accountants do much more than taxes and often participate in executive committeesbecause of their financial perspective. This committee should include someone from the accounting or finance department.
Explanation:
The options to the question are:
a. Accountants usually do not work on strategy or planning, so the executive committee doesnot need a representative from the accounting department.
b. Accountants will not help the executive committee. The committee does not need arepresentative from the accounting department.
c. Accountants do much more than taxes and often participate in executive committees because of their financial perspective. This committee should include someone from the accounting or finance department.
From the question, we are informed that Nelly is creating an executive committee in a large corporation in order to decide how to open a new subsidiary and that she is unsure whether to include someone from the accounting department because she thinks that accountants focus only on taxes and do not have much management expertise.
I would suggest that she needs to include an accountant. Accountants do much more than just taxes. She needs someone from the finance or accounting department that will help in the communication, and processing of every financial details regarding the company or whatever they intend doing. For every executive committee, the role of accountants cannot be understated as they participate in executive committees due to their financial perspective on certain issues.
The aim of every organization is cost minimization and profit maximization and an accountant can help in achieving these aims.
Day Corp. holds 10,000 shares of its $10 par value common stock as treasury stock reacquired in Year 2 for $120,000. On December 12, Year 4, Day reissued all 10,000 shares for $190,000. Under the cost method of accounting for treasury stock, the reissuance resulted in a credit to:___________
Answer:
Credit of Additional paid-in capital of $70,000
Explanation:
Under the cost method of accounting for treasury stock, the reissuance resulted in a credit to: Additional paid-in capital of $70,000
Treasury stock reacquired in Year 2 $120,000
Less Year 4, reissued $190,000
Balance $70,000
Hence the $70,000 will be the additional Paid-in capital because the Treasury stock was reacquired in Year 2 $120,000 in which later in Year 4, $190,000 was reissued .
Therefore Under the cost method of accounting for treasury stock, the reissuance resulted in a credit to: Additional paid-in capital of $70,000
2. A fancy steakhouse in a shopping mall offers a 20% discount to employees of other stores in the mall, provided that they eat before 6:00 PM or after 8:00 PM. Can you explain the rationale for this strategy? (Your explanation should both account for why the 20% discount is not offered to everyone and why it is restricted in the hours when it is offered.)
Answer:
Different aspects to be considered:
First of all, the steakhouse probably has the most clients between 6 to 8 PM, that is why discounts are not offered during that time.
Second, the discount is offered to only a certain group, employees of other stores, because it is a promotional strategy aimed at increasing the number of clients during slow hours. Since this is a fancy place, it is probably expensive also. Most employees would not actually eat there except on a special event, e.g. birthday or anniversary dinner. Even with the 20% discount, not many of them will actually eat there.
This is something nice to offer, since a shopping mall is a close environment where a lot of different people work together, even if very few will actually take the offer. It is normal that different stores have distinct promotions for the employees that work there. It is similar to offering perks that help create a better working environment between the employees of different stores.
Find the expected return for Jackson Corporation. Round to the nearset hundredth percent. Answer in the percent format. Do not include % sign in your answer (i.e. If your answer is 4.33%, type 4.33 without a % sign at the end.)
Question:
Jackson Corporation has expected return of 12% during recession, 20% during normal, and 40% during boom state of economy. Probability of recession, normal and boom states of economy is 0.25, 0.50, and 0.25 respectively. Find the expected return for Jackson Corporation. Round to the nearset hundredth percent. Answer in the percent format. Do not include % sign in your answer (i.e. If your answer is 4.33%, type 4.33 without a % sign at the end.)
Answer:
23.00
Explanation:
Given:
For Jackson Corporation:
Expected return during recession = 12%
Expected return during normal = 20%
Expected return during boom = 40%
For Economy:
Probability of recession = 0.25
Probability of normal = 0.50
Probability of boom = 0.25
Required:
Find the expected return for Jackson Corporation.
