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Survey of Accounting 2nd edition Edmonds, old, Mcnair, Tsay - Solutions

In January of 2008 Yahoo, Inc., announced through the Reuters news agency and other news outlets that ithas embarked on a multiyear transformation that includes making some tough decisions about the business to help the company grow. Yahoo plans to invest in some areas, reduce emphasis in others
Eddie Emerson is a proud woman with a problem. Her daughter has been accepted into a prestigious law school. While Ms. Emerson beams with pride, she is worried sick about how to pay for the school; she is a single parent who has to support herself and her three children. She had to go heavily into
Define fixed cost and variable cost and give an example of each.
How can knowing cost behavior relative to volume fluctuations affect decision making?
Define the term operating leverage and explain how it affects profits.
How is operating leverage calculated?
Explain the limitations of using operating leverage to predict profitability.
If volume is increasing, would a company benefit more from a pure variable or a pure fixed cost structure? Which cost structure would be advantageous if volume is decreasing?
Explain the risk and rewards to a company that result from having fixed costs.
Are companies with predominately fixed cost structures likely to be most profitable?
How is the relevant range of activity related to fixed and variable cost? Give an example of how the definitions of these costs become invalid when volume is outside the relevant range.
Which cost structure has the greater risk? Explain.
The president of Bright Corporation tells you that he sees a dim future for his company. He feels that his hands are tied because fixed costs are too high. He says that fixed costs do not change and therefore the situation is hopeless. Do you agree? Explain.
All costs are variable because if a business ceases operations, its costs fall to zero. Do you agree with the statement? Explain.
Verna Salsbury tells you that she thinks the terms fixed cost and variable cost are confusing. She notes that fixed cost per unit changes when the number of units changes. Furthermore, variable cost per unit remains fixed regardless of how many units are produced. She concludes that the terminology
What does the term break-even point mean? Name the two ways it can be measured.
How does a contribution margin income statement differ from the income statement used in financial reporting?
If Company A has a projected margin of safety of 22 percent while Company B has a margin of safety of 52 percent, which company is at greater risk when actual sales are less than budgeted?
Mary Hartwell and Jane Jamail, college roommates, are considering the joint purchase of a computer that they can share to prepare class assignments. Ms. Hartwell wants a particular model that costs $2,000; Ms. Jamail prefers a more economical model that costs $1,500. In fact, Ms. Jamail is adamant
Bluffpark Kitchen, a fast-food restaurant company, operates a chain of restaurants across the nation. Each restaurant employs eight people; one is a manager paid a salary plus a bonus equal to 3 percent of sales. Other employees, two cooks, one dishwasher, and four waitresses, are paid salaries.
At the various activity levels shown, Johnston Company incurred the following costs.RequiredIdentify each of these costs as fixed, variable, ormixed.
Bender Corporation incurs the following annual fixed costs.Item CostDepreciation ....... $ 34,000Officers’ salaries .... 120,000Long-term lease ..... 42,000Property taxes ....... 9,000RequiredDetermine the total fixed cost per unit of production, assuming that Bender produces 4,000, 4,500, or
The following variable production costs apply to goods made by Zell Manufacturing Corporation.Item Cost per UnitMaterials $6.00Labor 2.50Variable overhead 0.20Total $8.70RequiredDetermine the total variable production cost, assuming that Zell makes 5,000, 15,000, or 25,000 units.
Thompson Company€™s cost and production data for two recent months included the following.Requireda. Separately calculate the rental cost per unit and the utilities cost per unit for both January and February.b. Identify which cost is variable and which is fixed. Explain youranswer.
