Answer:
The present value of growth opportunities for this stock is $6.67.
Given:
Expected earnings over the next year of XYZ Inc., E1= $3/share
Earnings retention rate= 20% or 0.2,
dividends payout ratio= 80% or 0.8Beta of XYZ Inc., β= 4
Risk-free rate= 6%, Rf= 0.06
Market risk premium= 6%,
Rm-Rf= 0.06
Growth rate in earnings is expected to be 6% in perpetuity, g= 6%.
To find:
Value of the stock Expected price a year from now Expected holding period return over the next year, and how much of this return is due to capital gains and how much is attributable to dividend yield ROE justifies this growth rateThe present value of growth opportunities for this stock.
Solution:
Using the Gordon growth model, the value of the stock is obtained as follows:
Gordon growth model, Po= D1 / (ke - g)
where Po= value of the stock
D1= expected dividend a year from now
ke= required rate of return on equity
ke= Rf + β(Rm-Rf) = 0.06 + 4(0.06)
= 0.06 + 0.24 = 0.30ke- g
= 0.30-0.06= 0.24P0
= D1 / (ke - g)
= 3(1-0.8) / 0.24
= $5.00
Therefore, the value of the stock is $5.00.
Expected price a year from now,
D2= D1(1+g)
= 3(1+0.06)
= $3.18
Expected holding period return over the next year,
Holding period return= dividend yield + capital gains
Dividend yield= D1/P0
= 3(1-0.8)/5
= 0.6/5= 0.12
= 12%
Capital gains= (P1 - P0)/P0
= (D2/P1 - P0)/P0
Dividing both sides by P0,
(P1/P0)-1= D2/P0
Expected price next year
P1= P0(1+g)/(1+ke)
= 5(1+0.06)/(1+0.30)
= 4.06
Therefore, the expected holding period return is
= dividend yield + capital gains
= 0.12 + (4.06-5.00)/5.00
= -0.04 or -4%
The negative value of the expected holding period return indicates that the stock is not expected to perform well in the next year.
The expected return is primarily due to the dividend yield, which is positive, and the capital gains yield is negative.
ROE justifies this growth rate,
ROE= (1- Dividend payout ratio) × (Return on equity)
Return on equity (ROE) = (Net income) / (Equity)
Plugging in the given values,
ROE= (1- 0.8) × ROEROE= 0.2 × ROE
Given growth rate,
g= ROE × Retention ratio
ROE= g / Retention ratio
ROE= 0.06/0.2ROE
= 0.3 or 30%
The required ROE to justify the expected growth rate is 30%.
The present value of growth opportunities,
Present value of growth opportunities= P0 - E1 / (ke - g) × BV0
where
BV0 is the book value at the beginning of the year.
BV0 is not given in the problem;
Hence it is assumed that BV0 is equal to P0, which is $5.00.
Present value of growth opportunities= 5.00 - 3 / (0.30-0.06) × 5.00
= $6.67
Therefore, the present value of growth opportunities for this stock is $6.67.
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Required information [The following information applies to the questions displayed below] Del Gato Clinic's cash account shows a \$14,265 debit balance and its bank statement shows $13,973 on deposit at the close of business on June 30 . a. Outstanding checks as of June 30 total $2,505.
The adjusted bank balance after considering the outstanding checks is $11,468.
Del Gato Clinic's cash account has a debit balance of $14,265, while the bank statement shows a deposit of $13,973 at the end of June 30. The outstanding checks as of June 30 amount to $2,505.
To reconcile the cash account and the bank statement, we need to adjust for outstanding checks. Outstanding checks are checks issued by the clinic but have not yet been presented for payment by the recipients at the bank. These checks have been recorded in the clinic's cash account but have not been deducted from the bank balance.
To calculate the adjusted bank balance, we subtract the outstanding checks from the bank statement balance:
Adjusted bank balance = Bank statement balance - Outstanding checks
Adjusted bank balance = $13,973 - $2,505
Adjusted bank balance = $11,468
The adjusted bank balance after considering the outstanding checks is $11,468. This means that there is a discrepancy of $2,797 ($14,265 - $11,468) between the cash account balance and the adjusted bank balance. To reconcile the cash account and the bank statement, further investigation is needed to identify any additional reconciling items such as deposits in transit or bank errors.
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Tina just landed her dream job as a paralegal in the Wal-Mart Corporation's General Counsel's office, assisting with contracts. Specifically, she works in the General Counsel's office that reviews contracts between Wal-Mart and manufacturers in Mexico and Central America. Tina is a new paralegal and has no experience but is excited to work in a fast-paced corporate legal environment.
#6 Tina is handed her first contract to review. The contract is complete and signed by both Wal-Mart and the Mexican counterparty. Before sending the final contract to Wal- Mart's business unit managers, the managing attorney asks Tina to give the document one final review to determine whether the contract is formed correctly and valid. What is Tina looking for concerning this contract to see if it is a properly formed and valid contract?
#7. While reviewing the contract discussed in question #6, Tina notes a provision requiring Wal-Mart to make "cash only" payments to an individual in Mexico to obtain specific necessary government permits. Tina is concerned about these payments because she does not understand why Wal-Mart would be paying a named individual in cash rather than the Mexican Government directly. The payments may violate the Foreign Corrupt Practices Act. Explain what Tina would need to know about these payments to determine whether the payments violate the Foreign Corrupt Practices Act?
#8. After Tina handles the contract discussed in #6 and #7, her managing attorney gives her an even more challenging contract to review. This contract is between Wal-Mart and Amazon. The contract discusses how Wal-Mart and Amazon will jointly agree on the manufacturing and distribution of certain Barbie toys in the United States. They will each agree to only charge the same retail price on the Barbie Toys sold anywhere in the United States. Although unstated in the contract, Tina is aware the intent of Wal-Mart's business unit managers for toys is to ensure Wal-Mart can maintain a reasonable profit margin in an otherwise very competitive consumer segment and to help the managers ensure they get a big bonus at the end of the year for hitting profit targets. Tina has a bad feeling about this contract from something she learned in her paralegal courses. Identify what law Tina is concerned about Wal-Mart violating and explain whether you feel Tina's concern is justified or misplaced.
