Answer:
B) Pre-Tax
Explanation:
The income statement refers to the statement in which the all expenses are deducted from the revenue so that the operating income could come i.e. EBIT
For the value that disclosed above the operating income would be pre tax as after the EBIT, the income tax expense, the interest expense should be deducted to find out the Profit after tax
So in this situation, the option B is correct
In the month of March, Crane Salon services 590 clients at an average price of $120. During the month, fixed costs were $21,312 and variable costs were 60% of sales. (a) Determine the total contribution margin in dollars, the per unit contribution margin, and the contribution margin ratio. Contribution margin in dollars $ Contribution margin per unit $ Contribution margin ratio %
Answer:
Instructions are below.
Explanation:
Giving the following information:
Sales= 590 units
Selling price= $120
Unitary variable cost= 120*0.6= $72
Fixed costs= $21,312
First, we need to calculate the total contribution margin:
Total contribution margin= 590*(120 - 72)
Total contribution margin= $28,320
Now, the contribution margin per unit:
Unitary contribution margin= 120 - 72= $48
Finally, the contribution margin ratio:
contribution margin ratio= contribution margin / selling price
contribution margin ratio= 48/120
contribution margin ratio= 0.4
Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP
Answer:
Zero
Explanation:
When an economy runs in its potential manner, and the GDP with maximum potential is received, then the income distribution of the concerned economy is optimal.
Further, as per neoclassical model, if the economy is producing at potential GDP, that is the supply chain is 100% efficient, then then level of cyclical unemployment shall be 0%.
The neoclassical model is based on the study of supply and demand of products in the market, with the help of which income distribution, distribution of goods, and various other outputs is computed in this model.
Thus, when an economy is producing at potential level then the income distribution shall also be potential, accordingly cyclical unemployment shall be zero.
1) A firm sells 1,000 units per week. Suppose the average variable cost is $40, and the average cost is $95.
In the short run, the break-even price is _______. In the long run, the break-even price is _______.
2) Suppose the firm charges a price of $110 per unit.
In the short run, should they continue to produce or shut down?
In the long run, should they continue to produce or shut down?
Answer:
q , 2. m,n (9,9)
Yes it will.produced
In the short run, the break-even price can be calculated by adding the average variable cost to the average cost.
So the short-run break-even price would be $40 + $95 = $135 per unit. This means that the firm needs to charge at least $135 per unit to cover all its costs and avoid losses in the short run.
In the long run, the break-even price is determined by the average cost alone. So the long-run break-even price would be $95 per unit. This implies that the firm needs to charge at least $95 per unit to cover all its costs and achieve zero economic profit in the long run.
In the short run, if the firm charges $110 per unit and the break-even price is $135, it means that the firm is not covering all its costs and is incurring a loss of $25 per unit. In this scenario, it would be advisable for the firm to shut down in the short run, as continuing to produce and sell at a price lower than the break-even price would result in further losses.
In the long run, the firm should evaluate its options based on its ability to adjust its cost structure. If the firm can find ways to reduce its average cost below $110 per unit, then it may be profitable to continue producing. However, if the firm is unable to lower its costs sufficiently, it may be more prudent to shut down in the long run to avoid sustained losses. The decision will depend on the firm's ability to adapt and improve its cost efficiency.
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Quamma Corporation makes a product that has the following costs: Per Unit Per Year Direct materials $ 18.50 Direct labor $ 16.10 Variable manufacturing overhead $ 3.40 Fixed manufacturing overhead $ 826,000 Variable selling and administrative expenses $ 5.10 Fixed selling and administrative expenses $ 574,000 The company uses the absorption costing approach to cost-plus pricing as described in the text. The pricing calculations are based on budgeted production and sales of 35,000 units per year. The company has invested $740,000 in this product and expects a return on investment of 19%. Required: a. Compute the markup on absorption cost. (Round your intermediate and final answer to 2 decimal places.) b. Compute the selling price of the product using the absorption costing approach. (Round your intermediate and final answer to 2 decimal places.)
Answer:
a. $2,156,000
b. $409,640
c. $2,565,640
Explanation:
First Calculate the Product Cost
Hint : Include Both Variable and Manufacturing Cost - Because Quamma Corporation uses absorption costing approach. Non manufacturing costs are not included in product cost.