To find expected return, use the expression below:
Expected return = (Probability of Recession * Returns at Recession) + (Probability of Normal * Returns at Normal) + (Probability of Boom * Returns at Boom)
Using the expression above, expected return for Jackson corporation will be calculated as:
Expected return = (25×12%)+(0.50×20%)+(0.25×40%)
= 3 + 10 + 10
= 23%
Expected return for Jackson corporation is 23.00
Problem 5-40 Loan Payments (LG5-9) You wish to buy a $10,800 dining room set. The furniture store offers you a 3-year loan with an APR of 10.8 percent. What are the monthly payments
Answer:
Required monthly payments = $352.556
Explanation:
Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.
The monthly installment is computed as follows:
Monthly installment= Loan amount/annuity factor
Loan amount; 10,800
Annuity factor = (1 - (1+r)^(-n))/r
r -monthly rate of interest, n- number of months
r- 10.8%/12 = 0.9 % = 0.009, n = 3 × 12 = 36
Annuity factor = ( 1- (1+0.009)^(-36))/0.009 =30.6334
Monthly installment = Loan amount /annuity factor
= 10,800/30.6334= 352.556
Required monthly payments = $352.556
At the end of 2018, we have a credit balance of $10,000 in allowance for doubtful accounts before the adjusting entry for bad debts expense. After analyzing the accounts in the accounts receivable using the aging of receivables method, the company's management estimates that uncollectible accounts will be $30,000. What will be the amount of bad debts expense reported on the income statement
Answer:
$20,000
Explanation:
From the question above
At the end of 2018, there was a credit balance of $10,000 in allowance for the doubtful accounts.
After proper screening of the account receivable through the use of a method known as 'aging of receivables method' the management of the company estimated that the uncollectible accounts will be $30,000
Therefore, the amount of bad debts expense recorded on the income statement can be calculated as follows
= $30,000-$10,000
= $20,000
Hence the amount of bad debts expense that was recorded on the income statement is $20,000
Presented below is information related to Taylor Co. for the month of January 2014. Ending inventory per Insurance expense $ 12,680 perpetual records $ 23,490 Rent expense 20,260 Ending inventory actually Salaries and wages expense 57,100 on hand 22,930 Sales discounts 10,950 Cost of goods sold 227,250 Sales returns and allowances 15,390 Freight-out 7,640 Sales revenue 411,410(a) Prepare the necessary adjusting entry for inventory.(b) Prepare the necessary closing entries
Answer: The answer is given below
Explanation:
a. The necessary adjusting entry for inventory has been prepared and attached.It should be noted that the inventory was calculated as:
= $23,490 - $22,930
= $560
(b) The necessary closing entries has also been prepared and attached. During the calculation, it should be noted that the cost of goods sold was given as:
= 227250 + 560
= 227810
Check the attachment for the table.
Tom Company incurs overhead costs each year in its three main departments, setup ($70,000), machining ($34,000), and packing ($56,000). Information about the company's two products is as follows:
Product A1 Product B1 Total
Number of setups 7 33 40
Machining hours 2,800 2,200 5,000
Orders packed 280 220 500
Number of products manufactured 560 440 1,000
If machining hours are used as a base under traditional costing, how much overhead is assigned to Product A1?
Answer:
Allocated MOH= $89,600
Explanation:
Giving the following information:
Tom Company incurs overhead costs each year in its three main departments, setup ($70,000), machining ($34,000), and packing ($56,000).
Product A1 Product B1 Total
Number of setups 7 33 40
Machining hours 2,800 2,200 5,000
Orders packed 280 220 500
Number of products manufactured 560 440 1,000
Under the traditional costing system, the company applies overhead based on a single plantwide predetermined overhead rate.
First, we need to calculate the predetermined overhead rate:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= 160,000/ 5,000
Predetermined manufacturing overhead rate= $32 per machine hour
Now, we can apply overhead:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Allocated MOH= 32*2,800= $89,600
A pollution haven is A. unattractive for multinational investment because of the ambient pollution. B. a location with weak environmental rules that attracts manufacturing companies due to decreased costs. C. a place that has very low worker wages. D. a place where people actually like pollution and view it as a positive externality.