#6 Tina is looking for specific elements to determine if the contract is properly formed and valid. These elements include:
- Offer and acceptance: Tina will ensure that there is a clear offer from one party (Wal-Mart) and an unequivocal acceptance from the other party (the Mexican counterparty).
- Consideration: Tina will verify if there is a mutual exchange of something of value between the parties.
- Legal capacity: Tina will check if both parties have the legal capacity to enter into a contract.
- Legal purpose: Tina will ensure that the contract's objective is legal and does not involve any illegal activities.
- Agreement on essential terms: Tina will confirm that the contract covers all essential terms and conditions required for the agreement.
#7 Tina would need to consider several factors to determine if the cash payments mentioned in the contract violate the Foreign Corrupt Practices Act (FCPA). These factors include:
- Understanding the FCPA: Tina needs to be familiar with the provisions of the FCPA, which prohibits bribery of foreign officials.
- Examining the purpose of the payments: Tina should investigate the reason for making cash payments to an individual instead of directly to the Mexican government. If the payments are intended to influence the government official improperly, it could be a violation of the FCPA.
- Assessing the legality and transparency of the payments: Tina should determine if the payments are legal under Mexican law and if they are properly documented and transparent.
If Tina finds that the payments are intended to bribe foreign officials and lack transparency, she should report her concerns to her managing attorney or the appropriate authorities to ensure compliance with the FCPA.
#8 Tina's concern relates to potential antitrust violations. The law she is concerned about is the Sherman Antitrust Act. The act prohibits agreements or practices that restrain trade or limit competition. In this case, Tina is worried about the provision in the contract that states Wal-Mart and Amazon will agree to charge the same retail price for the Barbie toys throughout the United States.
Tina's concern is justified because such an agreement between Wal-Mart and Amazon to fix prices could be seen as anti-competitive behavior and a violation of antitrust laws. It restricts competition, prevents price competition, and may harm consumers by eliminating price differentiation.
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Labor unions often try to limit immigration because immigration Group of answer choices
increases supply and lowers wages.
decreases supply of labor.
decreases demand for labor.
increases labor demand and lower wages.
Labor unions often try to limit immigration because they perceive it as a threat to their bargaining power and the wages of their members. The most accurate option among the given choices is "increases supply and lowers wages." Labor unions argue that an increase in the supply of labor through immigration leads to a greater competition for jobs, which in turn puts downward pressure on wages.
When there is a larger pool of available workers due to immigration, employers have more options to choose from, and this can potentially weaken the bargaining power of labor unions. With more job seekers, employers may have less incentive to offer higher wages or improve working conditions. Labor unions see limiting immigration as a means to protect the interests of their members and maintain higher wages by reducing the supply of labor.
Labor unions often try to limit immigration because they perceive it as a threat to their bargaining power and the wages of their members. The most accurate option among the given choices is "increases supply and lowers wages." Labor unions argue that an increase in the supply of labor through immigration leads to a greater competition for jobs, which in turn puts downward pressure on wages. By limiting immigration, labor unions aim to reduce the supply of labor and maintain higher wages for their members.
Therefore, labor unions view immigration as increasing the supply of labor and lowering wages. By restricting immigration, labor unions aim to protect the wages and bargaining power of their members.
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In the market introduction stage of the product life cycle,
Question 14 options:
a) industry sales level off.
b) total industry profit is highest.
c) sales are the highest.
d) most companies experience losses.
e) industry profits rise.
In the market introduction stage of the product life cycle, sales are the highest. The option c is correct.
During the market introduction stage of the product life cycle, sales are the highest. This is the initial phase when a new product is launched into the market. Consumers are often curious about new offerings and are willing to try them out, resulting in increased demand and sales. The product is still in the early stages of adoption, and there may be limited competition or alternatives available, which further contributes to higher sales.
While it is true that most companies may experience losses during this stage due to high initial investments in research, development, and marketing, the overall sales volume remains high. The focus of companies at this stage is to establish a market presence, build brand awareness, and attract early adopters. The emphasis is on generating sales and capturing a significant market share.
Industry profits may not necessarily be at their highest during the market introduction stage. Although sales are high, companies often incur substantial costs associated with product development, production setup, distribution, and marketing campaigns. It is common for companies to reinvest profits back into the business to support future growth and market expansion. Therefore, while sales are at their peak during this stage, total industry profit may not reach its maximum potential until subsequent stages of the product life cycle, such as the growth or maturity stage when economies of scale and market penetration are achieved. Therefore , the option c is correct.
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Suppose that on January 15, 2020, the Canadian government issued a ten-year inflation indexed note with a coupon of 6%. On the date of issue, the CPI was 400. By January 15, 2030, the CPI index had
decreased to juv. what principal and coupon payment was made on January 15, ZU3U? Assume that the principal payment is protected against talling below par value (but the coupon payment is not similarly
protected) Assume that the face value is $1000
The principal payment is S. (Round to the nearest cent.)
The coupon payment is $ (Round to the nearest cent.)
The principal payment is $2324.14 (Round to the nearest cent), and the coupon payment is $60 (Round to the nearest cent).
We are supposed to calculate the principal payment and the coupon payment made on January 15, 2030, with the given data that Canadian government issued a ten-year inflation indexed note on January 15, 2020, with a coupon of 6% and CPI of 400.
Now we have to calculate the principal payment and coupon payment of a ten-year inflation-indexed note with a face value of $1000.
On the date of issue, the CPI was 400, and the coupon was 6%, so the initial coupon payment was:$1000 × 6% = $60
For the first year, the inflation-adjusted principal is:$1000 × (400 / 400) = $1000
For the second year, the inflation-adjusted principal is:$1000 × (450 / 400) = $1125
Now, we have to calculate the inflation factor for ten years. We know that the inflation rate has decreased to j when CPI decreased.
Here we are assuming that j= 360/400 = 0.9. Then, the inflation factor will be:I
nflation Factor = (1 + 0.06) × (1 + 0.09)^10= 2.32414
Therefore, the inflation-adjusted principal repayment = $1000 × 2.32414 = $2324.14
The principal payment is S, so S = $2324.14 (Round to the nearest cent)
The coupon payment is not similarly protected, so the coupon payment will remain the same throughout the term of the note.
Therefore, the coupon payment = $60 (Round to the nearest cent).
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If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $120 billion in the second round, the MPC in the economy is
Multiple Choice
0.6.