Parker Trophies makes and sells trophies it distributes to little league ballplayers. The company normally produces and sells between 8,000 and 14,000 trophies per year. The following cost data apply to various activity levels.Requireda. Complete the preceding table by filling in the missing
Walter Entertainment sponsors rock concerts. The company is considering a contract to hire a band at a cost of $75,000 per concert.Requireda. What are the total band cost and the cost per person if concert attendance is 2,000, 2,500, 3,000, 3,500, or 4,000?b. Is the cost of hiring the band a fixed
Walter Entertainment sells souvenir T-shirts at each rock concert that it sponsors. The shirts cost $9 each. Any excess shirts can be returned to the manufacturer for a full refund of the purchase price. The sales price is $15 per shirt.Requireda. What are the total cost of shirts and cost per
The following graphs depict the dollar amount of fixed cost on the vertical axes and the level of activity on the horizontal axes.Requireda. Draw a line that depicts the relationship between total fixed cost and the level of activity.b. Draw a line that depicts the relationship between fixed cost
The following graphs depict the dollar amount of variable cost on the vertical axes and the level of activity on the horizontal axes.Requireda. Draw a line that depicts the relationship between total variable cost and the level of activity.b. Draw a line that depicts the relationship between
Leon Corporation paid one of its sales representatives $5,600 during the month of March. The rep is paid a base salary plus $13 per unit of product sold. During March, the rep sold 200 units.RequiredCalculate the total monthly cost of the sales representative's salary for each of the
The following income statements illustrate different cost structures for two competing companies.Requireda. Reconstruct Vector's income statement, assuming that it serves 140 customers when it lures 70 customers away from Sector by lowering the sales price to $120 per customer.b. Reconstruct
The following income statement was drawn from the records of Bechem Company, a merchandising firm.Requireda. Reconstruct the income statement using the contribution margin format.b. Calculate the magnitude of operating leverage.c. Use the measure of operating leverage to determine the amount of net
The following income statement applies to Cohen Company for the current year.Requireda. Use the contribution margin approach to calculate the magnitude of operating leverage.b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Cohen Company will
Henegar Corporation sells products for $14 each that have variable costs of $11 per unit. Henegar’s annual fixed cost is $153,000.RequiredDetermine the break-even point in units and dollars.
Strother Company incurs annual fixed costs of $54,320. Variable costs for Strother’s product are $7.80 per unit, and the sales price is $13.00 per unit. Strother desires to earn an annual profit of $45,000.RequiredDetermine the sales volume in dollars and units required to earn the desired profit.
Vidal Corporation produced and sold 24,000 units of product during October. It earned a contribution margin of $96,000 on sales of $336,000 and determined that cost per unit of product was $12.50.RequiredBased on this information, determine the variable and fixed cost per unit of product.
Eubank Corporation produced 140,000 watches that it sold for $27 each during 2008. The company determined that fixed manufacturing cost per unit was $6 per watch. The company reported a $420,000 gross margin on its 2008 financial statements.RequiredDetermine the total variable cost, the variable
Information concerning a product produced by Hinshaw Company appears here.Sales price per unit .................. $159Variable cost per unit ................. $34Total annual fixed manufacturing and operating costs .. $912,500RequiredDetermine the following.a. Contribution margin per unit.b. Number
Medley Company makes a product that sells for $19 per unit. The company pays $8 per unit for the variable costs of the product and incurs annual fixed costs of $176,000. Medley expects to sell 21,000 units of product.RequiredDetermine Medley’s margin of safety in units, sales dollars, and as a
Identifying cost behaviorRequiredIdentify the following costs as fixed or variable.Costs related to plane trips between San Diego, California, and Orlando, Florida, follow. Pilots are paid on a per trip basis.a. Pilots’ salaries relative to the number of trips flown.b. Depreciation relative to
Shirley Maze has decided to start Shirley Cleaning, a residential housecleaning service company. She is able to rent cleaning equipment at a cost of $570 per month. Labor costs are expected to be $49 per house cleaned and supplies are expected to cost $4 per house.Requireda. Determine the total
First Federal Bank’s start-up division establishes new branch banks. Each branch opens with three tellers. Total teller cost per branch is $90,000 per year. The three tellers combined can process up to 70,000 customer transactions per year. If a branch does not attain a volume of at least 40,000
Amy Trenton operates a sales booth in computer software trade shows, selling an accounting software package, Accountech. She purchases the package from a software manufacturer for $150 each. Booth space at the convention hall costs $8,000 per show.Requireda. Sales at past trade shows have ranged
Cooper Training Services (CTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clients’ offices on the clients’ equipment. The only major expense CTS incurs is instructor salaries; it pays instructors $3,600 per course
Pacific and Atlantic Universities offer executive training courses to corporate clients. Pacific pays its instructors $5,310 per course taught. Atlantic pays its instructors $295 per student enrolled in the class. Both universities charge executives a $340 tuition fee per course attended.Requireda.
