Answer:
a. $18,000
b. $16,922.18
Explanation:
a. The parents will receive $750 every month for 2 years while the man is away.
That means $750 for 24 months.
Total = 750 * 24
= $18,000
b. Payment is monthly so interest and period have to be converted accordingly.
2 years = 24 months
6% per year = 6/12 = 0.5% a month
Present Value of annuity formula;
PV = Pmt x (1 - (1 / (1 + i)^n)) / i
= 750 * ( 1 - (1 / 1.005^24))/0.005
= 750 * 22.5629
= $16,922.18
At December 31, 2017, Windsor Corporation had a projected benefit obligation of $819,000, plan assets of $437,000, and prior service cost of $198,000, in accumulated other comprehensive income. Determine the pension asset/liability at December 31, 2017.
Answer:
$382,000
Explanation:
Calculation to Determine the pension asset/liability at December 31, 2017
Using this formula
Pension asset/liability =Projected benefit obligation - Plan assets
Let plug in the formula
Pension asset/liability=$819,000 - $437,000
Pension asset/liability=$382,000
Therefore the Pension asset/liability at December 31, 2017 will be $382,000
Which of the following tactics might public sector unions use to increase management's cost of disagreeing with the union position during bargaining?
A. Threatening to release information about the dollar amount of liquor bills for government officials that are paid by taxpayers.
B. Threating to not endorse or work on behalf of a candidate favored by management in a political campaign.
C. Malicious obedience to the published work rules.
D. All the above are legal tactics that the union can use to pressure management to accept the union's position on an issue.
Answer:
D. All the above are legal tactics that the union can use to pressure management to accept the union's position on an issue.
Explanation:
Each and everyone one of the options mentioned above are tactics adopted by the union in pressuring management to accept their position on most of the issues which they have or are arguing about.
Project Y costs $50,000, its expected cash inflows are as follows-- year 1: $19,000; year 2: $20,000; year 3: $18,000; year 4: $19,000; year 5 $20,000; year 6: $17,000, and its WACC is 7%.
a. What is the project's NPV?
b. What is the project's IRR?
c. What is the project's MIRR?
d. What is the project's Payback Period?
e. What is the project's Discounted Payback?
Answer:
a. $40,001.70
b. 30.19 %
c. 18,01% .
d. 2 years and 7 months
e. 3 years
Explanation:
Calculation of NPV using a financial calculator :
-$50,000 CFj
$19,000 CFj
$20,000 CFj
$18,000 CFj
$19,000 CFj
$20,000 CFj
$17,000 CFj
i/yr 7%
Shift NPV $40,001.70
Calculation of IRR using a financial calculator :
-$50,000 CFj
$19,000 CFj
$20,000 CFj
$18,000 CFj
$19,000 CFj
$20,000 CFj
$17,000 CFj
Shift IRR 30.19 %
Calculation of MIIR :
The First Step is to Calculate the Terminal Value at end of year 6.
Terminal Value (FV) = Sum of (PV x (1 + r) ^ 6 - n)
=$19,000 x (1.07) ^ 5 + $20,000 x (1.07) ^ 4 + $18,000 x (1.07) ^ 3 + $19,000 x (1.07) ^ 2 + $20,000 x (1.07) ^ 1 + $17,000 x (1.07) ^ 0
= $26,648.48 + $26,215.92 + $22,050.77 + $21,753.10 + $21,400 + $17,000
= $135,068.27
The Next Step is to Calculate the MIRR using a Financial Calculator :
-$50,000 CFj
0 CFj
0 CFj
0 CFj
0 CFj
0 CFj
$135,068.27 CFj
Shift IRR/Yr 18,01%
Therefore, the MIRR is 18,01% .
