Baucom Industries Inc. manufactures only one product. For the year ended December 31, 2010, the contribution margin increased by 36,000 from the planned level of 720,000. The president of Baucom Industries Inc. has expressed some concern about such a small increase and has requested a follow-up report. The following data have been gathered from the accounting records for the year ended December 31, 2010.
Sales: Actual: 1,470,000 Planned: 1,440,000 Difference-Increase (Decrease): 30,000
Less: Variable cost of goods sold: Actual 560,000 Planned 592,000 Difference-Increase (Decrease): (32,000)
Variable selling and administrative expenses: Actual 154,000 Planned: 128,000 Difference-Increase (Decrease): 26,000
Total: Actual 714,000 Planned: 720,000
Difference-Increase (Decrease): (6,000)
Contribution Margin Actual 756,000 Planned 720,000 Difference-Increase (Decrease): 36,000
Number of units sold: Actual 14,000 Planned 16,000
Per unit:
Sales price: Actual 105.00 Planned 90.00
Variable cost of goods sold: Actual 40.00 Planned 37.00
Variable selling and administrative expenses: Actual 11.00 Planned 8.00
Instructions:
1. Prepare a contribution margin analysis report for the year ended Dec 31, 2010.
2. At a meeting of the board of directors on Jan 30, 2011, the president, after reviewing the contribution margin analysis report, made the following comment:
It looks as if the price increase of 15.00 had the effect of decreasing sales volume. However, this was a favorable trade off. The variable cost of goods sold was less than planned. Apparently, we are efficiently managing our variable cost of goods sold. However, the variable selling and administrative expenses appear out of control. Let’s look into these expenses and get them under control. Also, let’s consider increasing the sales price to 120 and continue this favorable tradeoff between higher price and lower volume.
Do you agree with the President's comment? Explain.
Click here for the solution: Baucom Industries Inc. manufactures only one product
Showing posts with label only. Show all posts
Showing posts with label only. Show all posts
Wednesday, October 14, 2015
Tuesday, August 18, 2015
Suppose there are only three risky assets, IAM stock, IBM stock, and ICM stock
Suppose there are only three risky assets, IAM stock, IBM stock, and ICM stock. The total market equity values of these companies at current prices are $150 million for IAM, $300 million for IBM, and $1,500 million for ICM. In addition there is $50 million of riskless bonds in the market. The proportion of the riskless asset held in the aggregate market portfolio would be?
Click here for the solution: Suppose there are only three risky assets, IAM stock, IBM stock, and ICM stock
Click here for the solution: Suppose there are only three risky assets, IAM stock, IBM stock, and ICM stock
Challenge Problem: Consider a market with only the following three risky assets
Challenge Problem: Consider a market with only the following three risky assets:
Expected Return % per month Risk % Covariance with market
Asset 1 2.03 2 1.12
Asset 2 1.79 1 0.90
Asset 3 1.49 1 0.62
Market Portfolio 0.92
a) Consider the market portfolio comprised of 4% invested in Asset 1, 76% invested in Asset 2, and 20% invested in Asset 3. What is the expected return of this portfolio?
b) What are the betas of the three risky assets?
c) Suppose the riskless rate of interest is 0.8% (8/10ths of one percent per month). Are these three securities priced correctly?
d) What is the beta of the market portfolio calculated as a weighted average of the betas of its components?
Click here for the solution: Challenge Problem: Consider a market with only the following three risky assets
Expected Return % per month Risk % Covariance with market
Asset 1 2.03 2 1.12
Asset 2 1.79 1 0.90
Asset 3 1.49 1 0.62
Market Portfolio 0.92
a) Consider the market portfolio comprised of 4% invested in Asset 1, 76% invested in Asset 2, and 20% invested in Asset 3. What is the expected return of this portfolio?
b) What are the betas of the three risky assets?
c) Suppose the riskless rate of interest is 0.8% (8/10ths of one percent per month). Are these three securities priced correctly?
d) What is the beta of the market portfolio calculated as a weighted average of the betas of its components?