Adam Copeland is a venture capitalist facing two alternative investment opportunities. He intends to invest $1 million in a start-up firm. He is nervous, however, about future economic volatility. He asks you to analyze the following financial data for the past year's operations of the two firms he
Blackmon Manufacturing Company makes a product that it sells for $50 per unit. The company incurs variable manufacturing costs of $14 per unit. Variable selling expenses are $6 per unit, annual fixed manufacturing costs are $189,000, and fixed selling and administrative costs are $141,000 per
Ireland Company is considering the addition of a new product to its cosmetics line. The company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. Relevant information and budgeted annual income statements for each of the products follow.Requireda. Determine
Description of Business for Caterpillar, Inc.Caterpillar is the leader in construction and mining equipment and diesel and natural gas engines and industrial gas turbines in our size range. The company is also a leading services provider through Cat Financial, Caterpillar Logistics Services Inc.,
The Parent Teacher Association (PTA) of Meadow High School is planning a fund- aising campaign. The PTA is considering the possibility of hiring Eric Logan, a world-renowned investment counselor, to address the public. Tickets would sell for $28 each. The school has agreed to let the PTA use
Use the 2006 Form 10-K for Black & Decker Corp. (B&D) to complete the requirements below. To obtain the Form 10-K you can use the EDGAR system following the instructions in Appendix A, or it can be found under “Investor Relations” on the company’s corporate website: www.bdk.com. Be
The article “Up Front: More Condensing at the Digest?” in the October 19, 1998, issue of Business-Week reported that Thomas Ryder, CEO of Reader’s Digest Association, was considering a spin-off of Reader’s Digest’s direct-marketing operations into a joint venture with Time Warner. The
Advances in biological technology have enabled two research companies, Bio Labs Inc. and Scientific Associates, to develop an insect-resistant corn seed. Neither company is financially strong enough to develop the distribution channels necessary to bring the product to world markets. World Agra
Why are ratios and trends used in financial analysis?
What do the terms liquidity and solvency mean?
What is apparent from a horizontal presentation of financial statement information? A vertical presentation?
What is the significance of inventory turnover, and how is it calculated?
What is the difference between the current ratio and the quick ratio? What does each measure?
Why are absolute amounts of limited use when comparing companies?
What is the difference between return on investment and return on equity?
Which ratios are used to measure long-term debt-paying ability? How is each calculated?
What are some limitations of the earnings per share figure?
What is the formula for calculating return on investment (ROI)?
What is information overload?
What is the price-earnings ratio? Explain the difference between it and the dividend yield.
What environmental factors must be considered in analyzing companies?
How do accounting principles affect financial statement analysis?
Selected financial information for Atwell Company for 2009 follows.Sales ........ $ 1,500,000Cost of goods sold ... 1,200,000Merchandise inventoryBeginning of year ..... 180,000End of year ...... 220,000RequiredAssuming that the merchandise inventory buildup was relatively constant, how many times
The following data come from the financial records of Linton Corporation for 2008.Sales ....... $135,000Interest expense .... 3,800Income tax expense ... 22,500Net income ....... 30,700RequiredHow many times was interest earned in 2008?
Piper Corporation wrote off a $900 uncollectible account receivable against the $9,600 balance in its allowance account.RequiredExplain the effect of the write-off on Piper’s current ratio.
On June 30, 2008, Thorpe Company’s total current assets were $250,000 and its total current liabilities were $125,000. On July 1, 2008, Thorpe issued a short-term note to a bank for $25,000 cash.Requireda. Compute Thorpe’s working capital before and after issuing the note.b. Compute Thorpe’s
On June 30, 2008, Thorpe Company’s total current assets were $250,000 and its total current liabilities were $125,000. On July 1, 2008, Thorpe issued a long-term note to a bank for $25,000 cash.Requireda. Compute Thorpe’s working capital before and after issuing the note.b. Compute Thorpe’s
Hammond Corporation reported the following operating results for two consecutive years.Requireda. Compute the percentage changes in Hammond Corporation's income statement components between the two years.b. Comment on apparent trends disclosed by the percentage changes computed in Requirementa.
Garcia Company reported the following operating results for two consecutive years.RequiredExpress each income statement component for each of the two years as a percent ofsales.
Balance sheet data for Ramsey Corporation follow.Current assets ............ $ 150,000Long-term assets (net) ........... 850,000Total assets ............ $1,000,000Current liabilities ............ $ 84,000Long-term liabilities .......... 492,000Total liabilities ............ 576,000Total
For 2008, Orchard Corporation reported after-tax net income of $5,800,000. During the year, the number of shares of stock outstanding remained constant at 10,000 of $100 par, 9 percent preferred stock and 400,000 shares of common stock. The company’s total stockholders’ equity was $23,000,000
Ratio analysisRequiredMatch each of the following ratios with the formula used to computeit.
Income statements for Sennett Company for 2008 and 2009 follow.Requireda. Perform a horizontal analysis, showing the percentage change in each income statement component between 2008 and 2009.b. Perform a vertical analysis, showing each income statement component as a percent of sales for eachyear.