Answer:
B. a location with weak environmental rules that attracts manufacturing companies due to decreased costs.
Explanation:
A pollution haven is when companies establish factories or offices abroad in countries in which they have lower costs and have access to all the resources they need. Also, these locations tend to be in developing nations in which the environmental standards tend to be lower than the ones in developed nations. According to this, the answer is that a pollution haven is a location with weak environmental rules that attracts manufacturing companies due to decreased costs.
The other options are not right because a pollution haven is attractive for multinational investment because of the lower cost and it is not related to ambient pollution. Also, a pollution haven has low wages but it is not the only thing that defines it and it is not a place where people like pollution.
Suppose that a landlord is interested in renting out a two-bedroom apartment for $1000 a month for the next year. The landlord requires rent to be paid at the beginning of the month, at which point he will deposit the rental check into a local savings account. If the annual interest that the tenant can earn on this account is 5% and interest is compounded monthly, how much will the tenant have in his savings account at the end of the year
Answer:
WHAT
Explanation:
Eberley Corporation's cost formula for its manufacturing overhead is $25,700 per month plus $10 per machine-hour. For the month of July, the company planned for activity of 5,900 machine-hours, but the actual level of activity was 5,920 machine-hours. The actual manufacturing overhead for the month was $86,800. The manufacturing overhead in the planning budget for July would be closest to:
Answer:
$84,700
Explanation:
The computation of manufacturing overhead in the planning budget for July is shown below:-
Manufacturing overhead in the planning budget = Manufacturing overhead per month + Budgeted hours × Budgeted rate
= $25,700 + 5,900 × $10
= $25,700 + $59,000
= $84,700
Therefore for computing the manufacturing overhead in the planning budget for July we simply applied the above formula.
Kenzi kayaking a manufacturer of kayaks began operations this year. During this first year the company produced 1075 kayaks and sold 825 at a price of $1075 each. At this first year-end, the company reported the following income statement information using absorption costing.
Sales (825x $1,075) Cost of goods sold (825x $475) Gross margin Selling and administrative expenses Net income
$886,875 391,875 495,000 210,000 $285,000
Additional Information:
a. Product cost per kayak totals $500, which consists of $400 in variable cost production cost and $100 in fixed production cost- the latter amount is based on 107500 of fixed production cost allocated to the 1075 kayaks produced.
b. The $210,000 in selling and administrative expense consists of $75,000 that is variable and $135,000 that is fixed.
Required:
Prepare an income statement for the current year under variable costing.
Answer:
Income Statement for the Current Year under Variable Costing
Sales (825 × $1,075) $886,875
Less Cost of Sales
Opening Stock $0
Add Cost of Goods Manufactured ( 1075 × $400) $430,000
Less Closing Inventory (250 × $400) ($100,000) ($330,000)
Contribution $556,875
Less Expenses :
Fixed Manufacturing Overheads ($107,500)
Selling and administrative expense : Variable ($75,000)
Selling and administrative expense : Fixed ($135,000)
Net Income / (Loss) $239,375
Explanation:
Under variable costing, only variable costs of production are included in cost of goods sold. Both the Non - Production and Fixed Production Costs are treated as Period Cost Expensed during the year.
7. Identifying costs of inflation Bob manages a grocery store in a country experiencing a high rate of inflation. He is paid in cash twice per month. On payday, he immediately goes out and buys all the goods he will need over the next two weeks in order to prevent the money in his wallet from losing value. What he can't spend, he converts into a more stable foreign currency for a steep fee. This is an example of the of inflation.
Answer:
Shoe-leather Costs.
Explanation:
In this scenario, Bob manages a grocery store in a country experiencing a high rate of inflation. He is paid in cash twice per month. On payday, he immediately goes out and buys all the goods he will need over the next two weeks in order to prevent the money in his wallet from losing value.
What he can't spend, he converts into a more stable foreign currency for a steep fee. This is an example of the Shoes-leather costs of inflation.
