Better Food Company recently acquired an olive oil processing company that has an annual capacity

Better Food Company recently acquired an olive oil processing company that has an annual capacity of 2,000,000 liters and that processed and sold 1,400,000 liters last year at a market price of $4 per liter. The purpose of the acquisition was to furnish oil for the Cooking Division. The Cooking Division needs 800,000 liters of oil per year. It has been purchasing oil from suppliers at the market price. Production costs at capacity of the olive oil company, now a division, are as follows:

Direct materials per liter $1.00
Direct processing labor 0.50
Variable processing overhead 0.24
Fixed processing overhead 0.40
Total $2.14

Management is trying to decide what transfer price to use for sales from the newly acquired company to the Cooking Division. The manager of the Olive Oil Division argues that $4, the market price, is appropriate. The manager of the Cooking Division argues that the cost of $2.14 should be used, or perhaps a lower price, since fixed overhead cost should be recomputed with the larger volume. Any output of the Olive Oil Division not sold to the Cooking Division can be sold to outsiders for $4 per liter.

Question 1: Compute the operating income for the Olive Oil Division using a transfer price of $4 (5 points).

Question 2: Compute the operating income for the Olive Oil Division using a transfer price of $2.14 (5 points).

Question 3: What transfer price(s) do you recommend? Compute the operating income for the Olive Oil Division using your recommendation (5 points).

Click here for the solution: Better Food Company recently acquired an olive oil processing company that has an annual capacity

SY Telc has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks

ACC 560 Week 5 Assignment

E7-6 SY Telc has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,000 RecRobo’s is as follows.

Cost
Direct materials ($40 per robot) $800,000
Direct labor ($30 per robot) 600,000
Variable overhead ($6 per robot) 120,000
Direct labor ($30 per robot) 600,000
Variable overhead($6 per robot) 120,000
Allocated fixed overhead($25 per robot) 500,000
Total $2,020,000
SY Telc is approached by Chen Inc. which offers to make RecRobo for $90 per unit or $1,800,000.

Instructions
(a) Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions.
(1) Assume that $300,000 of the fixed overhead cost can be reduced (avoided).
(2) Assume that none of the fixed overhead can be reduced (avoided). However, if the robots are purchased from Chen Inc., SY Telc can use the released productive resources to generate additional income of $300,000.
(b) Describe the qualitative factors that might affect the decision to purchase the robots from an outside supplier.

Click here for the solution: SY Telc has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks

Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc

Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre.

a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?

AND SO ON


p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.


Click here for the solution: Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc

Frank Lou had recently been promoted to construction manager at a development firm

Fraud Case 14-1 Frank Lou had recently been promoted to construction manager at a development firm. He was responsible for dealing with contractors who were bidding on a multi-million dollar excavation job for the new high-rise. Times were tough, several contractors had gone under recently, and the ones left standing were viciously competitive. That morning, four bids were sitting on Frank’s desk. The deadline was midnight, and the bids would be opened the next morning. The first bidder, Bo Freely, was a tough but personable character that Frank had known for years. Frank had lunch with him today, and after a few beers, Bo hinted that if Frank "inadvertently" mentioned the amount of the lowest bid, he'd receive a "birthday card" with a gift of cash. After lunch, Frank carefully unsealed the bids and noticed that another firm had underbid Bo's company by a small margin. Frank took Bo's bid envelope, wrote the low bid amount in pencil on it, and carried it downstairs where Bo's son William was waiting. Later that afternoon, a new bid came in from Bo's company. The next day, Bo's company got the job, and Frank got a birthday card in his mailbox.

Requirements
• Was Frank's company hurt in any way by this fraudulent action?
• How could this action hurt Frank?
• How can a business protect against this kind of fraud?


Click here for the solution: Frank Lou had recently been promoted to construction manager at a development firm

Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey

Chapter 16 Ethical Issue 16-1 Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey. Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand. The manufacturer's regional sales managers are each given a certain number of cars. Each sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager.

Becky's former employer, Shamalay Automotive, receives only about 25 cars a month. Consequently, Shamalay was not very profitable.