Calculation of Total Product Cost
Direct materials ($ 18.50 × 35,000) $647,500
Direct labor ($ 16.10 × 35,000) $563,500
Variable manufacturing overhead ($ 3.40 × 35,000) $119,000
Fixed manufacturing overhead $826,000
Total Product Cost $2,156,000
Markup on absorption cost
Markup on absorption cost ($2,156,000 × 19%) = $409,640
Calculation of Selling Price
Total Product Cost $2,156,000
Add Markup on absorption cost $409,640
Selling Price $2,565,640
During August, Boxer Company sells $353,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 4% of the selling price. The warranty liability account has a credit balance of $11,500 before adjustment. Customers returned merchandise for warranty repairs during the month that used $8,100 in parts for repairs. The entry to record the estimated warranty expense for the month is:_________ a) Debit Warranty Expense $10,720; credit Estimated Warranty Liability $10,720. b) Debit Estimated Warranty Liability $14,120; credit Warranty Expense $14,120. c) Debit Estimated Warranty Liability $8,100; credit Warranty Expense $8,100. d) Debit Warranty Expense $2,620; credit Estimated Warranty Liability $2,620.
Answer:
Debit warranty expense $14,120 ; Credit estimated warranty liability $14,120
Explanation:
Per the above information, the journal entry to record the customer warranty expense for the month is;
Warranty expense Dr. $14,120
To estimated warranty liability Cr. $14,120
The estimated liability is computed on credit sales for the year and the estimated percentage.
Given that;
Credit sales for the year = $353,000
Estimated percentage of credit sales = 4%
Therefore,
Estimated warranty liability
= $353,00 × 4%
= $14,120
You have analyzed the following four securities and have estimated each securityʹs beta and what you expect each security to return next year. The expected return on the market portfolio is 12%, and the relevant risk-free rate is 5%. Security Beta Expected return (based on your analysis) A -0.25 3.25% B 1.10 12.10% C 0.75 9.75% D 2.00 19.50% Refer to the information above. Based on your analysis, which of the securities is correctly priced? A) Security A B) Security B C) Security C D) Security D
Answer: A) Security A
Explanation:
Using CAPM, the expected return of a security is;
Expected return = Risk free rate + beta ( Market return - Risk free rate)
Security A
= 5% + -0.25 ( 12% - 5%)
= 3.25%
Security B
= 5% + 1.1 ( 12% - 5%)
= 12.7%
Security C
= 5% + 0.75 ( 12% - 5%)
= 10.25%
Security D
= 5% + 2.00 ( 12% - 5%)
= 19%
A real estate developer is offering identical houses for sale for $350,000 each, and has 20 willing customers. The developer is considering lowering the price to $300,000, since at that price there would be an additional 3 customers willing to purchase houses. What would be the developer’s change in revenue from lowering the price in this way?
Answer:
If the company lowers the selling price, the revenues will decrease by $100,000.
Explanation:
Giving the following information:
The developer is considering lowering the price to $300,000, since at that price there would be an additional 3 customers willing to purchase houses.
Actual revenue= 350,000*20= $7,000,000
New revenue= 300,000*23= $690,000
If the company lowers the selling price, the revenues will decrease by $100,000.
Name the departments, offices, or agencies that were created by the Dodd -Frank legislation
Answer:
Dodd Frank created another federal agency that oversees the consumer protection in financial sectors.
Explanation:
Dodd Frank was announced an act named The Dodd Frank Wall Street Reform And Consumer Protection by former president Barak Obama. The Dodd Frank was a statutory body of finance. But later on Donald trump said that Dodd Frank is a burdensome.
Dodd Frank has been created the FSOC. This is the system that monitor the financial. It gives the power to the deemed university. These firms were called too big to fail.
The Dodd Frank created another independent research financial within the treasury department.
Crane Company wants to sell a sufficient quantity of products to earn a profit of $100000. If the unit sales price is $9, unit variable cost is $8, and total fixed costs are $200000, how many units must be sold to earn income of $100000?
Answer:
Break-even point in units= 300,000 units
Explanation:
Giving the following information:
Desired profit= $100,000
Selling price per unit= $9
Unit variable cost= $8
The total fixed costs are $200,000
To calculate the number of units to be sold, we need to use the break-even point in units formula:
Break-even point in units= (fixed costs + desired profit) / contribution margin per unit
Break-even point in units= (200,000 + 100,000) / (9 - 8)
Break-even point in units= 300,000 units
A Scrum Master is frustrated that her team finds no value during Iteration retrospectives, and the team has asked that she cancel all future ones. Which two specific anti-patterns are most likely present within the team’s retrospectives? (Choose two.)