Calculation of the Payback Period :
$50,000 = Year 1 ($19,000) + Year 2 ($20,000) + $11,000 / $18,000
= 2 years and 7 months
Calculation of the project's Discounted Payback :
$50,000 = $19,000 / (1.07)^1 + $20,000 / (1.07)^2 + $18,000/ (1.07)^3 + $19,000/ (1.07)^4
= Year 1 ($17,757.01) + Year 2 ($17,468.77) + Year 3 ($14,693.36) + $80.83 / $14,495
= 3 years
Is this following true?
Some franchisors claim that contracts are unfairly tilted toward the franchisees.
Answer:
False
Explanation:
A franchisee is a term used to describe an organisation that operates a franchise which he or she has obtained or paid for from a franchisor(the owner of a franchise).
A franchisor usually sets up the contract terms and conditions and presents them to the franchisee who if interested will take on the franchise. So in many cases it is not unfairly titled toward the franchisee.
On November 10 of the current year, Flores Mills sold carpet to a customer for $7,300 with credit terms 4/10, n/30. Flores uses the gross method of accounting for cash discounts. What is the correct entry for Flores on November 10?
Answer:
Dr Cash 7,008
Dr Sales discounts 292
Cr Accounts Receivable 7,300
Explanation:
Preparation of the correct entry for Flores on November 17
Based on the information given we were told that Flores Mills sold the amount of $7,300 worth of carpet to a customer which include a credit terms of 4/10, n/30.
Therefore using the gross method of accounting for cash discounts this means that the transaction will be recorded as;
Dr Cash 7,008
(7,300-292)
Dr Sales discounts 292
(4%×$7,300)
Cr Accounts Receivable 7,300
Answer:
Accounts receivable - $7300 Dr.
Sales - $7300 Cr.
Explanation:
Given the following :
Amount carpet was sold = $7,300
Credit terms = 4/10 n/30
Date of sale = November 10
According to the credit terms of the sale, the customers receives a discount of 4% of payment is made within 10 days otherwise customer makes full payment. In other to make record of the purchase using the gross method of accounting on the same day, record is taken without deduction of the discount attached to the sale until payment is made.
Account receivable is debited with the sales price as payment has not yet been made and sales is credited with the equivalent amount.
what process include devising and maintaining a workable scheme to ensure that the project addresses the organization's need
Answer:
Planning
Explanation:
Planning of a project is needed to provide a guide to sponsors, stakeholders, the team, and the project manager on project phases and schedule.
When planning is done it avoids delays, identifies desired goals, reduces risk, and effectively delivers expected result.
Lack of planning causes waste of resources and missed deadlines on the project.
Steps in a project plan can include the following:
- Meeting with stakeholders
- Set goals
- Define deliverables
- Create a schedule
- Perform risk assessment and identify issues
- Present the plan to stakeholders
You are trying to decide which of two automobiles to buy. The first is American-made, costs $28,500, and has a rated gasoline mileage of 28 miles/gal. The second car is of European manufacture, costs $35,700, and has a rated mileage of 19 km/L. If the cost of gasoline is $3.25/gal and if the cars actually deliver their rated mileage, estimate how many miles you would have to drive for the lower fuel consumption of the second car to compensate for the higher cost of this car.
Answer:
So, the European made car must be driven at least 266666.67 kilo metres in order for both the cars to have same total cost and the European car should be driven more than 266666.67 kilo metres in order for it to have a lower total cost and provide an advantage over the american made.
Explanation:
To calculate the number of miles needed for the lower fuel consumption car to have the same cost as of the higher fuel consumption cost, we need to equate the cost equation of both the cars.
We need to convert the gallons into litres and miles into kilo metres. 1 gallon contains 3.785 litres and 1 mile contains 1.609 kilo metre. So, mileage of first car in kilo metre per Litre is,
Mileage American made = (28 * 1.609) / 3.785
Mileage American made = 11.90 kilo metre per litres
Gas cost per Litres = 3.25 / 3.785
Gas cost per Litres = $0.8586 rounded off to $0.86 per Litres
Gas cost per kilo metre - American Made = 0.86 / 11.90 = $0.072 per km
Gas cost per kilo metre - European Made = 0.86 / 19 = $0.045 per km
The total cost equation (purchase price + fuel cost) of first car which is American made is,
Let x be the number of kilo metres where both cars total costs are equal.
