At the end of January, Mineral Labs had an inventory of 925 units
1. At the end of January, Mineral Labs had an inventory of 925 units, which cost $9 per unit to produce. During February, the company produced 1,650 units at a cost of $13 per unit.
a. If the firm sold 2,350 units in February, what was the Cost of Goods Sold? (Assume LIFO)
b. If the firm sold 2,350 units in February, what was the Cost of Goods Sold? (Assume FIFO)
3. The Bradley Corporation produces a product with the following costs as of July 1, 2014:
Material $ 4 per unit
Labor 2 per unit
Overhead 2 per unit
Beginning inventory at these costs on July 1 was 4,150 units. From July 1 to December 1, 2014, Bradley produced 14,300 units. These units had a material cost of $5, labor of $4, and overhead of $5 per unit. Bradley uses LIFO inventory accounting.
a. Assuming that Bradley sold 17,600 units during the last six months of the year at $19 each, what is its gross profit?
Gross profit
b. What is the value of ending inventory?
ending inventory
5. The Volt Battery Company has forecast sales in units as follows:
January 1,700 May 2,250
February 1,550 June 2,400
March 1,500 July 2,100
April 2,000
Volt Battery Company keeps an ending inventory equal to 110% of the next months expected sales. The ending inventory for December (January's beginning inventory) is 1,860 units, which is consistent with this policy.
Materials cost $12 per unit and are paid for in the month after purchase. Labor cost is $5 per unit and is paid in the month the cost is incurred. Overhead costs are $10,500 per month. Interest of $8,900 is scheduled to be paid in March, and employee bonuses of $14,100 will be paid in June.
a. Prepare a monthly production schedule for January through June.
Jan Feb Mar Apr May June
Projected unit sales
Desired ending inventory
Total units required
Beginning Inventory
Units to be Produced
b.
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| Summary Of Cash Payments | |||||||
| December | January | February | March | April | May | June | |
| Units produced | |||||||
| Payments: | |||||||
| Material cost | $ | $ | $ | $ | $ | $ | |
| Labor cost | |||||||
| Overhead cost | |||||||
| Interest | |||||||
| Employee bonuses | |||||||
| Total cash payments | $ | $ | $ | $ | $ | $ | |
8.
The Hartnett Corporation manufactures baseball bats with Pudge Rodriguez’s autograph stamped on them. Each bat sells for $49 and has a variable cost of $26. There are $37,950 in fixed costs involved in the production process. |
| a. | Compute the break-even point in units. |
| Break-even point | units |
| b. | Find the sales (in units) needed to earn a profit of $19,320. |
| Sales quantity needed | units |
14.
Dickinson Company has $12,100,000 million in assets. Currently half of these assets are financed with long-term debt at 10.5 percent and half with common stock having a par value of $8. Ms. Smith, Vice-President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 10.5 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. |
Under Plan D, a $3,025,000 million long-term bond would be sold at an interest rate of 12.5 percent and 378,125 shares of stock would be purchased in the market at $8 per share and retired. |
Under Plan E, 378,125 shares of stock would be sold at $8 per share and the $3,025,000 in proceedswould be used to reduce long-term debt. |
| a. | How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.) |
| Current Plan | Plan D | Plan E | |
| Earnings per share | $ | $ | $ |
| b-1. | Compute the earnings per share if return on assets fell to 5.25 percent. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) |
| Current Plan | Plan D | Plan E | |
| Earnings per share | $ | $ | $ |
| b-2. | Which plan would be most favorable if return on assets fell to 5.25 percent? Consider the current plan and the two new plans. | |||
|
| b-3. | Compute the earnings per share if return on assets increased to 15.5 percent. (Round your answers to 2 decimal places.) |
| Current Plan | Plan D | Plan E | |
| Earnings per share | $ | $ | $ |
| b-4. | Which plan would be most favorable if return on assets increased to 15.5 percent? Consider the current plan and the two new plans. | |||
|
| c-1. | If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assume that $3,025,000 million in debt will be used to retire stock in Plan D and $3,025,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 10.5 percent. (Round your answers to 2 decimal places.) |
| Current Plan | Plan D | Plan E | |
| Earnings per share | $ | $ | $ |
| c-2. | If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive? | |||
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15.