Answer:
These two anti-patterns are most likely present within the team's retrospectives:
First, Team A members are not acquiring new knowledge and gaining experience. This anti-pattern discourages the team and makes the iteration retrospectives valueless. Team A members are supposed to be learning and gaining experience during the iteration retrospectives. But, once this is not being achieved, the members will likely not value the continued iteration retrospectives.
Two, the iteration retrospectives may become some ritualized formats that never change. There is no current or life in any static object or meeting. The Scrum Master should ensure that the iteration retrospectives are not just her retrospectives but the groups', otherwise, the retrospectives may become mere rituals for the team members to listen up to their master. The Scrum Master must establish a culture of trust so that the team can focus on improvements of the Scrum process.
Explanation:
The role of the scrum master is to ensure that the team lives agile values and principles and follows the agreed processes and practices. She must be able to clear team obstacles and establish an enabling and effective team environment.
Anti-patterns are those obstacles or problems that may arise to prevent the team from achieving its goals, making team members to view the iteration retrospectives as valueless exercises.
Scrum is an agile product development framework that emphasizes team formation, teamwork, and an effective team environment. This ensures that project development is handled in iterative processes with the team members regularly reflecting on their experiences during the daily scrum meetings in order to make adjustments for the achievement of their project goal.
The anti-patterns that are present within the teams' retrospectives are:
A. the team identifies improvements but is not allowed to address them, and
B. the team doesn't identify and commit to improvement items for how they do their work.
A scrum master is a person who performs scrum in the organization. it is the practice where people have the capability to identify complex problems, solve them, and deliver them in good quality.
An iteration retrospective is known as a process in which all the team members gather together for the discussion of the result of various iterations.
In the given case, the two anti-patterns are:
A. The team has identified the improvements but they are not allowed to address them. It is a process under the scrum that the team has the right to identify, rectify, and work on the improvements. When the team is not allowed to address the improvemets therefore they thought that the iteration process is not necessary.
B. The team does not identify and commit improvements and work upon them. This can be taken as a fault of the scrum managers or the scrum team for neglecting the team.
Therefore, options band B are correct.
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Oklahoma Oil Corp. paid interest of $780,000 during 2021, and the interest payable account decreased by $132,000. What was interest expense for the year
Answer:
$648,000
Explanation:
interest expense for the year = total interest paid - interest payable = $780,000 - $132,000 = $648,000
The interest payable was carried over form the previous year, so it was recorded as interest expense for 2020. This is why it cannot be included in the interest expense for this year.
Broadway Inc. is considering a new musical. The initial investment required is $880,000. Every year, the free cash flow from the project is expected to be $80,000, continuing forever (Hint: think about a perpetuity).
a. What is the NPV of the project?
b. In fact, the annual cash flow of $80,000 is an expected value: there is a 50% chance that annual cash flow will be $180,000 and a 50% chance that it will be -$20,000. What is the expected NPV of the project if the company cannot abandon the project?
c. What is the true NPV of the project if the company can abandon the project after the first year?
d. What is the value of the option to abandon?
Answer:
Broadway Inc.
a. NPV of the project:
= $120,000 ($1,000,000 - 880,000)
b. Expected NPV of the project if the company cannot abandon the project:
= $120,000 ($1,000,000 - 880,000)
c. True NPV if the company can abandon the project after the first year:
= NPV = $74,080 - $880,000
= -$805,920
d. Value of the option to abandon:
= NPV = $74,080 - $880,000
= -$805,920
Explanation:
a) Data and Calculations:
Initial investment cost = $880,000
Assumed cost of capital = 8%
Expected annual free cash inflow = $80,000 in perpetuity
NPV = PV of Cash inflows minus PV of Cash outflows
PV of a perpetuity = Expected Annual Cash Inflows divided by cost of capital
= $80,000/0.08
= $1,000,000
$80,000 * 0.926 = $74,080
NPV = $74,080 - $880,000
= -$805,920
b) Broadway's Present Value of its perpetual annual cash inflow is calculated by dividing the cash inflow by the rate of interest, which is the cost of capital.
An online gambling site offers a first prize of $50000 and two second prizes of $20000 each for registered users when they place a bet. A random bet will be selected over a 24hour period. Two million bets are received in the contest. Find the expected winnings if you can place one registered bet of $1 in the given period.