A Shoe-leather costs refers to the costs of time, energy and effort people expend to mitigate the effect of high inflation on the depreciative purchasing power of money by frequently visiting depository financial institutions in order to minimize inflation tax they pay on holding cash.
Metaphorically, it ultimately implies that in order to protect the value of money or assets, some people wear out the sole of their shoes by going to financial institutions more frequently to make deposits.
Hence, Bob is practicing a shoe-leather cost of inflation so as to reduce the nominal interest rates.
Which of the following is a feature of an effective business email?
The message has a number of abbreviations in order to save the
writer time.
B. The subject line clearly states what the email is about.
C. The message has a joke in the last paragraph.
D. The subject line is in all capital letters.
The feature of an effective business email is that the subject line clearly states what the email is about. Thus, option (B) is correct.
What is Email?The term email stands for electronic mail, which is sent by using the digital mode of transactions. It is a computer based program associated with the exchange of the messages.
People may exchange e-mail messages relatively fast thanks to a global e-mail network. E-mail is the electronic version of a letter, but with time and flexibility advantages.
While sending mail to any person, the subject should be clearly stated as many of the people have not so much time to read the mail and can just read the subject and understand the mail.
Therefore, it can be concluded that The subject line of an excellent business email clearly communicates what the communication is about. Hence, option (B) is correct.
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On December 31, Lowland, Inc., converts its $900,000 par value bonds (carrying value also $900,000) into 90,000 shares of $6 par value common stock. Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.
Answer:
Lowland, Inc., entry to record this conversion includes a
Dr Bonds Payable $900,000
Cr Common Stock $540,000
( 90,000 shares x $6 par value per share)
Cr Paid-In Capital in Excess of Par Value $360,000
($900,000 -$540,000)
Explanation:
Since Lowland, Inc. converted its $900,000 par value bonds and carrying value also $900,000) into 90,000 shares of $6 par value common stock which means we have to Debit Bonds Payable with $900,000 and Credit Common Stock with $540,000 which is
( 90,000 shares x $6 par value per share) , then Credit Paid-In Capital in Excess of Par Value for $360,000 which is ( value of bonds converted of $900,000 - par value of shares of common stock issued of $540,000).
Production estimates for August are as follows:
Estimated inventory (units), August 1 12,000
Desired inventory (units), August 31 2,000
Expected sales volume (units), August 75,000
For each unit produced, the direct materials requirements are as follows:
Direct material A ($5 per pound) 3Ibs
Direct material B ($15 per pound) 1/2 Ib
The number of pounds of matierials A and B required for August production are_____. The total direct materials purchases of materials A and B required for August production is:______.
Answer:
Instructions are below.
Explanation:
Giving the following information:
Production:
Estimated inventory (units), August 1 12,000
Desired inventory (units), August 31 2,000
Expected sales volume (units), August 75,000
For each unit produced, the direct materials requirements are as follows:
Direct material A ($5 per pound) 3Ibs
Direct material B ($15 per pound) 1/2 Ib
First, we need to determine the number of pounds required.
Production= sales + desired ending inventory - beginning inventory
Production= 75,000 + 2,000 - 12,000= 65,000 units
Purchases in pounds:
Direct material A= 65,000*3= 195,000
Direct material B= 65,000*0.5= 32,500
Total pounds= 227,500
Now, the cost of direct material:
Direct material cost:
Direct material A= 195,000*5= $975,000
Direct material B= 32,500*15= $487,500
Total= $1,462,500
A company had beginning inventory... A company had beginning inventory of 10 units at a cost of $20 each on March 1. On March 2, it purchased 10 units at $22 each. On March 6 it purchased 6 units at $25 each. On March 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold
Answer:
COGS= $470
Explanation:
Giving the following information:
Beginning inventory= 10 units for $20 each
On March 2, it purchased 10 units at $22 each.
On March 6 it purchased 6 units at $25 each.
On March 8, it sold 22 units for $54 each.