Total cost = 28500 + 0.072x
The total cost equation (purchase price + fuel cost) of first car which is European made is,
Let x be the number of kilo metres where both cars total costs are equal.
Total cost = 35700 + 0.045x
28500 + 0.072x = 35700 + 0.045x
0.072x - 0.045x = 35700 - 28500
0.027x = 7200
x = 7200 / 0.027
x = 266666.67 kilo metres
So, the European made car must be driven at least 266666.67 kilo metres in order for both the cars to have same total cost and the European car should be driven more than 266666.67 kilo metres in order for it to have a lower total cost and provide an advantage over the american made.
"The customer deposits the required margin. Subsequently, ABC stock rises to $40; DEF rises to $50; and PDQ rises to $60. The new equity in the account is:
Answer:
$18,500
Explanation:
for computing the new equity in the account first we have to determine the starting equity which is shown below:
Initial one is
Long Market Value - Debit = Equity %
= $25,000 - $12,500 (50%)
= $12,500
Now the new equity is
The 4,000 in the ABC stock, the $15,000 in DEF stock and $12,000 in PDQ stock after increased in the market values
So, the new equity is
= $31,000 - $12,500
= $18,500
Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.
2016
Jan. 1 Paid $306,000 cash plus $12,240 in sales tax and $1,900 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $30,600 salvage value. Loader costs are recorded in the Equipment account.
Jan. 3 Paid $7,000 to enclose the cab and install air conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $2,100.
Dec. 31 Recorded annual straight-line depreciation on the loader.
2017
Jan. 1 Paid $4,300 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb. 17 Paid $1,075 to repair the loader after the operator backed it into a tree.
Dec. 31 Recorded annual straight-line depreciation on the loader.
Required:
Prepare journal entries to record these transactions and events.
Answer and Explanation:
The journal entries are shown below:
On Jan 1 2016
Equipment $320,140 ($306,000 + $12,240 + $1,900
To Cash $320,140
(Being the cash paid is recorded)
On Jan 3 2016
Equipment $7,000
To Cash $7,000
(Being the cash paid is recorded)
On Dec 31 2016
Depreciation Expense - Equipment $73,610
To Accumulated depreciation-Equipment $73,610
(being the depreciation expense is recorded)
On Jan 1 2017
Equipment $4,300
To Cash $4,300
(Being the cash paid is recorded)
On Feb 17 2017
Repair Expense - Equipment $1,075
To Cash $1,075
(Being the cash paid is recorded)
On Dec 31 2017
Depreciation Expense - Equipment $45,026
To Accumulated depreciation - Equipment $45,026
(being the depreciation expense is recorded)
Working notes.
1.
Equipment Cost $320,140
Additional cost $7,000
Total Cost $327,140
Less salvage value ($30,600 + $2,100) $32,700
Cost to be depreciated $294,440
Annual depreciation ($294,440 ÷ 4 years) $73,610
2. Total Cost ($327,140 + $4,300) $331,440
Less accumulated depreciation -$73,610
Book value $257,830
Less salvage -$32,700
Cost to be depreciated $225,130
Revised left useful life (4 - 1 + 2) 5
Revised annual depreciation ($225,130 ÷ 5 yrs) $45,026
The next two questions refer to the following fictional financial statement from Sharpie Markers, who sells their markers directly to consumers for $2/marker.
Revenue: $500,000
Plastic: $200,000
Ink: $1,000
Advertising: $5,000
Overhead: $1,000
Depreciation: $25
How many additional pens would Sharpie have to sell to maintain their current contribution to the organization if they invest $25,000 in advertising?