Answer:
−0.955
Explanation:
Given the following :
Worth of placing a registered bet = $1
1st price = $50,000
2nd price = $20,000
Total bets received = 2,000,000
Net winning :
Winning - worth of placing a registered bet
Ist price = $50,000 - $1 = $49,999
2nd price = $20,000 - $1 = $19,999
Amount lost = - $1
number of losers = 2,000,000 - 3 = 1,999,997
Probability :
Probability = (required outcome / Total possible outcomes)
Number of 1st price winners = 1
Number of second price winners = 2
P(1st price) = 1 / 2,000,000
P(2nd price) = 2/ 2,000,000 = 1/ 1,000,000
Therefore ;
Net winning (x) - - 49,999 - 19,999 - - - (-1)
P(winning) p(x) - - 1/2mill - - 1/1mill-- 1999997/2mill
Expected winnings = sum of [(x) * p(x)]
= ($49,999 * 0.0000005) + (19,999 * 0.000001) +(-1 * 0.9999985)
= 0.0249995 + 0.019999 − 0.9999985
= 0.0449985 - 0.9999985
= - 0.955
Learning curves are useful for measuring work improvement for repetitive, simple jobs requiring short times to complete.
a) true
b) false
During periods of rising prices, LIFO will produce the a.highest ending inventory. b.highest net income. c.lowest cost of goods sold. d.highest cost of goods sold.
Answer:
d.highest cost of goods sold.
Explanation:
LIFO means last in first out. It means that it is the last purchased inventory that is the first to be sold.
During periods of rising prices, LIFO will produce the lowest ending inventory because what would be ending inventory would be the inventory earlier purchased at lower prices.
Because cost of goods would be higher due to rising prices, net income would be the lowest
Colombo Enterprises has a defined benefit pension plan. At the end of the reporting year, the following data were available: beginning PBO, $75,000; service cost, $14,000; interest cost, $6,000; benefits paid for the year, $9,000; ending PBO, $89,000; and the expected return on plan assets, $10,000. There were no other pension-related costs. The journal entry to record the annual pension costs will include a debit to pension expense for:
Answer:
A debit to pension expense for $10,000
Explanation:
Journal Entry for pension expenses:
Explanation Debit Credit
Pension Expense $10,000
Cash $10,000
(To record pension expenses)
Pension expenses for the year ended is comprised of the following components of pension cost.
Service Cost 14,000
Interest cost 6,000
Expected return on (10,000)
plan assets _______
Pension expenses $10,000
Creating economic value for shareholders while also creating social value is known as creating _____.
Answer:
Shareholder capitalism, is the right answer.
Explanation:
Shareholder capitalism is the right answer because in shareholder capitalism the main purpose is to change the value of the company. The motive of the firm is to engage all the company’s stakeholders in the process of economic value creation. However, during the value creation, a company not only serves its shareholders but it serves all the stakeholders as well. Thus in this way, it creates social values.
If the price of Yoo-hoo is $2 in New York and $1 in St. Petersburg, Russia (after converting the rubles to dollars), you might expect: Group of answer choices
Answer: A) people to buy Yoo-hoo in St. Petersburg and sell it in New York until the price was the same in each country
Explanation:
As the Yoo-hoo is cheaper in St. Petersberg than in New York, this presents an arbitrage opportunity to buy cheap and sell higher. People will therefore buy from St.Petersberg at the price of $1 and then sell it in New York for $2 thereby making a 100% profit.
Once this happens more and more people will start doing this which would lead to an increase in demand for St. Peterberg Yoo-Hoos. According to the Law of Demand, when demand rises, the price will rise as well so the price in St. Petersberg will keep rising till it gets to the same amount in New York thereby dissuading people from buying to take advantage of the opportunity.
