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
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Wednesday, April 13, 2016
Wednesday, September 23, 2015
The cash flow statement categorizes like transactions for optimal reporting
E14-13 Classifying items on the indirect statement of cash flows
The cash flow statement categorizes like transactions for optimal reporting.
Requirement:
1. Identify each of the following transactions as one of the following:
• Operating activity (0)
• Investing activity (I)
• Financing activity (F)
• Noncash investing and financing activity (NIF)
• Transaction that is not reported on the statement of cash flows (N)
For each cash flow, indicate whether the item increases (+) or decreases (-) cash. The indirect method is used to report cash flows from operating activities.
___ a. Loss on sale of land.
___ b. Acquisition of equipment by issuance of note payable.
___ c. Payment of long-term debt.
___ d. Acquisition of building by issuance of common stock. J
___ e. Increase in salary payable.
___ f. Decrease in inventory.
___ g. Increase in prepaid expenses.
___ h. Decrease in accrued liabilities.
___ i. Cash sale of land.
___ j. Issuance of long-term note payable to borrow cash.
___ k. Depreciation
___ 1. Purchase of treasury stock.
___ m. Issuance of common stock.
___ n. Increase in accounts payable.
___ o. Net income.
___ p. Payment of cash dividend.
Click here for the solution: The cash flow statement categorizes like transactions for optimal reporting
The cash flow statement categorizes like transactions for optimal reporting.
Requirement:
1. Identify each of the following transactions as one of the following:
• Operating activity (0)
• Investing activity (I)
• Financing activity (F)
• Noncash investing and financing activity (NIF)
• Transaction that is not reported on the statement of cash flows (N)
For each cash flow, indicate whether the item increases (+) or decreases (-) cash. The indirect method is used to report cash flows from operating activities.
___ a. Loss on sale of land.
___ b. Acquisition of equipment by issuance of note payable.
___ c. Payment of long-term debt.
___ d. Acquisition of building by issuance of common stock. J
___ e. Increase in salary payable.
___ f. Decrease in inventory.
___ g. Increase in prepaid expenses.
___ h. Decrease in accrued liabilities.
___ i. Cash sale of land.
___ j. Issuance of long-term note payable to borrow cash.
___ k. Depreciation
___ 1. Purchase of treasury stock.
___ m. Issuance of common stock.
___ n. Increase in accounts payable.
___ o. Net income.
___ p. Payment of cash dividend.
Click here for the solution: The cash flow statement categorizes like transactions for optimal reporting
Friday, September 11, 2015
Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating
B2. (Choosing financial targets) Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating. Sanderson has identified six comparable firms and calculated the credit statistics shown here.
a. Sanderson’s return on assets is 5.3%. It has a total capitalization of $600 million. What are reasonable targets for long-term debt/cap, funds from operations/LT debt, and fixed charge coverage?
b. Are there any firms among the six who are particularly good or bad comparable? Explain.
c. Suppose Sanderson’s current ratio of long-term debt to total cap is 60% but its fixed charge coverage is 3.00. What would you recommend?
FIRM A B C D E F
Senior debt rating Baa2/BBB Baa3/BBB− Baa2/BBB Baa1/A− Baa1/BBB− Baa2/BBB+
Return on assets 5.2% 5.0% 5.4% 5.7% 5.2% 5.3%
Long-term debt/cap 38% 41% 45% 40% 25% 43%
Total cap ($MM) 425 575 525 650 210 375
Funds from operations/LT debt 39% 43% 28% 46% 57% 43%
Fixed charge cov 2.57 2.83 2.75 2.38 3.59 2.15
Click here for the solution: Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating
a. Sanderson’s return on assets is 5.3%. It has a total capitalization of $600 million. What are reasonable targets for long-term debt/cap, funds from operations/LT debt, and fixed charge coverage?
b. Are there any firms among the six who are particularly good or bad comparable? Explain.
c. Suppose Sanderson’s current ratio of long-term debt to total cap is 60% but its fixed charge coverage is 3.00. What would you recommend?
FIRM A B C D E F
Senior debt rating Baa2/BBB Baa3/BBB− Baa2/BBB Baa1/A− Baa1/BBB− Baa2/BBB+
Return on assets 5.2% 5.0% 5.4% 5.7% 5.2% 5.3%
Long-term debt/cap 38% 41% 45% 40% 25% 43%
Total cap ($MM) 425 575 525 650 210 375
Funds from operations/LT debt 39% 43% 28% 46% 57% 43%
Fixed charge cov 2.57 2.83 2.75 2.38 3.59 2.15
Click here for the solution: Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating
Friday, July 31, 2015
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market
Exercise 13-35 Target Costing
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market. The toaster will have four slots that adjust in thickness to accommodate both slim slices of bread and oversized bagels. The target price is $75. Banks requires that new products be priced such that 20 percent of the price is profit.
Instructions
1. Calculate the amount of desired profit per unit of the new toaster.
2. Calculate the target cost per unit of the new toaster.
Click here for the solution: H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market. The toaster will have four slots that adjust in thickness to accommodate both slim slices of bread and oversized bagels. The target price is $75. Banks requires that new products be priced such that 20 percent of the price is profit.
Instructions
1. Calculate the amount of desired profit per unit of the new toaster.
2. Calculate the target cost per unit of the new toaster.
Click here for the solution: H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market
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