The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity

The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company’s controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 45,000 machine- hours. In addition, capacity is 52,000 machine-hours and the actual activity for the year is 47,100 machine-hours. All of the manufacturing overhead is fixed and is $1,029,600 per year. For simplicity, it’s assumed that this is the esti- mated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.

Required:
A. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
B. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.

C. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.

D. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.

Click here for the solution: The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity

Scheer Company's standard labor cost of producing one unit of Product DD is 4 hours at the rate of $12.00 per hour

ACC 560 Week 7 Assignment

E11-6 Scheer Company's standard labor cost of producing one unit of Product DD is 4 hours at the rate of $12.00 per hour. During August, 40,800 hours of labor are incurred at a cost of $12.10 per hour to produce 10,000 units of Product DD.

Instructions:
a) Compute the total labor variance.
b) Compute the labor price and quantity variances.
c) Repeat the previous question, assuming the standard is 4.2 hours of direct labor at $12.25 per hour.

Click here for the solution: Scheer Company's standard labor cost of producing one unit of Product DD is 4 hours at the rate of $12.00 per hour

Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return

Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return. How would the realized rate of return compare with the expected return of a security with a beta of +2?


Click here for the solution: Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return

A company, has EBIT of $2,000,000, total assets of $20,000,000 preferred dividends of $250,000 and is taxed at a rate of 40%

A company, has EBIT of $2,000,000, total assets of $20,000,000 preferred dividends of $250,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment.

Capital Structure debt ratio cost of debt, kd No. of common stock shares required return, ks
0.00% 0.00% 200,000 10.00%
15 8 170,000 11.00%
30 9 150,000 12.00%
45 12 110,000 14.00%
60 15 80,000 18.00%

Calculate earnings per share for each level of indebtedness. Use the grid for the answer
Debt Ratio 0.00% 15.00% 30.00% 45.00% 60.00%
EBIT
Less Interest
EBT
Taxes at 40%
Net Profit
Less Preferred Div
Profits avail. to Common Stockholders
Number of shares
EPS

Use the following equation P0 = EPS/ Rs (Po is the per share value, EPS is the earnings per share and Rs is the required return). Calculate the price per share for each level of indebtedness. Choose the best capital structure. Why?


Click here for the solution: A company, has EBIT of $2,000,000, total assets of $20,000,000 preferred dividends of $250,000 and is taxed at a rate of 40%

Billabong Tech uses the internal rate of return (IRR) to select projects

Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project T-Shirt requires an initial investment of $15,000 and generates cash inflows of $8,000 per year for 4 years. Project Board Shorts requires an initial investment of $25,000 and produces cash inflows of $12,000 per year for 5 years.

Click here for the solution: Billabong Tech uses the internal rate of return (IRR) to select projects

On January 1, 2011, Lowry Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 8%, payable semiannually on June 30 and December 31

On January 1, 2011, Lowry Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 8%, payable semiannually on June 30 and December 31. The bonds were sold to yield 10%. Table values are:

Present value of 1 for 10 periods at 8% 0.46319
Present value of 1 for 10 periods at 10% 0.38554
Present value of 1 for 20 periods at 4% 0.45639
Present value of 1 for 20 periods at 5% 0.37689
Present value of annuity for 10 periods at 8% 6.71008
Present value of annuity for 10 periods at 10% 6.14457
Present value of annuity for 20 periods at 4% 13.59033
Present value of annuity for 20 periods at 5% 12.46221

Instructions
(a) Calculate the issue price of the bonds.

Click here for the solution: On January 1, 2011, Lowry Co. issued ten-year bonds with a face value of $5,000,000 and a stated interest rate of 8%, payable semiannually on June 30 and December 31

Coyote Trading uses a predetermined manufacturing overhead rate of $12 per machine hour

Coyote Trading uses a predetermined manufacturing overhead rate of $12 per machine hour. Last year the company had actual overhead of $898,000 and 75,000 machine hours.

(a) Compute the amount of manufacturing overhead applied.
(b) Compute the amount of over/underapplied overhead.
(c) What is the disposition of the over/under applied overhead?

Click here for the solution: Coyote Trading uses a predetermined manufacturing overhead rate of $12 per machine hour

The yields for Treasuries with differing maturities, including an estimate of the real rate of interest, on a recent day were as shown in the following table

E6–3 The yields for Treasuries with differing maturities, including an estimate of the real rate of interest, on a recent day were as shown in the following table:

Maturity Yield Real rate of interest
3 months 1.41% 0.80%
6 months 1.71 0.80
2 years 2.68 0.80
3 years 3.01 0.80
5 years 3.70 0.80
10 years 4.51 0.80
30 years 5.25 0.80

Use the information in the preceding table to calculate the inflation expectation for each maturity.

Click here for the solution: The yields for Treasuries with differing maturities, including an estimate of the real rate of interest, on a recent day were as shown in the following table

Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%

E6–4 Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%. How could a T-bill have had a negative real rate of return over the same period? How could it have had a zero real rate of return? What minimum rate of return must the T-bill have earned to meet your requirement of a 2% real rate of return?

Click here for the solution: Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%

Suppose rFr=9%, rM=14% and bi=1.3.

Suppose rFr=9%, rM=14% and bi=1.3.

a). What is ri, the required rate of return on Stock i?

b). Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri?

c). Now assume rRF remains at 9% but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri?
Click here for the solution: Suppose rFr=9%, rM=14% and bi=1.3.

Cleveland Metals uses a job cost system and applies factory overhead to production at a predetermined rate of 180% of direct labor cost

Cost flows and overhead application

Cleveland Metals uses a job cost system and applies factory overhead to production at a predetermined rate of 180% of direct labor cost. Data pertaining to recent operations follow.

• Job no. 636 was the only job in process on January 1 of the current year. The Work in Process account contained a $24,600 balance on this date.
• Jobs no. 637, 638, and 639 were started during January.
• Total direct material requisitions and direct labor incurred during January amounted to $89,200 and $114,500, respectively.
• The only job that remained in process on January 31 was job no. 638, with costs of $15,000 for direct materials and $20,000 for direct labor.

a. Compute the total cost of the work in process inventory on January 31.
b. Compute the cost of jobs completed during January, and present the proper journal entry to reflect job completion.

Click here for the solution: Cleveland Metals uses a job cost system and applies factory overhead to production at a predetermined rate of 180% of direct labor cost

Recalling the definitions of risk premiums from Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate

P12-3 Recalling the definitions of risk premiums from Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate, what is the risk premium from investing in each of the other asset classes listed in Table 12.4?

Click here for the solution: Recalling the definitions of risk premiums from Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate

(Forward Exchange Rate) Use the information in Figure 21.1 to answer the following questions

(Forward Exchange Rate) Use the information in Figure 21.1 to answer the following questions:

a) What is the six-month forward rate for the Japanese yen in yen per U.S. dollar? Is the yen selling at a premium or a discount? Explain.

b) What is the three-month forward rate for Canadian dollars in U.S. dollars per Canadian dollar? Is the dollar selling at a premium or a discount? Explain.

c) What do you think will happen to the value of the dollar relative to the yen and the pound, based on the information in the figure? Explain.

Click here for the solution: (Forward Exchange Rate) Use the information in Figure 21.1 to answer the following questions