Zurasky Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below: Alternative A Alternative B Materials costs $38,000 $48,000 Processing costs $44,000 $44,000 Equipment rental $10,600 $28,300 Occupancy costs $19,300 $29,600 What is the differential cost of Alternative B over Alternative A, including all of the relevant costs
Answer:
$38,000
Explanation:
Calculation for the differential cost of Alternative B over Alternative A,
Using this formula
Differential costs= Alternative A - Alternative B
Let plug in the formula
Alternative A Alternative B Differential Costs
Materials costs $38,000- $48,000=$10,000
Processing costs 44,000-44,000=0
Equipment rental 10,600- 28,300= 17,700
Occupancy costs 19,300-29,600=10,300
Total expenses$111,900- $149,900=$38,000
Therefore the differential cost will be $38,000
You need a 35-year, fixed-rate mortgage to buy a new home for $295,000. Your mortgage bank will lend you the money at an APR of 5.9 percent. However, you can only afford monthly payments of $1,350, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $1,350
Answer:
$434,780.69
Explanation:
The computation of the large the ballon payment would be is determined by using the future value formula i.e. to be shown in the attachment
Provided that
Present value = $295,000
Rate of interest = 5.9% ÷ 12 months = 0.49166%
NPER = 35 years × 12 months = 420 months
PMT = $1,350
The formula is shown below:
= -FV(Rate;NPER;PMT;-PV;type)
So, after applying the above formula, the future value is $434,780.69
The Bakery produces organic bread that is sold by the loaf. Each loaf requires 1/2 of a pound of flour. The bakery pays $2.50 per pound of the organic flour used in its loaves. The bakery expects to produce the following number of loaves in each of the upcoming four months:______.
Data Table
July 1,500 loaves
August 1,880 loaves
September 1,680 loaves
October 1,560 loaves
The bakery has a policy that it will have 20% of the following month's flour needs on hand at the end of each month. At the end of June, there were 150 pounds of flour on hand. Prepare the direct materials budget for the third quarter, with a column for each month and for the quarter.
Begin the direct materials by determining the total quantity needed, then complete the budget.
July August September Quarter
Units to be produced
Multiply by: Pounds of flour needed per unit
Quantity needed (Ibs) for production
Plus: Desired ending inventory of direct materials
Total quantity (lbs) needed
Answer:
The Bakery
Direct materials budget
For the third quarter of year 202x
July August September Quarter
Budgeted production units 1,500 1,880 1,680 5,600
Materials required per unit 0.5 0.5 0.5 0.5
Materials needed for Px 750 940 840 2,530
+ Desired ending inventory 188 168 156 156
Total materials required 938 1,108 996 2,686
- Beginning inventory -150 -188 -168 -150
Units to be purchased 788 920 828 2,536
Cost per unit $2.50 $2.50 $2.50 $2.50
Total cost materials costs $1,970 $2,300 $2,070 $6,340
Assume that the required reserve ratio is set at 0.5 . What is the value of the money (deposit) multiplier
Answer:
2
Explanation:
The term "reserve ratio" may be defined as the the portion of the reservable liabilities which the commercial banks must hold onto, they cannot lend this reserves out or invest this money.
Given that the required reserve ratio is 0.5
Money (deposit) multiplier = 1/Required reserve ratio = 1/0.5 = 2
Thus the money multiplier value should be 2.
Expectations of inflation are always greater than actual inflation along the long-run Phillips Curve.
A. True
B. False
Answer:
True.
Explanation:
The statement is “True” because the Philip curve is the curve that exhibits the relationship between the inflation or price level and unemployment. If inflation rises, then unemployment falls. If inflation falls, then unemployment rises. This happens because there is a negative relationship between inflation and unemployment. However in the long run the Philip curve is a verticle line parallel to the inflation axis and that shows there is no trade-off. Thus the option A is correct.
"In a Real Estate Limited Partnership, the general partner refinances an existing $5,000,000 mortgage on a $10,000,000 property to the original amount of $8,000,000. The interest rate on both mortgages is the same. The purpose of this action by the General Partner is to:"
Answer:
Increase interest deductions for the limited partners.
Explanation:
In the given scenario the general partner refinances an existing $5,000,000 mortgage on a $10,000,000 property to the original amount of $8,000,000. The interest rate on both mortgages is the same.
Refinancing a loan means that more money is disbursed to the borrower before the termination of the loan.
When a loan is refinanced at the same interest rate the borrower pays more interest.
For example if the mortgage remains at $5,000,000 the interest paid on this principal will be lower.
When the loan is refinanced to $8,000,000 at the same Interest rate the interest paid will be higher because principal is higher.
So the general partner aims to increase the amount of interest paid.