Compute the specified ratios using Bryce Company’s balance sheet at December 31, 2008.AssetsCash ............... $ 18,000Marketable securities ......... 8,000Accounts receivable ......... 13,000Inventory ............. 11,000Property and equipment ...... 170,000Accumulated depreciation .....
Comprehensive analysisRequiredIndicate the effect of each of the following transactions on(1) The current ratio,(2) Working capital,(3) Stockholders’ equity,(4) Book value per share of common stock,(5) Retained earnings.Assume that the current ratio is greater than 1.0.a. Collected account
Selected data from Anthony Company follow.RequiredCompute the following:a. The accounts receivable turnover for 2008.b. The inventory turnover for 2008.c. The net margin for2008.
The December 31, 2007, balance sheet for Grogan Inc. is presented here. These are the only accounts on Grogan’s balance sheet. Amounts indicated by question marks (?) can be calculated using the additional information following the balance sheet.AssetsCash .................. $ 25,000Accounts
The following percentages apply to Walton Company for 2007 and 2008.RequiredAssuming that sales were $480,000 in 2007 and $640,000 in 2008, prepare income statements for the twoyears.
Hood Company's income statement information follows.The average number of shares outstanding was 2,600 for 2009 and 2,300 for 2008.RequiredCompute the following ratios for Hood for 2009 and 2008.a. Times interest earned.b. Earnings per share based on the average number of shares outstanding.c.
Gilchrist Manufacturing has a current ratio of 3:1 on December 31, 2008. Indicate whether each of the following transactions would increase (+), decrease (-), or have no affect (NA) Gilchrist’s current ratio and its working capital.Requireda. Paid cash for a trademark.b. Wrote off an
Selected data for Koch Company for 2007 and additional information on industry averages follow.Industry averagesEarnings per share ... $ 5.20Price-earnings ratio .... 9.50Return on equity ... 11.20%Requireda. Calculate and compare Koch Company's ratios with the industry averages.b. Discuss factors
The bookkeeper for Andy's Country Music Bar went insane and left this incomplete balance sheet. Andy's working capital is $95,000 and its debt to assets ratio is 40 percent.RequiredComplete the balance sheet by supplying the missingamounts.
The following financial statements apply to Keating Company.RequiredCalculate the following ratios for 2008 and 2009. When data limitations prohibit computing averages, use year-end balances in your calculations.a. Net marginb. Return on investmentc. Return on equityd. Earnings per sharee.
Financial statements for Thorn Company follow.RequiredPrepare a horizontal analysis of both the balance sheet and incomestatement.
Ratio analysisRequiredUse the financial statements for Thorn Company from Problem 9-22 to calculate the following ratios for 2008 and 2007.a. Working capitalb. Current ratioc. Quick ratiod. Accounts receivable turnover (beginning receivables at January 1, 2007, were $47,000)e. Average number of
Vertical analysisRequiredUse the financial statements for Thorn Company from Problem 9-22 to perform a vertical analysis of both the balance sheets and income statements for 2008 and 2007.
The following information relates to Best Buy Company and Circuit City Stores, Inc., for their 2007 and 2006 fiscal years.Requireda. Compute the following ratios for the companies' 2007 fiscal years:(1) Current ratio.(2) Average number of days to sell inventory. (Use average inventory.)(3) Debt to
Presented here are selected data from the 10-K reports of four companies for the 2007 fiscal year. The four companies in alphabetical order are:1. AT&T, a large telecommunications company.2. Deere & Co., a manufacturer of heavy machinery.3. Dollar General Corporation, a company that owns and
To complete the requirements below you will need to obtain Whirlpool’s income statements for 2005 and 2006, and its balance sheets for 2004, 2005, and 2006. The easiest way to obtain these income statements is to retrieve the company’s 2006 and 2005 Form 10-Ks. To obtain the Form 10-Ks you can
The following table provides the net earnings, total assets, and total liabilities for four companies from two different industries. The data are for the fiscal years ending in 2006. All numbers are millions of dollars.Requireda. Briefly explain which company appears to be using its assets most
J. Talbot is the accounting manager for Kolla Waste Disposal Corporation. Kolla is having its worst financial year since its inception. The company is expected to report a net loss. In the midst of such bad news, Ms. Talbot surprised the company president, Mr. Winston, by suggesting that the
Identify the primary qualities of revenues and costs that are relevant for decision making.
Are variable costs always relevant? Explain.
Describe the relationship between relevance and accuracy.

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