Becky is surprised to learn that her new employer, Mueller Imports, receives over 200 cars a month. Becky soon gets another surprise. Every couple of months, a local jeweler bills the dealer $5,000 for “miscellaneous services.” Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a “selling expense.” From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturer's regional sales manager and other sales executives. Before talking to anyone about this, Becky decides to work through her ethical dilemma.

Requirement
Put yourself in Becky's place.
a. What is the ethical issue?
b. What are your options?
c. What are the possible consequences?
d. What should you do?


Click here for the solution: Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey

Murphy Mining Company recently purchased a quartz mine that it intends to work for the next 10 years

P6-15 (Fair Value Estimate) Murphy Mining Company recently purchased a quartz mine that it intends to work for the next 10 years. According to state environmental laws, Murphy must restore the mine site to its original natural prairie state after it ceases mining operations at the site. To properly account for the mine, Murphy must estimate the fair value of this asset retirement obligation. This amount will be recorded as a liability and added to the value of the mine on Murphy's books. (You will learn more about these asset retirement obligations in Chapters 10 and 13.)

There is no active market for retirement obligations such as these, but Murphy has developed the following cash flow estimates based on its prior experience in mining-site restoration. It will take 3 years to restore the mine site when mining operations cease in 10 years. Each estimated cash outflow reflects an annual payment at the end of each year of the 3-year restoration period.

Restoration Estimated Cash Outflow
Probability Assessment
$15,000 10%
22,000 30%
25,000 50%
30,000 10%

Instructions
(a) What is the estimated fair value of Murphy's asset retirement obligation? Murphy determines that the appropriate discount rate for this estimation is 5%. Round calculations to the nearest dollar.
(b) Is the estimate developed for part (a) a Level 1 or Level 3 fair value estimate? Explain.

Click here for the solution: Murphy Mining Company recently purchased a quartz mine that it intends to work for the next 10 years

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%

Riviera Theater Inc. was recently formed. All facilities were completed on March 31

P3-8B Riviera Theater Inc. was recently formed. All facilities were completed on March 31. On April 1, the ledger showed: Cash $6,300; Land $10,000; Buildings (concession stand, projection room, ticket booth, and screen) $8,000; Equipment $6,000; Accounts Payable $2,300; Mortgage Payable $8,000; and Common Stock $20,000. During April, the following events and transactions occurred.

Apr. 2 Paid film rental fee of $800 on first movie.
3 Ordered two additional films at $750 each.
9 Received $4,700 cash from admissions.
10 Paid $2,000 of mortgage payable and $1,200 of accounts payable.
11 Hired M. Gavin to operate the concession stand. Gavin agrees to pay Riviera Theater 17% of gross receipts, payable monthly.
12 Paid advertising expenses $410.
20 Received one of the films ordered on April 3 and was billed $750. The film will be shown in April.
25 Received $3,000 cash from customers for admissions.
29 Paid salaries $1,900.
30 Received statement from M. Gavin showing gross receipts of $2,000 and the balance due to Riviera Theater of $340 for April. Gavin paid half of the balance due and will remit the remainder on May 5.
30 Prepaid $1,200 rental fee on special film to be run in May.

In addition to the accounts identified above, the chart of accounts shows: Accounts Receivable, Prepaid Rent, Service Revenue, Sales Revenue, Advertising Expense, Rent Expense, Salaries and Wages Expense.

Instructions
(a) Enter the beginning balances in the ledger T accounts as of April 1.
(b) Journalize the April transactions, including explanations. (Note: Riviera records admission revenue as service revenue, concession revenue as sales revenue, and film rental expense as rent expense.)
(c) Post the April journal entries to the ledger T accounts.
(d) Prepare a trial balance on April 30, 2012.

Click here for the solution: Riviera Theater Inc. was recently formed. All facilities were completed on March 31

Galley Corp., a merchandiser, recently completed its 2011 operations

Galley Corp., a merchandiser, recently completed its 2011 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases if inventory are on credit, (4) all debits to Accounts payable reflect cash payments for inventory, (5) Other expenses are all cash expenses and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company’s balance sheets and income statements follow.

