Homework Help for Accounting (page 1815)

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EXERCISE 2-14 High-Low Method; Predicting Cost [L02-4, LO2-5] The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were: Guest-Days of Occupancy Custodial Supplies Expense Month March ....... April May June ...... July ........ August September ...... 4,000 6,500 8,000 10,500 12,000 9,000 7,500 $7,500 $8,250 $10,500 $12,000 $13,500 $10,750 $9,750 . . . . . . Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days. Required: 1. Using the high-low method, estimate a cost formula for custodial supplies expense. 2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 3. Prepare a scattergraph using the data given above. Plot custodial supplies expense on the ver- tical axis and the number of guest-days occupied on the horizontal axis. Draw a straight line 4. through the two data points that correspond to the high and low levels of activity. Make sure your line intersects the Y-axis. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $3,973.10 per month and the variable cost to be $0.77 per guest-day. How would the straight line that you drew in requirement 3 differ from a straight line that minimizes the sum of the squared errors? Using the least-squares regression estimates given in requirement 4, what custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 5. Net operating income. $ 6,000 $ 18,000 $ 30,000 Required: 1. Identify each of the company's expenses (including cost of goods sold) as either variable, fixed, or mixed. 2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. 3. Redo the company's income statement at the 5,000-unit level of activity using the contribution format.
EXERCISE 2-3 Classification of Costs as Product or Perlod Cost [LO2-3] Suppose that you have been given a summer job as an intern at Issac Aircams, a company that man- ufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help it finance its growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs: 1. Depreciation on salespersons' cars. 2. Rent on equipment used in the factory. 3. Lubricants used for machine maintenance. 4. Salaries of personnel who work in the finished goods warehouse. 5. Soap and paper towels used by factory workers at the end of a shift. 6. Factory supervisors' salaries. 7. Heat, water, and power consumed in the factory. 8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) 9. Advertising costs. 10. Workers' compensation insurance for factory employees. 11. Depreciation on chairs and tables in the factory lunchroom. 12. The wages of the receptionist in the administrative offices. 13. Cost of leasing the corporate jet used by the company's executives. 14. The cost of renting rooms at a Florida resort for the annual sales conference. 15. The cost of packaging the company's product. Required: Classify the above costs as either product costs or period costs for the purpose of preparing the financial statements for the bank.
EXERCISE 15-8 Selected Financial Ratios (L015-2, LO15-3, L015-4] The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash.. Accounts receivable, net ................ Merchandise inventory ................. Prepaid expenses ..................... Total current assets ...................... Property and equipment, net ............... Total assets $ 6,500 35,000 70,000 3,500 115,000 185,000 $300,000 $ 50,000 80,000 130,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities .......... Bonds payable, 10% .......... Total liabilities ................. Stockholders' equity: Common stock, $5 per value ............. Retained earnings .... Total stockholders' equity ................. Total liabilities and equity ................. $ 30,000 140,000 170,000 $300,000 Castile Products, Inc. Income Statement For the Year Ended December 31 Sales ..... Cost of goods sold... Gross margin Selling and administrative expenses......... Net operating income ....... Interest expense......................... Net income before taxes .................. Income taxes (30%) Net income ............ ................ $420,000 292,500 127,500 89,500 38,000 8,000 30,000 9,000 $ 21,000 Account balances at the beginning of the year were: accounts receivable, $25,000; and inven tory, $60,000. All sales were on account. EXERCISE 15-10 Financial Ratios for Assessing Market Performance [LO15-6] Refer to the financial statements for Castile Products, Inc., in Exercise 15-8. In addition to the data in these statements, assume that Castile Products, Inc., paid dividends of $2.10 per share during the year. Also assume that the company's common stock had a market price of $42 at the end of the year and there was no change in the number of outstanding shares of common stock during the year. Required: Compute financial ratios as follows: 1. Earnings per share. 2. Dividend payout ratio. 3. Dividend yield ratio. 4. Price-earnings ratio. 5. Book value per share.
PROBLEM 2-17 High-Low Method; Predicting Cost [LO2-4, LO2-5] Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctu- ate considerably from year to year according to increases and decreases in the number of direct labor-hours worked in the factory. Total factory overhead costs at high and low levels of activity for recent years are given below: Level of Activity High Direct labor-hours ................. Total factory overhead costs ........ Low 50,000 $14,250,000 75,000 $17,625,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The com- pany has analyzed these costs at the 50,000-hour level of activity as follows: Indirect materials (variable) ...... Rent (fixed) .... Maintenance (mixed) ...... Total factory overhead costs ..... $ 5,000,000 6,000,000 3,250,000 $14,250,000 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $17,625,000 factory overhead cost at the high level of activity con- sists of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $17,625,000 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) 2. Using the high-low method, estimate a cost formula for maintenance. 3. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor-hours?

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