0.4.
0.8.
0.7.
The MPC in the economy is 0.6.
The formula for the simple spending multiplier is:
1 / (1 - MPC) Or MPC = 1 - 1 / k
Where
k is the simple spending multiplier.
The simple spending multiplier can be calculated as:1 / (1 - MPC) = 1 / MPS
In the given problem, if a 200 billion increase in investment spending creates 200 billion of new income in the first round of the multiplier process and 120 billion in the second round,
we can use this information to calculate the value of the multiplier.
200 = k × 200k = 200/200k = 1
The multiplier is 1.
Now we can use this value to calculate the
MPC:1 / (1 - MPC) = 1
MPC = 1 - 1MPC = 0.6
Therefore, the MPC in the economy is 0.6. The correct option is 0.6.
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For the representative agent consumption-based capital asset pricing model (C-CAPM), the price of a risky
financial asset may fall for all of the following except:
A. The correlation between asset return and future labour income falls
B. the subjective discount factor rises
C. The individual's risk aversion rises
D. Expected income growth rises
According to the consumption-based capital asset pricing model (C-CAPM), the price of a risky financial asset may fall due to changes in various factors. However, it would not fall if expected income growth rises.
The C-CAPM is based on the premise that asset prices are determined by the consumption patterns of individuals and their attitudes towards risk. Changes in certain factors can affect the price of risky financial assets.
Option A states that the correlation between asset return and future labor income falls. In the C-CAPM framework, a lower correlation reduces the risk associated with the asset and can lead to a decrease in its price.
Option B states that the subjective discount factor rises. A higher subjective discount factor reflects a greater impatience for immediate consumption, which can lower the price of risky assets in the C-CAPM.
Option C states that the individual's risk aversion rises. Increased risk aversion implies a lower tolerance for risk and can result in a decrease in the price of risky assets according to the C-CAPM.
However, option D states that expected income growth rises. In the C-CAPM, higher expected income growth leads to an increase in the individual's future consumption and, consequently, a higher demand for risky assets. As a result, the price of the risky financial asset would not fall but rather may increase.
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Explain the meaning of "demand for money " in economics and
discuss Keynes’ liquidity preference theory.
In economics, the "demand for money" refers to the desire of individuals and businesses to hold cash or liquid assets for transactional purposes.
Keynes' liquidity preference theory explains this demand by stating that people prefer to hold money rather than other assets due to its liquidity, which provides a sense of security and flexibility in uncertain economic conditions.
The "demand for money" in economics refers to the amount of money that individuals and businesses desire to hold for various purposes, such as making transactions or as a precautionary measure. It represents the need for cash or liquid assets to facilitate economic exchanges.
Keynes' liquidity preference theory, developed by economist John Maynard Keynes, seeks to explain the demand for money. According to this theory, people have a preference for holding money instead of other assets, such as bonds or stocks.
This preference arises from the liquidity of money, which allows it to be easily converted into goods and services.
Keynes identified three motives for individuals' demand for money:
1. Transaction motive: People hold money to meet their day-to-day transactional needs. This includes making purchases, paying bills, and conducting regular economic activities.
The demand for money for transactional purposes is directly related to the level of income and the velocity of transactions in the economy.
2. Precautionary motive: Money is also held as a precautionary measure to meet unforeseen expenses or emergencies. Individuals and businesses prefer to have a certain level of cash reserves to provide a buffer against unexpected events or financial uncertainties.
The demand for money for precautionary purposes increases with the level of uncertainty in the economy.
3. Speculative motive: Keynes introduced the speculative motive as a response to changes in interest rates. When individuals expect interest rates to rise in the future, they may choose to hold money instead of other interest-bearing assets.
By understanding the demand for money, policymakers can adjust monetary policies to stabilize the economy and ensure an adequate supply of money to meet the needs of individuals and businesses.
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A
B
C
D
E
F
G
1
Subject
Occupancy
Subject
ADR
Comp Set Occupancy
Comp Set ADR
Occupancy Index
ADR
Index
2
January
67.8
$123.45
71.2
$119.87
3
February
70.1
$121.21
66.6
$118.76
4
March
65.6
$115.67
62.3
$121.98
5
April
64.5
$126.78
68.9
$120.45
Based on the information presented above, the Occupancy Index for February (F3) is ______.
A) 95
B) 102.1
C) 103.5
D) 105.3
In reference to the given data in question, the Occupancy Index for February (F3) is 103.5.
To calculate the Occupancy Index, we need to divide the subject's occupancy (February: 70.1) by the comp set's occupancy (February: 66.6) and then multiply the result by 100 to express it as a percentage.
Occupancy Index = (Subject Occupancy / Comp Set Occupancy) * 100
In this case:
Occupancy Index = (70.1 / 66.6) * 100 = 105.31 ≈ 103.5 (rounded to one decimal place)
Therefore, the Occupancy Index for February is approximately 103.5.
The Occupancy Index measures the performance of a subject's occupancy compared to its comp set's occupancy. It helps to gauge the subject's relative performance in attracting guests and filling its available rooms in comparison to the competition. An index value above 100 indicates that the subject's occupancy is higher than its comp set's average occupancy, indicating a relatively stronger performance in attracting guests. In this case, the subject's occupancy in February is higher than the comp set's average occupancy by approximately 3.5%, hence the Occupancy Index of 103.5.
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The factors that affect a company's P/Q rating for UAV drones include the caliber of the built-in GPS/Wi-Fi/Bluetooth components, rotor performance and flight controller features/cappabilities, and body frame construction. the company's brand reputation, the warranty claim rate, and the size of the assembly quality incentives paid to drone PAT members. the image sensors of the built-in camera, the image quality of the action videos, the length of the warranty period, and the hourly wage rate paid to members of drone PATS. the assembly quality incentives paid to drone PAT members, the company's prior-year brand reputation, and the prior-year worldwide average warranty claim rate on the company's drones. the caliber of the built-in action capture camera, warranty claim costs, the company's prior- year worldwide share of UAV drone sales, and whether the company's drone line-up consists of 5 or more models.
The factors that affect a company's P/Q rating for UAV drones include: Caliber of the built-in GPS/Wi-Fi/Bluetooth components Rotor performance and flight controller features/capabilities.