GALLEY CORPORATION
Comparative Balance Sheets
December 31, 2011 and 2010
2011 2010

Assets
Cash $174,000 $117,000
Accounts receivable 93,000 81,000
Merchandise inventory 609,000 534,000
Equipment 333,000 297,000
Accum. depreciation equip (156,000) (102,000)
Total assets $1,053,000 927,000

Liabilities and Equity
Accounts payable $69,000 $96,000
Income taxes payable 27,000 24,000
Common stock, $2 par value 582,000 558,000
Paid in capital in excess of par value, common stock 198,000 162,000
Retained earnings 177,000 87,000
Total liabilities and equity $1,053,000 $927,000

GALLEY CORPORATION
Income Statement
For year Ended December 31, 2011
Sales $1,992,000
Cost of goods sold 1,194,000
Gross Profit 798,000
Operating Expenses
Depreciation Expense $54,000
Other Expenses 501,000 555,000
Income before taxes 243,000
Income tax expense 42,000
Net income $201,000

Additional Information on Year 2011 Transactions
a. purchased equipment for $36,000 cash
b. Issued 12,000 shares of common stock for $5 cash per share
c. Declared and paid $111,000 in cash dividends

Required
Prepare and complete statement of cash inflows and cash outflows from operating activities according to the indirect method.

Click here for the solution: Galley Corp., a merchandiser, recently completed its 2011 operations

(Present Value Analysis) James Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals

PROBLEM 9-1. Present Value Analysis [LO 1, 5] James Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals. The contract offer called for an immediate signing bonus of $5,000,000 and annual payments of $3,000,000. To sweeten the deal, the president of player personnel for the Seals has now offered a $22,000,000, five-year contract. This contract calls for annual increases and a balloon payment at the end of five years.

Year 1 $ 3,000,000
Year 2 3,100,000
Year 3 3,200,000
Year 4 3,300,000
Year 5 3,400,000
Year 5 balloon payment 6,000,000
Total $22,000,000

Required
Suppose you are Hardy’s agent and you wish to evaluate the two contracts using a required rate of return of 12 percent. In present value terms, how much better is the second contract?

Click here for the solution: (Present Value Analysis) James Hardy recently rejected a $20,000,000, five-year contract with the Vancouver Seals

The Zygon Corporation was recently formed to produce a semiconductor chip that forms an essential part of the personal computer manufactured by a major corporation

The Zygon Corporation was recently formed to produce a semiconductor chip that forms an essential part of the personal computer manufactured by a major corporation. The direct materials are added at the start of the production process while conversion costs are added uniformly throughout the production process. June is Zygon's first month of operations, and therefore, there was no beginning inventory. Direct materials cost for the month totaled $895,000, while conversion costs equaled $4,225,000. Accounting records indicate that 475,000 chips were started in June, and that 425,000 chips were completed.

Ending inventory was 50% complete as to conversion costs.

Required:
a. What is the total manufacturing cost per chip for June?
b. Allocate the total costs between the completed chips and the chips in ending inventory.

Click here for the solution: The Zygon Corporation was recently formed to produce a semiconductor chip that forms an essential part of the personal computer manufactured by a major corporation

You recently received a letter from your Uncle Frank

Brief Exercise 15-1 (BE15-1) You recently received a letter from your Uncle Frank. A portion of the letter is presented below.

You know that I have a significant amount of money I saved over the years. I am thinking about starting an investment program. I want to do the investing myself, based on my own research and analysis of financial statements. I know that you are studying accounting, so I have a couple of questions for you. I have heard that different users of financial statements are interested in different characteristics of companies. Is this true, and, if so, why? Also, some of my friends, who are already investing, have told me that comparisons involving a company’s financial data can be made on a number of different bases. Can you explain these bases to me?

Instructions: Write a letter to your Uncle Frank which answers his questions.

Click here for the solution: You recently received a letter from your Uncle Frank. A portion of the letter is presented below