A. None of the above, but I could calculate this with the information I am given.
B. 20,904
C. 836
D. 21,259
Answer:
B. 20,904
Explanation:
For computing the additional pens first we have to determine the contribution per unit which is shown below:
Revenue $500,000
Less: Plastic cost -$200,000
Less: ink cost -$1,000
Contribution margin $299,000
Divided by Number of units sold ($500,000 ÷ $2) $250,000
Contribution per unit $1.196
Now the additional pens required is
= $25,000 ÷ $1.196
= $20,904
If the market interest rate is greater than the stated interest rate on bonds, the bonds will sell: ___________
a. at a premium.
b. at a discount.
c. at face value.
d. only after the stated interest rate is increased
Answer:
Option B, at a discount, is the right answer.
Explanation:
Bond is a kind of security or it is a liability for a company that occurs by issuing the bonds to the public. We find that if the stated interest rate on bonds is lower than the market interest rate then the general public will not buy bonds. Therefore, it becomes essential for a company to issue bonds at a discount rate so that it can attract the general public. It is the same case in the given question, therefore, the company will issue bonds at a discount rate.
When money serves as a common denominator for measuring the exchange rates among goods and services, it performs as a
Answer:
Standard of value.
Explanation:
When money serves as a common denominator for measuring the exchange rates among goods and services, it performs as a standard of value.
Standard of value is an agreed-upon worth for a transaction in a country's medium of exchange, such as the U.S. dollar or Mexican peso. A standard of value allows all merchants and economic entities to set uniform prices for goods and services
"A customer who is long 1 ABC Jan 40 Call wishes to create a "bear call spread." The second option position that the customer must take is:"
Answer:
Short 1 ABC Jan 30 Call
Explanation:
Investors create a "bear call spread" by first purchasing a call option at a certain price (in this case 40), and then selling an equal amount of calls with a lower price (in this case 30). Both call options expire must expire at the same date. The investors will do this because they believe that the price of an asset will decrease, that is why it is called a bear spread.
The merchandise costing method that matches the most current cost of items purchased against the current sales revenue is called the
Answer: LIFO
Explanation: LIFO which stands for last-in-first out is an inventory management system that considers the last inventory as the one to be disposed first. In merchandise costing, it considers the most recent cost of items purchased from the market versus the most recent sales revenue when dealing with the costing of the merchandise.
LIFO is generally not realistic for business organisations as most will not want to leave the older stock to start dealing on the newer stocks.
Fosnight Enterprises prepared the following sales budget: Month Budgeted Sales March April May June The expected gross profit rate is % and the inventory at the end of February was . Desired inventory levels at the end of the month are % of the next month's cost of goods sold. What are the total purchases budgeted for May?
The question is incomplete as the figures are missing. The complete question is,
Fosnight Enterprises prepared the following sales budget:
Month Budgeted Sales
March $6,000
April $13,000
May $11,000
June $20,000
The expected gross profit rate is 20% and the inventory at the end of February was $7,000. Desired inventory levels at the end of the month are 30% of the next month's cost of goods sold. What are the total purchases budgeted for May?
Answer:
Purchases - May = $10960
Explanation:
To calculate the total value of purchases that are budgeted for May, we first need to calculate the cost of goods sold and the opening and closing inventory for May.
As the gross profit margin is 20%, the cost of goods sold will be 80% of sales.
Cost of goods sold for May = 0.8 * 11000 = $8800
Cost of goods sold for June = 0.8 * 20000 = $16000
Opening inventory - May = 8800 * 0.3 = $2640
Closing Inventory - May = 16000 * 0.3 = $4800
Purchases = Closing Inventory + Cost of Goods Sold for the month - Opening Inventory
Purchases - May = 4800 + 8800 - 2640
Purchases - May = $10960
If the demand for a newly released novel is less price-elastic than the demand for an older novel, which of the following pricing strategies would a price-discriminating publishing firm follow?
A) Sell newly released novels and older novels for the same price.
B) Set price according to the marginal cost of printing the novels.