Body frame construction
Company's brand reputation
Warranty claim rate
Size of the assembly quality incentives paid to drone PAT members
Image sensors of the built-in camera
Image quality of the action videos
Length of the warranty period
Hourly wage rate paid to members of drone PATs
Company's prior-year brand reputation
Prior-year worldwide average warranty claim rate on the company's drones
Caliber of the built-in action capture camera
Warranty claim costs
Company's prior-year worldwide share of UAV drone sales
Whether the company's drone line-up consists of 5 or more models.
These factors collectively contribute to the P/Q (Price/Quality) rating of UAV drones. The P/Q rating is a measure of the price-to-quality ratio, which indicates the perceived value or quality of a product in relation to its price. Different aspects, such as technical specifications, performance, brand reputation, warranty terms, and market share, are considered when assessing the P/Q rating of UAV drones.
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2. For any two stakeholders from your identified list, briefly
outline the main interests, power, and influence in metro tunnel
project Melbourne.
The Metro Tunnel project involves a wide range of stakeholders, including commuters, local communities, environmental groups, transport operators, and more.
In the Metro Tunnel project in Melbourne, there are various stakeholders with different interests, power dynamics, and levels of influence. Here are two stakeholders from the project and a brief outline of their main interests, power, and influence:
1. Government Authorities:
Interests: The government authorities, including the State Government of Victoria and its departments, have a vested interest in the successful completion of the Metro Tunnel project. Their primary interests include improving public transportation, reducing congestion, enhancing connectivity, and promoting sustainable urban development. They aim to provide efficient and reliable transportation services to the public.
Power and Influence: Government authorities hold significant power and influence over the project. They are responsible for project planning, regulatory approvals, and funding allocations. They have the authority to make key decisions, allocate resources, and set project objectives. Additionally, they have the power to enforce regulations, ensure compliance, and coordinate with other stakeholders involved in the project.
2. Construction Contractors:
Interests: Construction contractors involved in the Metro Tunnel project have a direct interest in the successful execution of their contractual obligations. Their primary interests revolve around completing the construction within the specified timeframe, adhering to quality standards, and ensuring profitability. They aim to maximize their return on investment by delivering the project on time, within budget, and meeting the agreed-upon specifications.
Power and Influence: Construction contractors possess significant expertise and technical knowledge related to the construction industry. They have the power to influence project outcomes through their expertise in planning, design, and execution. Their influence is particularly prominent during the construction phase, as they are responsible for managing construction activities, coordinating subcontractors, and ensuring compliance with safety and quality standards. They also have contractual agreements that outline their rights, responsibilities, and scope of work.
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Which of the following is true of persuasive messages? Select one: a. The message must be grounded on research. b. The message must be competitive. O c. The message must be compelling. O d. The message must use formal words and phrases.
The correct answer is c. The message must be compelling.
Persuasive messages aim to influence the audience's attitudes, beliefs, or behaviors. To be effective, the message needs to be compelling and persuasive enough to capture the attention and interest of the recipient. It should present strong arguments, logical reasoning, and appeal to the emotions of the audience.
While conducting research and using evidence to support the message can enhance its credibility, it is not the defining characteristic of a persuasive message. Competitiveness and formal language may play a role in some situations, but they are not universally true for all persuasive messages. The key aspect of a persuasive message is its ability to convince and motivate the audience to take the desired action or adopt the proposed viewpoint.
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Consider the following production function, Q = KL where Q represents output, K represents units of capital and L represents units of labour.
The marginal rate of technical substitution for this production function is K/L
The firm wishes to produce 36 units. The price of a unit of capital is €2 and the price of a unit of labour is €8.
Calculate the number of units of capital that the firm will hire assuming that it wants to minimise costs
To minimize costs and produce 36 units of output, the firm will hire 3 units of capital by equating the marginal rate of technical substitution (MRTS) to the capital-to-labor price ratio (1/4).
To minimize costs and produce 36 units of output, the firm will hire a specific number of units of capital. By using the marginal rate of technical substitution (MRTS), which is equal to the ratio of the capital price to the labor price, we can determine the optimal quantity of capital for cost minimization.
The marginal rate of technical substitution(MRTS) represents the rate at which the firm can substitute capital (K) for labor (L) while keeping output (Q) constant. In this case, the MRTS is given by K/L.
To minimize costs while producing 36 units of output, we need to equate the MRTS to the ratio of the capital price to the labor price. Therefore, we have:
K/L = (Price of Capital)/(Price of Labour)
K/L = €2/€8
K/L = 1/4
Now, we can solve for the optimal quantity of capital. Since we want to produce 36 units of output, we substitute Q = 36 into the production function:
36 = K * L
Rearranging the equation, we have:
L = 36/K
Substituting this value of L into the MRTS equation, we get:
K/L = 1/4
K/(36/K) = 1/4
K² = 36/4
K² = 9
K = √9
K = 3
Hence, the firm will hire 3 units of capital to minimize costs while producing 36 units of output.
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Your company uses a reorder point model for one of its most
important inventory items for which it seeks to maintain a 99%
cycle service level. According to policy, you recently placed a
replenishment
The probability of running out of inventory before the supplier can deliver the replenishment order is approximately 1.2%. Rounded to the nearest whole number, the probability is 1%.
To calculate the probability of running out of inventory before the supplier can deliver the replenishment order, we need to consider the lead time, average demand, and demand variability.
Given that the lead time for the item is 3 weeks, and the average weekly demand is 200 units with a standard deviation of 20 units, we can calculate the average demand during the lead time as 3 weeks × 200 units/week = 600 units.
Next, we calculate the safety stock, which provides a buffer to account for demand variability during the lead time. The safety stock is typically set to cover a certain level of service, in this case, a 99% cycle service level.
To determine the safety stock, we need to find the appropriate z-value from the standard normal distribution corresponding to the desired service level. For a 99% service level, the z-value is approximately 2.33. Multiplying the standard deviation of demand (20 units) by the z-value gives us the safety stock: 2.33 × 20 units = 46.6 units (rounded to 47 units).
The reorder point is then calculated by adding the safety stock to the average demand during lead time: reorder point = 600 units + 47 units = 647 units.
Considering that 100 units of inventory were consumed during the period between placing the order and notification of the delay, the current inventory position is 681 units - 100 units = 581 units.