Click here for the solution: Challenge Problem: Consider a market with only the following three risky assets
Friday, August 14, 2015
The One Product economy, which produces and sells only personal computers (PCs), expects that it can sell 500 more, or 12,500 PCs, next year
11. The One Product economy, which produces and sells only personal computers (PCs), expects that it can sell 500 more, or 12,500 PCs, next year. Nominal GDP was $20 million this year, and the money supply was $7 million. The central bank for the One Product economy plans to increase the money supply by 10 percent next year.
a. What was the average selling price for the personal computers this year?
b. What is the expected average selling price next year for personal computers if the velocity of money remains at this year’s turnover rate? What percentage change in price level is expected to occur?
c. If the objective is to keep the price level the same next year (i.e., no inflation), what percentage increase in the money supply should the central bank plan for?
d. How would your answer in (c) change if the velocity of money is expected to be three times next year? What is it now?
Click here for the solution: The One Product economy, which produces and sells only personal computers (PCs), expects that it can sell 500 more, or 12,500 PCs, next year
a. What was the average selling price for the personal computers this year?
b. What is the expected average selling price next year for personal computers if the velocity of money remains at this year’s turnover rate? What percentage change in price level is expected to occur?
c. If the objective is to keep the price level the same next year (i.e., no inflation), what percentage increase in the money supply should the central bank plan for?
d. How would your answer in (c) change if the velocity of money is expected to be three times next year? What is it now?
Click here for the solution: The One Product economy, which produces and sells only personal computers (PCs), expects that it can sell 500 more, or 12,500 PCs, next year
Monday, July 6, 2015
Costello Industries Inc. manufactures only one product
Costello Industries Inc. manufactures only one product. For the year ended December 31, 2012, the contribution margin increased by $19,800 from the planned level of $888,800. The president of Costello Industries Inc. has expressed some concern about such a small increase and has requested a follow-up report.
The following data have been gathered from the accounting records for the year ended December 31, 2012:
Actual Planned Difference-Increase (Decrease)
Sales $1,771,000 $1,760,000 $11,000
Less:
Variable cost of goods sold $677,600 $712,800 ($35,200)
Variable selling and administrative expenses 184,800 158,400 26,400
Total $862,400 $871,200 ($8,800)
Contribution margin $908,600 $888,800 $19,800
Number of units sold 15,400 17,600
Per unit:
Sales price $115.00 $100.00
Variable cost of goods sold $44.00 $40.50
Variable selling and administrative expenses 12.00 9.00
2. At a meeting of the board of directors on January 30, 2013, the president, after reviewing the contribution margin analysis report, made the following comment:
It looks as if the price increase of $15 had the effect of decreasing sales volume. However, this was a favorable tradeoff. The variable cost of goods sold was less than planned. Apparently, we are efficiently managing our variable cost of goods sold. However, the variable selling and administrative expenses appear out of control. Let's look into these expenses and get them under control! Also, let's consider increasing the sales price to $130 and continue this favorable tradeoff between higher price and lower volume.
Click here for the solution: Costello Industries Inc. manufactures only one product
The following data have been gathered from the accounting records for the year ended December 31, 2012:
Actual Planned Difference-Increase (Decrease)
Sales $1,771,000 $1,760,000 $11,000
Less:
Variable cost of goods sold $677,600 $712,800 ($35,200)
Variable selling and administrative expenses 184,800 158,400 26,400
Total $862,400 $871,200 ($8,800)
Contribution margin $908,600 $888,800 $19,800
Number of units sold 15,400 17,600
Per unit:
Sales price $115.00 $100.00
Variable cost of goods sold $44.00 $40.50
Variable selling and administrative expenses 12.00 9.00
2. At a meeting of the board of directors on January 30, 2013, the president, after reviewing the contribution margin analysis report, made the following comment:
It looks as if the price increase of $15 had the effect of decreasing sales volume. However, this was a favorable tradeoff. The variable cost of goods sold was less than planned. Apparently, we are efficiently managing our variable cost of goods sold. However, the variable selling and administrative expenses appear out of control. Let's look into these expenses and get them under control! Also, let's consider increasing the sales price to $130 and continue this favorable tradeoff between higher price and lower volume.
Click here for the solution: Costello Industries Inc. manufactures only one product
Subscribe to:
Posts (Atom)