The Lopez-Portillo Company has $12.3 million in assets, 70 percent financed by debt, and 30 percent financed by common stock. The interest rate on the debt is 8 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $26.5 million in assets. |
| a. | If EBIT is 9 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. (Round your answers to 2 decimal places.) |
| Earnings Per Share | |
| Current | $ |
| Plan A | $ |
| Plan B | $ |
| b. | What is the degree of financial leverage under each of the three plans? (Round your answers to 2 decimal places.) |
| Degree Of Financial Leverage | |
| Current | |
| Plan A | |
| Plan B |
| c. | If stock could be sold at $20 per share due to increased expectations for the firm’s sales and earnings, what impact would this have on earnings per share for the two expansion alternatives? Compute earnings per share for each. (Round your answers to 2 decimal places.) |
| Earnings Per Share | |
| Plan A | $ |
| Plan B | $ |
16.
| Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows: |
| Sales | $ | 5,500,000 |
| Variable costs (50% of sales) | 2,750,000 | |
| Fixed costs | 1,850,000 | |
| Earnings before interest and taxes (EBIT) | $ | 900,000 |
| Interest (10% cost) | 300,000 | |
| Earnings before taxes (EBT) | $ | 600,000 |
| Tax (40%) | 240,000 | |
| Earnings after taxes (EAT) | $ | 360,000 |
| Shares of common stock | 250,000 | |
| Earnings per share | $ | 1.44 |
The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). In order to expand the facilities, Mr. Delsing estimates a need for $2.5 million in additional financing. His investment banker has laid out three plans for him to consider: 1.Sell $2.5 million of debt at 13 percent. 2.Sell $2.5 million of common stock at $20 per share. 3.Sell $1.25 million of debt at 12 percent and $1.25 million of common stock at $25 per share. Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,350,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1.25 million per year for the next five years. |
| a. | The break-even point for operating expenses before and after expansion (in sales dollars). (Enter your answers in dollars not in millions, i.e, $1,234,567.) |
| Break-Even Point | |
| Before expansion | $ |
| After expansion | $ |
| b. | The degree of operating leverage before and after expansion. Assume sales of $5.5 million before expansion and $6.5 million after expansion. Use the formula: DOL = (S − TVC) / (S − TVC − FC).(Round your answers to 2 decimal places.) |
| Degree of Operating Leverage | |
| Before expansion | |
| After expansion | |
| c-1. | The degree of financial leverage before expansion. (Round your answers to 2 decimal places.) |
| Degree of financial leverage |
| c-2. | The degree of financial leverage for all three methods after expansion. Assume sales of $6.5 million for this question. (Round your answers to 2 decimal places.) |
| Degree of Financial Leverage | |
| 100% Debt | |
| 100% Equity | |
| 50% Debt & 50% Equity | |
| d. | Compute EPS under all three methods of financing the expansion at $6.5 million in sales (first year) and $10.5 million in sales (last year).(Round your answers to 2 decimal places.) |
Earnings per share | ||
| First year | Last year | |
| 100% Debt | $ | $ |
| 100% Equity | ||
| 50% Debt & 50% Equity | ||
17.
Sinclair Manufacturing and Boswell Brothers Inc. are both involved in the production of brick for the homebuilding industry. Their financial information is as follows: |
| Sinclair | Boswell | ||||
| Capital Structure | |||||
| Debt @ 12% | $ | 780,000 | 0 | ||
| Common stock, $10 per share | 520,000 | $ | 1,300,000 | ||
| Total | $ | 1,300,000 | $ | 1,300,000 | |
| Common shares | 52,000 | 130,000 | |||
| Operating Plan: | |||||
| Sales (53,000 units at $25 each) | $ | 1,325,000 | $ | 1,325,000 | |
| Variable costs | 954,000 | 636,000 | |||
| Fixed costs | 0 | 303,000 | |||
| Earnings before interest and taxes (EBIT) | $ | 371,000 | $ | 386,000 | |
| The variable costs for Sinclair are $18 per unit compared to $12 per unit for Boswell. |
| a. | If you combine Sinclair’s capital structure with Boswell’s operating plan, what is the degree of combined leverage? (Round your answer to 2 decimal places.) |
| Degree of combined leverage |
| b. | If you combine Boswell’s capital structure with Sinclair’s operating plan, what is the degree of combined leverage? (Round your answer to the nearest whole number.) |
| Degree of combined leverage |
| c. | In part b, if sales double, by what percentage will EPS increase? (Round your answer to the nearest whole percent.) |
| EPS will increase by | % |
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Rating:
/5
Solution: At the end of January, Mineral Labs had an inventory of 925 units