C) Charge a higher price for newly released novels.
D) Charge a higher price for older novels.
Answer:
C
Explanation:
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.
If the demand for a newly released novel is less price-elastic than the demand for an older novel, it means that the demand for the new novel is less price sensitive when compared to the older novel.
A price discriminating firm would sell the new novel at a higher price than the older novel because demand is less sensitive to price. As a result, total revenue would increase.
please I need your help with this question. Thank you.
Explanation:
it's write tricky one...but if I get time I will solve it
International trade currently involves about ______________ worth of goods and services thundering around the globe. Group of answer choices
Answer:
$20 trillion
Explanation:
International trade is the trade that arises between different countries. Because of international trade, many various countries could be purchased the goods and services i.e. not be produced in those countries
Here the international trade consists of $20 trillion goods and services enormous around the globe
Hence, the correct answer is $20 trillion
Wangerin Corporation applies overhead to products based on machine-hours. The denominator level of activity is 7,000 machine-hours. The budgeted fixed manufacturing overhead costs are $245,000. In April, the actual fixed manufacturing overhead costs were $249,900 and the standard machine-hours allowed for the actual output were 7,300 machine-hours. Required: a. Compute the budget variance for April. b. Compute the volume variance for April.
Answer and Explanation:
a. The computation of the budget variance of the month of April is shown below:
= Actual fixed manufacturing overhead costs - budgeted fixed manufacturing overhead costs
= $249,900 - $245,000
= $4,900 unfavorable
b. The volume variance is
= (Denominator machine-hours - Standard machine-hours allowed) × Budgeted fixed overhead rate
= (7,000 machine hours - 7,300 machine hours) × $245,000 ÷ 7,000 machine hours
= $10,500 favorable
g Oriole Company had actual sales of $1100000 when break-even sales were $660000. What is the margin of safety ratio? 67% 40% 33% 60%
Answer:
40%
Explanation:
Oriole company has an actual sales of $1,100,000
The break even sales is $660,000
Therefore, the margin of safety can be calculated as follows
= Actual sales-break-even sales/actual sales
= $1,100,000-$660,000/$1,100,000
= $440,000/$1,100,000
= 0.4×100
= 40%
Hence the margin of safety is 40%
An increase in the demand for the Canadian dollar will lead to
A.
an appreciation of the Canadian dollar and a higher quantity of Canadian dollars
traded
B.
a depreciation of the Canadian dollar and a higher quantity of Canadian dollars traded
C.
an appreciation of the Canadian dollar and a lower quantity of Canadian dollars
traded
D.
a depreciation of the Canadian dollar and a lower quantity of Canadian dollars traded.
Answer:
A. an appreciation of the Canadian dollar and a higher quantity of Canadian dollars
traded
Explanation:
An increase in the demand for the Canadian dollar will lead to
an appreciation of the Canadian dollar and a higher quantity of Canadian dollars traded.
When, the demand for Canadian dollar increases, it means, the Canadian dollar will appreciate against other currencies and higher quantity of the Canadian dollar will be traded.
A rightward shift in demand( increase) means the demand curve has moved up along the
supply curve causing the price of the currency measured on the horizontal axis to increase.
For Sheridan Company, sales is $1200000, fixed expenses are $340000, and the contribution margin ratio is 36%. What is net income?
Answer:
the net income is $92,000
Explanation:
The computation of the net income is shown below:
Net income = Contribution margin - fixed expenses
where,
Contribution margin is
= Sales × contribution margin ratio
= $1,200,000 × 36%
= $432,000
And, the fixed expenses is $340,000
So, the net income is
= $432,000 - $340,000
= $92,000
hence, the net income is $92,000
Describe the general processes that should be followed in managing risks throughout a project. Be sure to include the general sequence in which these processes are carried out.
Answer:
The risk management process can be summarised into simple but effective steps.
