Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory

E22-2 (Change in Principle—Inventory Methods) Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2008. The following information is available for the years 2005–2007.

Net Income Computed Using
2005: Average Cost = $15,000 FIFO: $19,000 LIFO: $12,000
2006: Average Cost = $18,000 FIFO: $23,000 LIFO: $14,000
2007: Average Cost= $20,000 FIFO: $25,000 LIFO: $17,000

Instructions
(Ignore all tax effects.)

(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2008.

(b) Determine net income to be reported for 2005, 2006, and 2007, after giving effect to the change in accounting principle.

(c) Assume Holder-Webb Company used the LIFO method instead of the average cost method during the years 2005–2007. In 2008, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.

Click here for the solution: Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory

Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case

16.13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case.
a. The firm has sales of $600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6.
b. The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days.
c. The firm has a cost-of-goods-sold figure of $1.15 million and an inventory turnover rate of 5.
d. The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age inventory of 45 days.


Click here for the solution: Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case

The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000

The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000. Fifty days of sales remained uncollected in accounts receivable at the end of the year. The firm produced the carts at a 42% cost ratio (COGS/Revenue) and had three months of inventory on hand at year end (3/12 of the year’s COGS).

The golf business is booming and management plans a 10% increase in unit sales despite a 5% price increase. The firm has programs in place to improve production efficiency, inventory management, and the effectiveness of collections efforts. It is assumed that these programs will decrease the cost ratio to 40% lower year-end inventory to two months, and lower year-end receivables to 40 days of sales.

Compute Lineberry’s revenue, COGS (cost of goods sold), and gross margin as well as ending receivables and inventory for this year’s and next year’s plan. Calculate using a 360-day year and assume sales are evenly distributed over the year.


Click here for the solution: The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000

Exman Company performed a study of its billing and collection procedures and found that an average of 8 days elapses

Exman Company performed a study of its billing and collection procedures and found that an average of 8 days elapses between the time when a customer’s payment is received and when the funds become usable by the firm. The firm’s annual sales are $540 million.

a. Assuming that Exman could reduce the time required to process customer payments by 1.5 days, determine the increase in the firm’s average cash balance.

b. Assuming that these additional funds could be used to reduce the firm’s outstanding bank loans (current interest rate is 8 percent) by an equivalent amount, determine the annual pretax savings in interest expenses.


Click here for the solution: Exman Company performed a study of its billing and collection procedures and found that an average of 8 days elapses

If a truck is driven 147,000 miles during a year, the average operating cost is 8.7 cents per mile

If a truck is driven 147,000 miles during a year, the average operating cost is 8.7 cents per mile. If a truck is driven only 98,000 miles during a year, the average operating cost increases to 9.6 cents per mile.

a. Using high/low method, estimate the variable (3 decimal places) and fixed cost (nearest dollar amount) elements of the annual cost of truck operation.
b. Express the variable and fixed costs in the form Y= a+bX
c. If a truck driven 122,000 miles during a year, what total cost would you expect to be incurred?


Click here for the solution: If a truck is driven 147,000 miles during a year, the average operating cost is 8.7 cents per mile

Banerjee Inc. uses the weighted-average method in its process costing system

Banerjee Inc. uses the weighted-average method in its process costing system. The following data concern the operations of the company's first processing department for a recent month.

Work in process, beginning:
Units in process 200
Stage of completion with respect to materials 60%
Stage of completion with respect to conversion 20%
Costs in the beginning inventory:
Materials $756
Conversion $1,508

Units started into production during the month 18,000
Units completed and transferred out 17,700

Costs added to production during the month:
Materials $116,569
Conversion $675,432

Work in process, ending:
Units in process 500
Stage of completion with respect to materials 70%
Stage of completion with respect to conversion 80%

Required:
Using the weighted-average method:

a. Determine the equivalent units of production for materials and conversion costs.
b. Determine the cost per equivalent unit for materials and conversion costs.
c. Determine the cost of units transferred out of the department during the month.
d. Determine the cost of ending work in process inventory in the department.

Click here for the solution: Banerjee Inc. uses the weighted-average method in its process costing system

Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days

E15–4 Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a perunit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.5% of sales, which would increase to 300,000 units per year. Forrester requires a 12% return on investments. Show all necessary calculations required to evaluate Forrester’s proposed relaxation of credit standards.

Click here for the solution: Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days

Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc

4-5A (Pro forma balance sheet construction) Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc.

Total asset turnover 2 times
Average collection period (assume a 365-day year) 9 days
Fixed asset turnover 5 times
Inventory turnover (based on cost of goods sold) 3 times
Current ratio 2 times
Sales (all on credit) $4.0 million
Cost of goods sold 75% of sales
Debt ratio 50%

Cash _____ Current liabilities _____
Inventory _____ Long-term debt _____
Accounts receivable _____ Common stock plus _____
Net fixed assets _____ Retained earnings _____
Total $ _____ Total $ _____

Click here for the solution: Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc

(Break-even and other CVP relationships) Cedars Hospital has average revenue of $180 per patient day

3. Break-even and other CVP relationships

Cedars Hospital has average revenue of $180 per patient day. Variable costs are $45 per patient day; fixed costs total $4,320,000 per year.

a. How many patient days does the hospital need to break even?
b. What level of revenue is needed to earn a target income of $540,000?
c. If variable costs drop to $36 per patient day, what increase in fixed costs can be tolerated without changing the break-even point as determined in part (a)?

Click here for the solution: (Break-even and other CVP relationships) Cedars Hospital has average revenue of $180 per patient day

From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset

P12-1 From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.

P12-2 Based upon your answers to problem 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?

Click here for the solution: From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset

Pretty Lady Cosmetic Products has an average productions process time of forty days

Pretty Lady Cosmetic Products has an average productions process time of forty days. Finished goods are kept on hand for an average of fifteen days before they are sold. Accounts receivable are outstanding an average of thirty-five days, and the firm receives forty days of credit on its purchases from supplies.

a. Estimate the average length of the firm’s short-term operating cycle. How often would the cycle turn over in a year?
b. Assume net sales of $1,200,000 and cost of goods sold of $900,000. Determine the average investment in accounts receivable, inventories, and accounts payable. What would be the net financing need considering only these three accounts?

Click here for the solution: Pretty Lady Cosmetic Products has an average productions process time of forty days

(Calculating Net Float) Each business day, on average, a company writes checks totaling $12,000 to pay its suppliers

(Calculating Net Float) Each business day, on average, a company writes checks totaling $12,000 to pay its suppliers. The usual clearing time for the checks is four days. Meanwhile, the company is receiving payments from its customer each day, in the form of checks, totaling $23,000. The cash from the payments is available to the firm after two days. 

a) Calculate the company’s disbursement float, collection float, and net float.

b) How would you answer to part (a) change if the collected funds were available in one day instead of two?

Click here for the solution: (Calculating Net Float) Each business day, on average, a company writes checks totaling $12,000 to pay its suppliers