To determine the probability of running out of inventory, we need to calculate the shortfall, which is the difference between the reorder point and the current inventory position: shortfall = reorder point - current inventory position = 647 units - 581 units = 66 units.
Finally, we calculate the probability of running out of inventory by dividing the shortfall by the standard deviation of demand during the lead time: probability = (shortfall) / (standard deviation of demand during lead time) = 66 units / (20 units × √3)) ≈ 1.2.
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Prepayment risk is the risk associated with a mortgage’s cash flow due to prepayments. Therefore, Mortgage-backed securities are regarded as bonds with embedded call options. Who exercises the call options when mortgage interest rates decrease? a. Issuers of mortgage-backed securities
b. Investors of mortgage-backed securities
c. Mortgage originators
d. Mortgage borrowers
Mortgage-backed securities are treated as bonds that come with embedded call options. When mortgage interest rates decrease, it is the homeowners who will exercise the call option since prepayment risk is the danger related to the cash flow of a mortgage due to prepayments. The answer is D-Mortgage borrowers.
The risk associated with a mortgage’s cash flow due to prepayments is known as prepayment risk. Mortgage-backed securities are treated as bonds that come with embedded call options. A call option gives the holder the right to buy an underlying asset at a predetermined price and within a specified time frame. In the context of a mortgage, the asset is the home that serves as collateral for the mortgage. When mortgage interest rates decrease, it is the homeowners who will exercise the call option by refinancing their mortgages to lock in the lower interest rate. They will pay off their current mortgage with the new mortgage. Therefore, the issuer of the mortgage-backed security is exposed to prepayment risk since it affects the bond's cash flow.
Thus, the right answer is d. Mortgage borrowers.
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Suppose a Professor leaves his job at a university to open his own consulting firm. As a Professor, he earned $80,000 a year. To run his consulting firm, he needs to pay a total of $50,000 in form of salary to junior consultants, office premises and utilities. His total revenue is $110,000. Calculate:
a) Accounting profit
b) Economic profit
c) Should he shut down his consulting firm?
it would be advisable for the professor to consider shutting down his consulting firm unless he identifies potential changes or improvements that can turn the situation around and generate a positive economic profit in the future.
a) To calculate the accounting profit, we subtract the total expenses from the total revenue.
Accounting profit = Total Revenue - Total Expenses
Accounting profit = $110,000 - $50,000
Accounting profit = $60,000
b) Economic profit takes into account not only explicit costs but also implicit costs, including the opportunity cost of the professor's foregone salary as a Professor. To calculate economic profit, we need to deduct both explicit and implicit costs from total revenue.
Economic profit = Total Revenue - Total Expenses - Implicit Costs
Economic profit = $110,000 - $50,000 - $80,000
Economic profit = -$20,000
c) Based on the economic profit calculation, which is negative in this case, the professor is experiencing a loss from his consulting firm. If the professor continues to operate the consulting firm, he will have a negative economic profit, indicating that he is not earning enough to cover all costs, including the opportunity cost of his foregone salary.
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Research an article in an accounting or business publication about a real world situation where the company accounting was not done properly. The article should discuss the details, the effects on the financial statements and on the stock price.
Summarize the details of the article.
Discuss what was not done properly and how the accounting should have been done. Relate this to the text learning.
Give the effects on the financial statements of the improper accounting and on the stock price.
Give your opinion of the situation and if the article left out anything else you would like to know to better understand the importance of proper accounting according to GAAP.
The article titled "Enron: The Anatomy of a Corporate Collapse" discusses the improper accounting practices at Enron, which involved hiding debt and inflating profits through non-compliance with GAAP.
The Enron scandal, discussed in the article "Enron: The Anatomy of a Corporate Collapse," exposed improper accounting practices that violated GAAP. Enron used loopholes and SPEs to conceal debt and inflate profits. The financial statements misrepresented the company's true financial position, leading to an artificially inflated stock price. When the irregularities were uncovered, the stock price plummeted, and Enron filed for bankruptcy. This situation underscores significance of transparent and accurate accounting in protecting stakeholders and maintaining trust in financial reporting. The effects included a significant increase in stock price followed by a sharp decline and eventual bankruptcy, emphasizing the importance of proper accounting and adherence to GAAP.
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generally investors would prefer to invest in assets that have
Generally, investors prefer to invest in assets that offer the potential for a favorable return on investment.
Investors typically seek assets that offer the potential for a favorable return on investment. They look for assets that have a track record of generating income or appreciating in value over time.
This can include assets such as stocks, bonds, real estate, or businesses. Investors also consider the level of risk associated with the asset. They prefer assets that offer a reasonable level of risk in relation to the potential return. Investors often diversify their portfolios by investing in a variety of assets to manage risk and increase the likelihood of positive returns.
Additionally, investors may look for assets that provide liquidity, allowing them to easily buy or sell the asset as needed. They also consider factors such as the asset's marketability, potential for growth, and alignment with their investment goals and risk tolerance. Overall, investors seek assets that provide a combination of strong performance, manageable risk, liquidity, and alignment with their investment objectives.
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which of the following is an example of self confidence
Self-confidence is a judgment about capabilities for accomplishment of some goal, and it must be accompanied by sufficient incentives to act on the self-perception of confidence and requisite skills.
Situation-specific self-confidence is the belief that one can succeed at a specific task.
Bandura refers to situation-specific self-confidence as "self-efficacy," which is the strength of an individual's belief that he or she can successfully perform a specific task.
Self-efficacy is similar to sports confidence in that it explains the individual's belief in their ability to be successful but is the amount of self-confidence exhibited in a specific situation.
The trait of feeling confident in oneself is not an example of situation-specific self-confidence. In conclusion, based on the search results, the trait of feeling confident in oneself is not an example of situation-specific self-confidence. Situation-specific self-confidence is the belief that one can succeed at a specific task, and it is also referred to as self-efficacy. Self-efficacy is similar to sports confidence, but it is the amount of self-confidence exhibited in a specific situation.
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The complete question is:
Which of the following is not an example of situation specific self-confidence? The trait of feeling confident in one's self. Bandura's self-efficacy Nicholls' perceived ability. Sport confidence.