We need to determine the cost of goods sold for the 22 units under the FIFO (first-in, first-out) method. Using this method, we need to use the cost of the firsts units incorporated into inventory.
COGS= 10*20 + 10*22 + 2*25= $470
What guidelines will you develop for supervisors to successfully respond to employee questions about unionization? What can your supervisors say or do that is legally permissible in this situation?
The correct answer to this open question is the following.
The guidelines you will develop for supervisors to successfully respond to employee questions about unionization would be the following.
The first thing the supervisor can do is establish an open door policy to always listen to employees' concerns. This is of the utmost importance because one of the factors that impact employee's morale is the lack of communication and the sentiment of not being important for the organization.
An open line of communication from the very top of the hierarchy to the very bottom of the company is of so much help for the workers feel comfortable to express their opinions, and do not try to look for unions to be heard.
What the supervisors can say that is legally permissible in this situation is to inform workers that they have the right to express themselves and be heard, as well as freely join the union they feel most comfortable with, always inviting the worker to first directly address their issues within the company.
At the end of the current year, Accounts Receivable has a balance of $550,000; Allowance for Doubtful Accounts has a credit balance of $5,500; and sales for the year total $2,500,000. An analysis of receivables estimates uncollectible receivables as $25,000. Determine the net realizable value of accounts receivable after adjustment. (Hint: Determine the amount of the adjusting entry for bad debt expense and the adjusted balance of Allowance for Doubtful Accounts.)
Answer:
1.Net Realizable value $530,500
2.$19,500
Explanation:
1. Calculation for Determining the net realizable value of accounts receivable after adjustment will be
Ending Account receivable $550,000- $19,500
Net Realizable value=$530,500
2. Calculation to determine the amount of the adjusting entry for bad debt expense and the adjusted balance of Allowance for Doubtful Accounts
The Allowance for Doubtful Accounts = $25,000
Using this formula
Bad debts expense = Ending Allowance for Doubtful Accounts - Beginning Allowance for Doubtful Accounts
Let plug in the formula
= 25,000 - 5,500
= $19,500
To advertise or not to advertise Suppose that Creamland and Dairy King are the only two firms that sell ice cream. The following payoff matrix shows the profit (in millions of dollars) each company will earn depending on whether or not it advertises:
Dairy King
Advertise Doesn't Advertise
Creamland Advertise 10,10 18, 2
Doesn't Advertise 2,18 11,11
For example, the upper right cell shows that if Creamland advertises and Dairy King doesn't advertise, Creamland will make a profit of $18 million, and Dairy King will make a profit of $2 million. Assume this is a simultaneous game and that Creamland and Dairy King are both profit-maximizing firms.
a. If Creamland decides to advertise, it will earn a profit of $ _______ million if Dairy King advertises and a profit of $_______ million if Dairy King not advertise.
b. If Creamland decides not to advertise, it will earn a profit of________ million if Dairy King advertises and a profit of______ $ million if Dairy King does not advertise.
Suppose that both firms start off not advertising. If the firms act independently, what strategies will they end up choosing?
a. Creamland will choose not to advertise and Dairy King will choose to advertise.
b. Both firms will choose not to advertise.
c. Both firms will choose to advertise.
d. Creamland will choose to advertise and Dairy King will choose not to advertise.
Answer:
a. 10, 18
b. 2, 11
c. Both firms will choose to advertise.
Explanation:
Interpreting the payoff matrix for all possible cases:
Both Advertise:
Dairy King profit = 10
Creamland profit = 10
Neither Advertise:
Dairy King profit = 11
Creamland profit = 11
Only Dairy King advertises:
Dairy King profit = 18
Creamland profit = 2
Only Creamland advertises:
Dairy King profit = 2
Creamland profit = 18.
Filling in the blanks:
a. If Creamland decides to advertise, it will earn a profit of $10 million if Dairy King advertises and a profit of $18 million if Dairy King not advertise.
b. If Creamland decides not to advertise, it will earn a profit of $2 million if Dairy King advertises and a profit of $11 million if Dairy King does not advertise.