Bramble Corp. has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Bramble incurs $6750000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The weighted-average contribution margin ratio is
Answer:
37%
Explanation:
The computation of the weighted average contribution margin ratio is shown below:
= Contribution margin ratio × weightage
= 30 × 65% + 50 × 35%
= 37%
We simply multiplied the contribution margin ratio with the weightage so that the weighted-average contribution margin ratio could come and the same to be considered
In Dawg Stop's suit against Condiment Vendor, Inc., Dawg serves a written request for Condiment to admit the truth of matters relating to the trial. Condiment's admission in response is the equivalent of
Answer: an admission in court
Explanation:
An admission is a statement that is made when an individual admits that some facts are true before a trial begins. An admission is quite different from a confession.
In Dawg Stop's suit against Condiment Vendor, Inc., Dawg serves a written request for Condiment to admit the truth of matters relating to the trial. Condiment's admission in response is the equivalent of an admission in court.
Gamma Company adjusts its accounts at the end of each month. The following information has been assembled in order to prepare the required adjusting entries at December 31:
1. A one-year bank loan of $720,000 at an annual interest rate of 6% had been obtained on December 1.
2. The company's pays all employees up-to-date each Friday. Since December 31 fell on Tuesday, there was a liability to employees at December 31 for two day's pay. Employees earn a total of $12,800 per week.
3. On December 1, rent on the office building had been paid for three months. The monthly rent is $7,000.
4. Depreciation of office equipment is based on an estimated useful life of five years. The balance in the Office Equipment account is $12,360; no change has occurred in the account during the year.
5. All fees totaling $19,800 were earned during the month for clients who had paid in advance.
What should be the balance of the Prepaid Rent?
a. $0
b. $7,000
c. $14,000
d. $21,000
Answer; c. $14,000
Explanation
On December 1, rent had been paid for 3 months. At a rate of $7,000 a month this will come to;
= 7,000 * 3
= $21,000
The Prepaid rent account will reduce every month by the rent due for that month. The balance on the Prepaid account as at December 31 will therefore have reduced by one month from December 1.
= 21,000 - 7,000
= $14,000
Of the small businesses in the distribution industry, nearly three-quarters of them are involved in:________.a. Wholesalingb. Purchasingc. Serviced. Retailing
Answer:
d. Retailing
Explanation:
Retailing is selling of a product to the last consumer known for the product generally. As this is the last stage of a distribution channel maximum people are involved.
Further retailers requires the least investment in the distribution chain as compared to other processes.
Whole sellers require huge amount also that the purchaser requires huge amount.
Retailing business is the last step of the distribution channel and maximum people are doing this business.
A company raised $50,000 in cash by taking a one-year loan of $10,000 and a 5-year loan of $40,000. Which of the following is the correct journal entry to record this transaction?
A. Debit short-term debt $40,000; debit retained earnings $10,000; credit cash $50,000
B. Debit short-term debt $50,000; credit cash $50,000
C. Debit cash $50,000; credit long-term debt $50,000
D. Debit cash $50,000; credit short-term debt $10,000; credit long-term debt $40,000
Answer:
D. Debit cash $50,000; credit short-term debt $10,000; credit long-term debt $40,000
Explanation:
The journal entry for the given transaction is shown below:
Cash Dr $50,000
To Short term debt $10,000
To Long term debt $40,000
(Being the raised of loan is recorded)
For recording this we debited the cash as it increased the assets and credited the short term debt and long term debt as it also increased the liabilities
hence, the correct option is D.
The custom order will incur no variable selling expenses. However, due to a special logo needing to be embossed on each ball, the direct materials expense will increase by $10 per ball. How will the profit of the company increase or decrease if they decide to accept the offer
Answer:
Hi, the question you have provided is missing data concerning the current costs of manufacturing the cost object and the price of the special offer amongst other items.
However, I will break down the principles and steps that are used to determine the effect on profit if firm decides to accept the offer.
Principle :
An Incremental analysis of Revenues and Costs is used to evaluate the acceptance of an offer. Only accept offers that results in incremental profit. Incremental Profit = Incremental Revenue - Incremental Costs.
Incremental Revenue
The special offer comes with a price that is different from the current prices used by the firm. Get this price and use it to find incremental revenue as a result of accepting the offer.
Incremental Costs
The special offer usually does not affect the fixed cost of manufacturing and selling the product. These are head office costs and are incurred whether or not the offer existed.
Consider Fixed costs when and only when they arise due to acceptance of the offer.
Only the Variable Cost Manufacturing and Selling Costs for the units to be supplied are considered in this analysis. Also account for any increases of variable costs and variable cost items