Crest Industries sells a single model of satellite radio receivers for use in the home

Exercise 3-33 CVP with Income Taxes

Crest Industries sells a single model of satellite radio receivers for use in the home. The radios have the following price and cost characteristics:

Sales Price …………………………….. $ 80 per radio
Variable costs ………………………. $32 per radio
Fixed costs ……………………………... $360.00 per month

Crest is subject to an income tax rate of 40 percent.

Required
How many receivers must Crest sell earn a monthly operating profit of $90,000 after taxes?



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Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million

Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions?


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Bjerg Company specializes in manufacturing a unique model of bicycle helmet

Bjerg 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). Bjerg's monthly manufacturing cost and other expense data are as follows.

Rent on factory equipment $ 7,000
Insurance on factory building 1,500
Raw materials (plastics, polystyrene, etc.) 75,000
Utility costs for factory 900
Supplies for general office 300
Wages for assembly line workers 43,000
Depreciation on office equipment 800
Miscellaneous materials (glue, thread, etc.) 1,100
Factory manager's salary 5,700
Property taxes on factory building 400
Advertising for helmets 14,000
Sales commissions 7,000
Depreciation on factory building 1,500

Required:
1. Complete the answer sheet. 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.
2. Compute the cost to produce one helmet.


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Montgomery Company purchased an electric wax melter on April 30, 2013, by trading in its old gas model and paying the balance in cash

E10-18 (Nonmonetary Exchange) Montgomery Company purchased an electric wax melter on April 30, 2013, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase.

List price of new melter $15,800
Cash paid 10,000
Cost of old melter (5-year life, $700 residual value) 12,700
Accumulated depreciation—old melter (straight-line) 7,200
Secondhand fair value of old melter 5,200

Instructions
Prepare the journal entry(ies) necessary to record this exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. Montgomery’s year ends on December 31, and depreciation has been recorded through December 31, 2012.


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CP26 You would like to start a business manufacturing a unique model of bicycle helmet

CP26 You would like to start a business manufacturing a unique model of bicycle helmet. In preparation for an interview with the bank to discuss your financing needs, you develop answers to the following questions. A number of assumptions are required; clearly note all assumptions that you make.

a) Identify the types of costs that would likely be involved in making this product.
b) Set up five columns as indicated.
Product Costs
Item Direct Materials Direct Labor Manufacturing Overhead Period Costs
Classify the costs you identified in (a) into the manufacturing cost classifications of product costs (direct materials, direct labor, and manufacturing overhead) and period costs.
c) Assign hypothetical monthly dollar figures to the costs you identified in (a) and (b).
d) Assume you have no raw materials or work in process beginning or ending inventories. Prepare a projected cost of goods manufactured schedule for the first month of operations.
e) Project the number of helmets you expect to produce the first month of operations. Compute the cost to produce one bicycle helmet. Review the result to ensure it is reasonable; if not, return to part © and adjust the monthly dollar figures you assigned accordingly.
f) What type of cost accounting system will you likely use – job order or process costing?
g) Explain how you would assign costs in either job order or process costing system you plan to use.
h) Classify your costs as either variable or fixed costs. For simplicity, assign all costs to either variable or fixed, assuming there are no mixed costs, using the format shown.
Item Variable Costs Fixed Costs Total Costs
i) Compute the unit variable cost, using the production number you determined in (e).
j) Project the number of helmets you anticipate selling the first month of operations. Set a unit selling price, and compute both the contribution margin per unit and the contribution margin ratio.
k) Determine your break-even point in dollars and in units.
l) Prepare projected operating budgets (sales, production, direct materials, direct labor, manufacturing overhead, selling and administrative expense, and income statement). You will need to make assumptions for each of the following:
Direct materials budget: Quantity of direct materials required to produce one helmet; cost per unit of quantity; desired ending direct materials (assume none).
Direct Labor budget: Direct labor time required per helmet; direct labor cost per hour.
Budgeted income statement: Income tax expense is 45% of income from operations.
m) Prepare a cash budget for the month. Assume the percentage of sales that will be collected from customers is 75%, and the percentage of direct materials that will be paid in the current month is 75%.
n) Determine a relevant range of activity, using the number of helmets produced as your activity index. Recast your manufacturing overhead budget into a flexible monthly budget for two additional activity levels.
o) Identify one potential cause of materials, direct labor, and manufacturing overhead variances for your product.
p) Assume that you wish to purchase production equipment that costs $720,000. Determine the cash payback period, utilizing the monthly cash flow that you computed in part (m) multiplied by 12 months (for simplicity).
q) Identify any nonfinancial factors that should be considered before commencing your business venture.

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