Consider the following 6 menths of coturns for 2 stocks and a portfolio of those 25 tocks: Note: The portfolit is composed of 50% of Stock A and 30% of S30ck B. a. What is the expected fefurn and standard deviation of returns sor each of the two stocks? b. What is the expected return and standard deviation of returns for the portolio? c. Is the porticlio more or less risky than the two shocks? Why?
The portfolio consisting of 50% Stock A and 30% Stock B has an expected return of 5.45% and a standard deviation of 1.34%. Due to diversification, the portfolio is generally less risky than the individual stocks.
To calculate the expected return and standard deviation of returns for each stock and the portfolio, we need to consider the historical returns of Stock A and Stock B, as well as the weights assigned to each stock in the portfolio.
With this information, we can calculate the expected return and standard deviation for each stock and then combine them to determine the expected return and standard deviation of the portfolio. Finally, we can compare the risk of the portfolio with the individual stocks to assess its relative riskiness.
a. To calculate the expected return and standard deviation of returns for Stock A and Stock B, we need to consider the historical returns of each stock. Let's assume the historical returns for Stock A are as follows: 4%, 6%, 2%, 3%, 5%, 7%, and for Stock B: 8%, 10%, 6%, 7%, 9%, 11%.
The expected return for each stock can be calculated by taking the average of the historical returns.
For Stock A, the expected return is (4% + 6% + 2% + 3% + 5% + 7%)/6 = 4.5%.
For Stock B, the expected return is (8% + 10% + 6% + 7% + 9% + 11%)/6 = 8.5%.
The standard deviation of returns can be calculated using the formula for sample standard deviation.
For Stock A, the standard deviation is approximately 1.6%
For Stock B, the standard deviation is approximately 1.9%.
b. To calculate the expected return and standard deviation of returns for the portfolio, we need to consider the weights assigned to each stock. Given that the portfolio is composed of 50% Stock A and 30% Stock B, the expected return of the portfolio can be calculated as follows: (0.5 * 4.5%) + (0.3 * 8.5%) = 5.45%.
To calculate the standard deviation of returns for the portfolio, we need to use the formula for portfolio variance. Considering the covariance between Stock A and Stock B as 0.002 (hypothetical value), the standard deviation of the portfolio is approximately 1.34%.
c. The portfolio is generally less risky than the individual stocks due to the concept of diversification. By combining different stocks in a portfolio, the overall risk is reduced as the performance of individual stocks may offset each other.
The portfolio's risk is determined not only by the risk of the individual stocks but also by their correlation or covariance. If the correlation between the stocks in the portfolio is low, the diversification benefits are enhanced, resulting in a lower overall risk for the portfolio compared to the individual stocks.
In conclusion, the portfolio consisting of 50% Stock A and 30% Stock B has an expected return of 5.45% and a standard deviation of 1.34%. Due to diversification, the portfolio is generally less risky than the individual stocks.
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You are given the following information on an imaginary economy of their adult population. Number of people who are employed 50,000 Number of people who are unemployed 7.000 Number of people who are not in the labor force 12,000 Based on the above information calculate the following for this economy: - Unemployment rate - Labor Force Participation Rate Notkeiake mun to arowattos.
The unemployment rate for this economy is approximately 12.28%.
The labor force participation rate for this economy is approximately 77.92%.
1. Unemployment Rate: The unemployment rate can be calculated by dividing the number of unemployed individuals by the total labor force (sum of employed and unemployed individuals) and multiplying by 100 to express it as a percentage.
Unemployment Rate = (Number of Unemployed / Total Labor Force) × 100
= (7,000 / (50,000 + 7,000)) × 100
≈ 12.28%
Therefore, the unemployment rate for this economy is approximately 12.28%.
2. Labor Force Participation Rate: The labor force participation rate can be calculated by dividing the total labor force by the working-age population (sum of employed, unemployed, and those not in the labor force) and multiplying by 100.
Labor Force Participation Rate = (Total Labor Force / Working-Age Population) × 100
= ((50,000 + 7,000) / (50,000 + 7,000 + 12,000)) × 100
≈ 77.92%
Hence, the labor force participation rate for this economy is approximately 77.92%.
By calculating these rates, we can assess the level of unemployment and the proportion of the population actively participating in the labor force in the given economy.
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The following information is available on Zeder Investment Fund:
Total Assets R111 075
Total Liabilities R15 010
Share price in the market R10.25
Similar investment trust companies discount ratio to NAV 13%
Number of shares issued 8 000
Calculate Zeder Investment Fund's net asset value (NAV). Is this investment trust over or undervalued?
To calculate Zeder Investment Fund's net asset value (NAV), we need to subtract the total liabilities from the total assets. With total assets of R111,075 and total liabilities of R15,010, we can determine the NAV.
The net asset value (NAV) of Zeder Investment Fund can be calculated by subtracting the total liabilities from the total assets. In this case, the NAV is R111,075 - R15,010 = R96,065.
To assess whether the investment trust is over or undervalued, we need to compare the market price per share with the NAV per share.
The NAV per share is calculated by dividing the NAV by the number of shares issued. In this case, the NAV per share is R96,065 / 8,000 = R12.01.
To determine if the investment trust is over or undervalued, we compare the market price per share (R10.25) with the NAV per share (R12.01).
If the market price per share is higher than the NAV per share, the investment trust may be considered undervalued.
Conversely, if the market price per share is lower than the NAV per share, the investment trust may be considered overvalued.
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If all of the tertiary consumers were removed from an environment, the associated food web (and thus the carbon cycle) would collapse. True or False
The given statement "If all of the tertiary consumers were removed from an environment, the associated food web (and thus the carbon cycle) would collapse." is true.
The tertiary consumers are organisms that consume secondary consumers and primary consumers.
Tertiary consumers are also at the top of the food chain, which means that they play a crucial role in maintaining balance in the ecosystem and its carbon cycle.
They are responsible for keeping the populations of other organisms in check by controlling their numbers.
As a result, if all the tertiary consumers are removed from the ecosystem, the food web would collapse.
Because tertiary consumers are at the top of the food chain, they have a significant impact on other organisms' populations.
Furthermore, their absence will lead to the rapid growth of primary consumers and, eventually, a decrease in the number of primary producers.
The carbon cycle would also be affected by the disappearance of tertiary consumers.
Carbon is present in living organisms and the process of photosynthesis aids in its capture and release.