1. Identification / Recognition of Risk: You can't manage risk if you haven't identified it. Project risks can be very overwhelming. But here are some steps that can help you do so:
Consider every aspect of the projectLook at worst-case scenarios with respect to each milestone/aspect of the project. Ask the question "what is the worst occurent that can take place?"Consulting an expert can also be a quick way to properly identify risks. This is so because they have many years of experience doing so. The downside to this is that it can be expensive.Carrying out internal and external research Getting regular feedback from employees. Employees are the ones who operate the process. Their experiences are invaluable.Documenting and examining complaints from customers. This is one of the best ways of protecting one's brand for loss of equity. Customers are a strong gauge of whether or not the company is doing it right.Once risks have been identified, they can be inserted into a Project Risk Register.
A project risk register is can be a hard document or an electronic document which itemizes all the risks relating to a project as well as their nature. It helps the project manager to keep an eye on all regulatory and compliance risks.
2. Risk Analysis
Risk analysis refers to the process of grouping risks according to their probability of occurence as well as their potential impact on the Project.
3. Risk Evaluation
This refers to the categorization of the risks according to the size of potential damage to the project if they occurred. Some of them will require urgent and or serious attention, others, on the balance of probability will require little or no treatment as their likelihood of occurrence and consequences are very low.
4. Transfer, Mitigate, or Eliminate the Risk
There are several ways to remove or reduce risks. Some of them are:
Use of policies: Policies modify and guide human behaviour within an organisation. When people do the right thing, there is less risk to worry about.Use of contracts: Many of the risks which can affect a project can arise from the contract. Having a legal professional go through a contract can help to reduce risks associated with entering into the same.Insurance: This is a risk transfer mechanism which allows an insurance company to take on the risks of a project or a business in exchange for a premium.5. Continously review and monitor the Risks
The Project Risk Register is a good tool for reviewing and monitoring risks.
When there is a new development with the project, it is important to ask the question "how does this modify our risk exposure".
If for instance, the geographical location for a construction project has changed, this may significantly alter the risks universe of the project and needs to be reviewed/managed using steps 1-4 above.
Cheers!
In a sell or process further decision, which of the following costs is relevant?
I. A variable production cost incurred after split-off.
II. A fixed production cost incurred prior to split-off.
a) Only I
b) Both I and II
c) Neither I nor II
d) Only II
Answer: a. Only I
Explanation:
In a sell or process further decision, the only cost that is relevant is the variable production cost that is incurred after split-off.
It should be noted that a split-off is when the parent company of an organization uses specified terms to divests its business unit
A project has an initial cost of $17,700 and produces cash inflows of $7,200, $8,900, and $7,500 over three years, respectively. What is the discounted payback period if the required rate of return is 16 percent
Answer: Never
Explanation:
Discounted payback period aims to find out how long it will take for a project to repay its investment given its discounted cashflows.
Year 1 = 7,200 / ( 1 + 0.16)
= $6,206.8965
= $6,206.90
Year 2 = 8,900 / ( 1 + 0.16) ²
= $6,614.149
= 6,614.15
Year 3 = 7,500 / ( 1 + 0.16)³
= $4,804.93
Year 1 + Year 2 + Year 3
= 6,206.90 + 6,614.15 + 4,804.93
= $17,625.98
It failed to pay back the $17,700
A portfolio comprises Coke (beta of 1.1) and Wal-Mart (beta of 1). The amount invested in Coke is $10,000 and in Wal-Mart is $20,000. What is the beta of the portfolio?
Answer:
Beta= 1.133
Explanation:
Giving the following information:
Coke:
beta= 1.1
Investment= $10,000
Wal-Mart:
beta= 1
Investment= $20,000
First, we need to calculate the proportion of investments:
Coke= 10,000/30,000= 0.33
Wal-Mart= 20,000/30,000= 0.77
Now, to calculate the beta of the portfolio, we need to use the following formula:
Beta= (proportion of investment A*beta A) + (proportion of investment B*beta B)
Beta= (0.33*1.1) + (0.77*1)
Beta= 1.133
Which of the following statements is correct? Review Later Strategic buyers are asset managers that are trying to time the purchase or sale of a business. Strategic buyers are institutions that provide capital and are not operators. Financial buyers are institutions that provide capital and are not operators. Financial buyers are operating partners that try to create synergies.