For both firms, if they choose not to advertise and the other firm advertises, they will have a much lower profit than their competitors. Therefore, the dominant strategy for either firm is to advertise since it will at least keep them even with their competitor (if both advertise).
The answer is c. Both firms will choose to advertise.
Income Statement For the Year Ended on December 31 J&H Corp. Industry Average Net sales $39,000,000 $48,750,000 Operating costs, except depreciation and amortization 31,200,000 39,000,000 Depreciation and amortization 1,560,000 1,950,000 Total operating costs 32,760,000 40,950,000 Operating income (or EBIT) $6,240,000 $7,800,000 Less: Interest expense 624,000 1,170,000 Earnings before taxes (EBT) $5,616,000 $6,630,000 Less: Taxes (40 % ) 2,246,400 2,652,000 Net income $3,369,600 $3,978,000 information given to him, Jeffery submits a report on January 1 with some important calculations for management to use, both for Based on analysis and to devise an action plan. Complete the following statements in his report. If your answer is negative, use the minus sign.
Statement # 1 : J&H Corp.'s NOPAT is,which is _________ than the industry average of_______ $
Statement #2: The company is using_______ in net operating working capital (NOWC).
Statement #3 : )8H Corp . is generating________ in net cash flow from its operations and an accounting profit of__________ S
Statement # 4 : The firm uses s________ of total net operating capital to run the business.The value is computed as the _______of
J8H Corp.'s net operating working capital and its .
Answer:
1.J&H Corp’s NOPAT is $3,744,000, which is $936,000 lower than industry average of $4,680,000
2.Net operating working capital of $18,000 is been used by the company.
3.J&H Corp will be generating $5,019,600 in net cash flow from its operations and an accounting profit of $3,369,600
4.Therefore the firm uses $978,000 of total net operating capital to run the business.
Explanation:
J&H Corp
1. Calculation for NOPAT
NOPAT = 6,240,000 x (1- 40%)
= 6,240,000 x (1 – 0.4)
= 6,240,000 x 0.6
= $3,744,000
Calculation for Industry Average
Industry Average= 7,800,000 x (1- 40%)
7,800,000×(1-0.4)
7,800,000×0.6
=$4,680,000
Hence:
($4,680,000-$3,744,000)=$936,000
J&H Corp’s NOPAT is $3,744,000, which is $936,000 lower than industry average of $4,680,000
2:Calculation for Net Operating Working Capital
Net Operating Working Capital= Current Operating Assets − Current Operating Liabilities
Net Operating Working Capital= (Cash + Accounts Receivable + Inventories)− (Accounts Payable + Accrued Expenses)
Short term investments won't be included in Current Operating Assets
Given current assets = $600,000 ×12% in Short term investments = $72,000
Therefore Current Operating Assets will be: 600,000 – 72,000 = $528,000
Current Operating Liabilities = $510,000
Net Operating Working Capital
= $528,000 - $510,000 = $18,000
Net operating working capital of $18,000 is been used by the company.
3. Calculation for Net cash flow operations
Net cash flow from operations = Net income + Depreciation & Amortization + Changes in Working Capital
Changes in working capital = Working capital of the year
= $600,000 - $510,000
= $90,000
Net cash flow from operations will be:
$3,369,600 + $1,560,000 + $90,000 = $5,019,600
The Accounting profit will be the total revenue less the explicit costs
Explicit costs includes operating expenses, depreciation, interest and taxes.
Hence, the Accounting Profit will be :
Net income = $3,369,600
J&H Corp will be generating $5,019,600 in net cash flow from its operations and an accounting profit of $3,369,600
4. Calculation for the Total net operating capital
Total net operating capital = Net Operating Working Capital + Non-current Operating Assets
$528,000 - $510,000 = $18,000
Net Operating Working Capital = $18,000
Non-current Operating Assets = operating long term assets = $960,000
Total net operating capital
= $18,000 + $960,000
= $978,000
Therefore the firm uses $978,000 of total net operating capital to run the business. Thus the value is been computed as the sum of J&H Corp’s net operating working capital and its Non-current Operating Assets.