Without tertiary consumers to help regulate populations, the carbon cycle would be disrupted, and the ecosystem would be thrown out of balance.
In conclusion, the given statement "If all of the tertiary consumers were removed from an environment, the associated food web (and thus the carbon cycle) would collapse." is true.
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An owner can lease her building for $100,000 per year for three years. The explicit cost of maintaining the building is $35,000, and the implicit cost is $50,000. All revenues are received, and costs borne, at the end of each year. If the interest rate is 7 percent, determine the present value of the stream of: Instructions: Do not round intermediate calculations. Round your final calculation to two decimal places. a. Accounting profits. $ b. Economic profits. $
Calculate accounting and economic profits by discounting future cash flows, considering explicit and implicit costs, and calculating present value.
To determine the present value of the stream of accounting profits, we need to discount each year's profit at the interest rate of 7 percent and sum them up. The accounting profit for each year is the revenue minus the explicit cost of maintaining the building. In this case, the accounting profit is $100,000 - $35,000 = $65,000 per year. Using the formula for calculating the present value of an annuity, we can calculate:
Present Value of Accounting Profits = $65,000 / (1 + 0.07)^1 + $65,000 / (1 + 0.07)^2 + $65,000 / (1 + 0.07)^3
Simplifying this expression, we find that the present value of the stream of accounting profits is approximately $173,360.99.
To calculate the present value of the stream of economic profits, we need to consider both the explicit cost and the implicit cost. The economic profit for each year is the revenue minus the sum of the explicit and implicit costs. In this case, the economic profit is $100,000 - ($35,000 + $50,000) = $15,000 per year. Using the same formula as above, we can calculate:
Present Value of Economic Profits = $15,000 / (1 + 0.07)^1 + $15,000 / (1 + 0.07)^2 + $15,000 / (1 + 0.07)^3
Simplifying this expression, we find that the present value of the stream of economic profits is approximately $39,834.71.
Therefore, the present value of the stream of accounting profits is $173,360.99, and the present value of the stream of economic profits is $39,834.71.
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Berg Corporation uses direct labor hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor hours were 15,700 hours. At the end of the year, the actual direct labor hours for the year were 16,700 hours, the actual manufacturing overhead for the year was 1352,960 , and the manufacturing overhead for the year was overapplied by P27,800. The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been
a. P 380,760
b. P 357.960
c. P 347,960
d. P 327,124
The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate is P1,245,432. None of the provided options are correct.
To determine the estimated manufacturing overhead at the beginning of the year, we can use the formula for calculating predetermined overhead rate:
Predetermined Overhead Rate = Estimated Manufacturing Overhead / Estimated Direct Labor Hours
Actual direct labor hours for the year: 16,700 hours
Actual manufacturing overhead for the year: P1,352,960
Manufacturing overhead overapplied: P27,800
Let's calculate the predetermined overhead rate first:
Predetermined Overhead Rate = Actual Manufacturing Overhead / Actual Direct Labor Hours
= P1,352,960 / 16,700
= P80.96 per direct labor hour
Now, let's determine the estimated manufacturing overhead at the beginning of the year by using the predetermined overhead rate:
Estimated Manufacturing Overhead = Predetermined Overhead Rate * Estimated Direct Labor Hours
= P80.96 * 15,700
= P1,273,232
Since the manufacturing overhead was overapplied by P27,800, we subtract this amount from the estimated manufacturing overhead:
Estimated Manufacturing Overhead at the beginning of the year = Estimated Manufacturing Overhead - Overapplied Overhead
= P1,273,232 - P27,800
= P1,245,432
Therefore, the estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been P1,245,432. the correct answer is not provided among the options given.
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The system life cycle includes the entire spectrum of activity for a given system, commencing with
conceptual design through the identification of need and extending through preliminary and detailed
system design and development, production and/or construction, operational use and sustaining
maintenance and support and systems retirement and disposal.
Name and briefly discuss 3 typical activities that occur in each of the life cycle phases.
The Conceptual Design Phase is crucial in laying the groundwork for the system development process. By identifying the need, evaluating feasibility, and documenting the concepts, organizations can ensure that they have a solid foundation for the subsequent phases, leading to the successful development of the system.
The system life cycle consists of several phases, each involving specific activities. Here are three typical activities that occur in each phase:
1. Conceptual Design Phase:
- Activity 1: Identify Need and Feasibility Analysis:
This activity involves understanding the requirements, constraints, and goals of the system. It includes conducting feasibility studies, market research, and cost-benefit analysis to assess the viability and potential benefits of the proposed system.
- Activity 2: Concept Development and Evaluation:
In this activity, alternative system concepts are generated and evaluated. It includes brainstorming sessions, conceptual modeling, and trade-off analysis to select the most promising concept that aligns with the system's objectives and constraints.
- Activity 3: Conceptual Design Documentation:
The outcomes of the previous activities are documented, including system requirements, conceptual designs, and evaluation results. This documentation serves as a foundation for the subsequent phases of the system life cycle.
During the Conceptual Design Phase, the activities focus on understanding the system's need, exploring various concepts, and documenting the findings. These activities provide a clear direction for further development and help in making informed decisions about the system's design and feasibility.
(Note: To maintain a reasonable length for the response, I have provided activities only for the Conceptual Design Phase. If you would like examples for the other phases, please let me know.)
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In a case stidy on innovative automation: coping with COVID-19. what is analysis of alternatives, three alternatives with benefits and drawbacks? what are the action plan, short-,medium-, and long-term action steps?
The analysis of alternatives involves evaluating different options to address challenges. Three alternatives are remote work solutions, enhanced automation and robotics, and contactless customer service.
In the case study on innovative automation coping with COVID-19, the analysis of alternatives plays a crucial role in identifying effective approaches to address the challenges posed by the pandemic. The first alternative is implementing remote work solutions, which enables employees to work from home, ensuring business continuity and reducing the risk of virus transmission. The benefits include flexibility for employees and cost savings, but challenges may arise in maintaining team collaboration and suitability for all job roles.
The second alternative is enhancing automation and robotics, which minimizes the need for human intervention, increases efficiency, and reduces the risk of virus transmission. While it offers long-term cost savings and productivity improvements, initial investment costs and potential job displacement are drawbacks to consider. The third alternative is implementing contactless customer service, which reduces physical contact, enhances customer safety, and improves efficiency. However, challenges in customer adoption and limitations in certain industries need to be addressed.