Answer:
Strategic buyers are asset managers that are trying to time the purchase or sale of a business.
Financial buyers are institutions that provide capital and are not operators.
Explanation:
Strategic buyers are the buyers which aim to buy the company through acquisition, or M&A in order to gain more power in the industry, basically expanding their horizons, they are competitors, or the suppliers in the supply chain, or the customers of the product, they tend to buy such companies in order to decrease their share of cost.
Financial buyers are the one which basically provides finance to the company.
In simple terms these buyers just invest in the companies and have short term or long term goals from this investment, as long as these goals in the form of expected return are fulfilled they keep the investment, as soon when they discover its profitable to sell it further and have a capital gain they do so.
During the month of June, Bramble Boutique had cash sales of $292,950 and credit sales of $125,265, both of which include the 5% sales tax that must be remitted to the state by July 15. Prepare the adjusting entry that should be recorded to fairly present the June 30 financial statements. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Answer:
Explanation:
Date Account Title and Explanation Debit Credit
30 June Sales Tax $19,915
($119,300 + $279,000) * 5%
Sales Tax payable $19,915
(To record sales tax payable)
Workings
Credit sales = $125,265 * 100/105 = $119,300
Cash sales = $292,950 * 100/105 = $279,000
A company has three product lines, one of which reflects the following results: Sales $235000 Variable expenses 135000 Contribution margin 100000 Fixed expenses 130000 Net loss $ (30000) If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, the company’s net income will
Answer:
If management decides to eliminate this product line, the company’s net income will reduce by $22,000
Explanation:
A product should be shut down if doing so would make the savings in fixed costs associated with the product to exceed the lost contribution. Other wise , the product should remain.
In a shut down decision , the following relevant cash flows should be considered:
Lost contribution from the product to be shut downSavings in fixed directly attributable to the product under consideration.$
Lost contribution from shut down (100,000)
Savings in fixed cost (60% × 130,000) 78,000
Net loss from shut down (22,000)
Net loss from shut down = $(22,000)
If management decides to eliminate this product line, the company’s net income will reduce by $22,000
For a particular flight from Dulles to SF, USAir uses wide-body jets with a capacity of 430 passengers. It costs the airline $4,000 plus $60 per passenger to operate each flight. Through experience, USAir has discovered that if a ticket price is T, then they can expect (430 - 0.58T) passengers to book the flight. Determine the ticket price, T, that will maximize the airline's profit.
Answer:
$370.69
Explanation:
Given the following :
Capacity (n) = 430
Cost incurred by airline per flight = $4000 + $60 per passengers
If ticket price = T ; (430 - 0.58T) are expected to book.
Determine the ticket price, T, that will maximize the airline's profit.
Profit = Revenue earned - cost incurred
Revenue earned = capacity * price = nT
Cost incurred = $4000 + $60n
Profit = nT - (4000 + 60n)
If ticket price = T ; (430 - 0.58T) are expected to book. Then n = (430 - 0.58T)
Profit = (430 - 0.58T)T - ($4000 + 60(430 - 0.58T))
Profit = 430T - 0.58T^2 - ($4000 + 25800 - 34.8)
Profit = 430T - 0.58T^2 - 4000 - 25800 + 34.8
Profit (P) = - 0.58T^2 + 430T −29834.8
Taking the first derivative of P
P' = 2(-0.58T) + 430
P' = - 1.16T + 430
Hence solve for price (T) when P' = 0
0 = - 1.16T + 430
1.16T = 430
T = 430 / 1.16
T = 370.68965
Price = $370.69