Consider two ways of commuting in a crowded city: taking public transportation, such as subway and buses, or driving your own car.
A person who chooses to take public transportation in a crowded city imposes a NEGATIVE OR POSITIVE externality on drivers. A policy implication of this result is a SUBSIDY FOR OR TAX ON those who take public transportation.
Persons who choose to drive their own cars to get around in a crowded city impose a NEGATIVE OR POSITIVE externality on other drivers. A policy implication of this result is a TAX ON OR SUBSIDY FOR those who drive their own cars.
Answer: positive; subsidy for; negative; tax on.
Explanation:
A positive externality occurs when the activities of an economic agent is of benefit to another third party that is not part of the activity or transaction while negative externality is the cost an individual bears due to the market activities of another individual or firm. It should be noted that the third parties didn't plan to incur the costs or benefits mentioned above.
Therefore, an individual who chooses to take public transportation in a crowded city imposes a positive externality on drivers. We are told that the city is overcrowded, therefore using public transportation means there will be lesser vehicles on the road and this will be beneficial to the drivers and there may be subsidy for those who take public transportation.
The people who choose to drive their own cars to get around in a crowded city impose a negative externality because there will be traffic congestion and health hazards and a tax can be imposed on them.
A stock with a beta of 2.0 has an expected rate of return of 21%. If the market return this year turns out to be 8 percentage points below expectations, what is your best guess as to the rate of return on the stock
Answer:
The answer is 5%
Explanation:
Solution
Given that:
A stock with a beta =2.0
The expected rate of return =21%
Market return turnout = 8%
Now,
Rf = risk free return
Rp = risk premium =Rm -Rf
β = 2.0
Thus
The expected return R = Rf +β *Rp
= Rf +β * (Rm -Rf)
R = Rf +2.0 (Rm -Rf)
=Rf + 2 times risk premium
So,
The market turns by 8%
R = Rf +2.0 (Rm -8%-Rf)
=Rf + 2 Rm-16%-2Rf
Then
The expected return is reduced by 16%
Hence,
21% -16% =5%
Therefore the expected rate of return on the stock is 5%
The Kirkland Department of Delta Company began the month of December with beginning work in process of "4,000" units that are "100%" complete as to materials and "30%" complete as to conversion costs. Units transferred out are "10,000" units. Ending work in process contains "5,000" units that are "100%" complete as to materials and "60%" complete as to conversion costs.
InstructionsCompute the equivalent units of production for materials and conversion costs for the month of December.
Answer:
Instructions are below.
Explanation:
Giving the following information:
December with beginning work in process of 4,000 units that are 100% complete as to materials and 30% complete as to conversion costs. Units transferred out are "10,000" units.
Ending work in process contains 5,000 units that are 100% complete as to materials and "60%" complete as to conversion costs.
To calculate the equivalent units, we need to use the following structure:
Beginning work in process = beginning inventory* %incompleted
Units started and completed = units completed - beginning WIP
Ending work in process completed= Ending WIP* %completed
=Number of equivalent units
Direct material:
Beginning work in process = 0
Units started and completed = 10,000
Ending work in process completed= 5,000
= 15,000 units
Conversion costs:
Beginning work in process = 4,000*0.7= 2,800
Units started and completed = 10,000 - 2,800= 7,800
Ending work in process completed= 5,000*0.6= 3,000
= 13,600 units
The equivalent units of production for materials and conversion costs is 15,000 units and 13,600 units
Calculation of equivalent units:For Direct material:
Beginning work in process = 0
Units started and completed = 10,000
Ending work in process completed= 5,000
Equivalent units = 15,000 units
For Conversion costs:
Beginning work in process = 4,000*0.7= 2,800
Units started and completed = 10,000 - 2,800= 7,800
Ending work in process completed= 5,000*0.6= 3,000
Equivalent units = 13,600 units
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