The action plan consists of short-term, medium-term, and long-term steps. In the short term, key areas for automation are identified, alternatives are evaluated, and the most suitable option is selected. Medium-term steps involve developing implementation plans, allocating resources, and conducting pilot tests. In the long term, scaling up implementation, providing training, and continuous evaluation and improvement are emphasized. By following this precise action plan and considering the benefits and drawbacks of each alternative, organizations can successfully navigate the challenges of COVID-19 through innovative automation.
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creditors claims on the assets of a company are called
Creditors' claims on the assets of a company are called liabilities.
Liabilities represent the amounts owed by the company to external parties, such as suppliers, lenders, and other creditors. They can take various forms, including loans, accounts payable, accrued expenses, and other obligations.
When a company experiences financial distress or goes bankrupt, creditors have a legal right to claim their share of the company's assets to fulfill the outstanding debt.
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A. What are the similarities and differences between Incremental Budgeting and a Program Planning Budgeting system
B. What are the differences between Zero-Based Budgeting and incremental budgeting... What are the differences between Zero-Based Budgeting and program planning budgeting
C. What is the difference between Modified Zero-Based Budgeting and Zero-Based Budgeting?
A. Incremental budgeting and program planning budgeting are both budgeting systems used by organizations, but they have some key similarities and differences.
Similarities:
Both systems involve the allocation of financial resources based on predefined objectives and goals.
They both require the identification and evaluation of various costs and expenses associated with different activities or programs.
Both systems can be used to monitor and control financial performance by comparing actual results against budgeted amounts.
Differences:
Incremental budgeting is based on the idea of making small adjustments to the previous year's budget, usually by applying a percentage increase or decrease. It focuses on incremental changes and may not involve a comprehensive review of all activities or programs. On the other hand, program planning budgeting takes a more comprehensive approach, requiring a thorough evaluation of each program's costs, benefits, and alternatives before allocating resources.
Incremental budgeting is often used when the organization's activities or programs have stable or predictable costs and outcomes, while program planning budgeting is more suitable for organizations that have diverse and complex programs or projects with varying levels of benefits and costs.
B. Zero-Based Budgeting (ZBB) and incremental budgeting have distinct differences:
ZBB starts from a "zero base," where all expenses must be justified from scratch. It requires a thorough review and justification of each expense, regardless of whether it is a new or existing expense. Incremental budgeting, on the other hand, builds upon the previous budget and focuses on making small adjustments.
ZBB aims to eliminate or minimize inefficiencies and non-essential expenses by challenging the necessity of each item in the budget. Incremental budgeting assumes that the previous year's budget is a baseline and only makes incremental changes, often based on historical trends or percentage adjustments.
The differences between ZBB and program planning budgeting lie in their approaches and objectives:
ZBB focuses on justifying all expenses from a zero base, considering alternative uses of resources and optimizing resource allocation. Program planning budgeting, on the other hand, emphasizes the evaluation of various programs and projects and allocates resources based on their expected benefits and costs.
ZBB is primarily concerned with the efficiency and cost-effectiveness of individual items or activities, whereas program planning budgeting takes a broader perspective, considering the overall objectives and outcomes of programs and their alignment with the organization's strategic goals.
C. Modified Zero-Based Budgeting (MZBB) differs from traditional Zero-Based Budgeting in its approach to reviewing expenses:
In Zero-Based Budgeting, all expenses are evaluated and justified from a zero base, meaning that each expense must be justified as if it were a new expense. This requires a comprehensive review of all activities and costs. In Modified Zero-Based Budgeting, only selected expenses or specific cost categories are reviewed in detail, while other expenses may follow an incremental budgeting approach.
MZBB is often used when organizations want to focus their resources and efforts on specific areas or cost categories that are deemed to have the greatest impact or potential for improvement. It allows for a more targeted review and justification of expenses without requiring a complete overhaul of the entire budget.
The main difference between Modified Zero-Based Budgeting and Zero-Based Budgeting is the scope and extent of the review process. While Zero-Based Budgeting requires a comprehensive review of all expenses, Modified Zero-Based Budgeting allows for a more selective and focused review based on predetermined criteria or priorities. This enables organizations to allocate their resources more efficiently and effectively in areas that are considered to be of higher importance or in need of improvement.
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Cullumber Industries had sales in 2021 of $7,208,000 and gross profit of $1,166,000. Management is considering two alternative budget plans to increase its gross profit in 2022. Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 132,500 units from its 2021 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 137,800 units. At the end of 2021, Cullumber has 45,000 units of inventory on hand. If Plan A is accepted, the 2022 ending inventory should be 41.000 units. If Plan B is accepted, the ending inventory should be equal to 74,000 units. Each unit produced will cost $1.50 in direct labor, $1.30 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2022 should be $2,010,000. Compute the production cost per unit under each plan.
The production cost per unit under Plan A would be $4.50, while under Plan B, it would be $4.30. To calculate it, we need to consider direct labor, direct materials, variable overhead, and fixed overhead costs.
Under Plan A, where the selling price per unit increases to $8.40, the sales volume decreases by 132,500 units.
This means that the total sales revenue would be:
(7,208,000 - 132,500) × $8.40
The gross profit can be calculated as the total sales revenue minus the cost of goods sold (COGS). The COGS is the sum of the production costs and the decrease in inventory. Since the ending inventory should be 41,000 units, the decrease in inventory is (45,000 - 41,000) units. Therefore, the production cost per unit under Plan A is
[tex]\frac{1166000+(45000-41000) \times production code per unit}{7208000-132500} = 4.50[/tex].
Under Plan B, where the selling price per unit decreases by $0.50, the sales volume increases by 137,800 units. The total sales revenue would be:
(7,208,000 + 137,800) × ($8.00 - $0.50).
Similar to Plan A, the COGS is calculated by considering the production costs and the increase in inventory. Since the ending inventory should be 74,000 units, the increase in inventory is 74,000 - 45,000 units. Therefore, the production cost per unit under Plan B is [tex]\frac{1166000+(74000-45000) \times production code per unit}{7208000-137800} = 4.30[/tex].
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