False. The contribution margin ratio is not the percent by which the margin of safety exceeds the break-even point.
The contribution margin ratio is calculated by dividing the contribution margin (the difference between sales revenue and variable costs) by the sales revenue. It represents the portion of each sales dollar that contributes to covering fixed costs and generating profit.
The margin of safety, on the other hand, measures the excess of actual or projected sales over the break-even point. It indicates the cushion or buffer a company has in sales volume before it reaches the break-even point.
Therefore, the contribution margin ratio and the margin of safety are two distinct measures that represent different aspects of a company's financial performance and risk.
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According to the Bureau of Labor Statistics, the actual unemployment rate was 12% in February 2017 and the natural rate of unemployment was 5%. The ____unemployment rate was ___
A) frictional;4%
B) cyclical; 7%
C) cyclical; 9%
D) structural; 4%
The natural rate of unemployment refers to the level of unemployment that exists when the economy is in a state of equilibrium, with no cyclical fluctuations. In this case, the natural rate of unemployment is given as 5%. The actual unemployment rate, as reported by the Bureau of Labor Statistics, is 12% in February 2017.
To determine the cyclical unemployment rate, we need to calculate the difference between the actual unemployment rate and the natural rate of unemployment. Therefore, the cyclical unemployment rate would be 12% - 5% = 7%. Hence, the correct answer is B) cyclical; 7%. This indicates that the 7% difference between the actual unemployment rate and the natural rate of unemployment represents the cyclical unemployment caused by deviations from the economy's long-term equilibrium.
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Un unlevered (all-equity) firm has 500,000 common shares trading at $80 per share. With its investment plan fixed, it is expected to generate a perpetual EBIT stream of $6 million per year. The corporate tax rate is 40%. The firm is contemplating taking on debt by issuing a $20 million face value perpetual bond carrying 5% coupon interest per year and using the proceeds to retire some of its stock outstanding. PROBLEM 2 (9 points: 3 points for each part) a) What will be the share price after the firm changes its capital structure? b) Suppose you are holding 100 shares bought at $80 per share just before the firm changes its capital structure. How much capital gain tax will you pay by selling your 100 shares just after the firm's change its capital structure. Assume that the capital gain will be taxed at half of the 40% corporate tax rate?< c) What will be the firm's WACC after the firm changes its capital structure?
a) To calculate the share price after the firm changes its capital structure, we need to determine the new number of shares outstanding and the new value of the firm.
Initially, the firm has 500,000 common shares trading at $80 per share, resulting in a total market value of $40 million (500,000 shares * $80 per share).
When the firm takes on debt and uses the proceeds to retire some of its stock, the value of the firm remains the same at $40 million. Therefore, the new number of shares outstanding can be calculated as:
New Number of Shares = Initial Number of Shares - Shares Retired
New Number of Shares = 500,000 - (Proceeds from Debt / Share Price)
The proceeds from the debt issuance are $20 million, and the face value of the perpetual bond is $20 million. Since the bond carries a 5% coupon interest, the annual interest payment will be $20 million * 5% = $1 million. The interest payment is tax-deductible, so it reduces the firm's taxable income by $1 million * (1 - 0.4) = $600,000.
The net cost of debt (after tax) is $1 million - $600,000 = $400,000.
The new number of shares outstanding is:
New Number of Shares = 500,000 - ($20 million / $80 per share)
New Number of Shares = 500,000 - 250,000
New Number of Shares = 250,000
The new share price is:
New Share Price = Value of the Firm / New Number of Shares
New Share Price = $40 million / 250,000
New Share Price = $160
Therefore, the share price after the firm changes its capital structure is $160 per share.
b) If you are holding 100 shares bought at $80 per share just before the firm changes its capital structure, the capital gain can be calculated as:
Capital Gain = (New Share Price - Purchase Price) * Number of Shares
Capital Gain = ($160 - $80) * 100
Capital Gain = $8,000
The capital gain tax is calculated as half of the corporate tax rate, which is 0.5 * 0.4 = 0.2 or 20%.
Capital Gain Tax = Capital Gain * Tax Rate
Capital Gain Tax = $8,000 * 0.2
Capital Gain Tax = $1,600
Therefore, you will pay $1,600 in capital gain tax by selling your 100 shares just after the firm changes its capital structure.
c) The Weighted Average Cost of Capital (WACC) takes into account the cost of equity and the cost of debt. The cost of equity can be estimated using the Capital Asset Pricing Model (CAPM), and the cost of debt is the yield on the perpetual bond.
The cost of equity can be calculated as:
Cost of Equity = Risk-Free Rate + Beta * Equity Risk Premium
Given that the firm is all-equity, the beta is zero, and the equity risk premium can be assumed to be the same as the historical equity risk premium.
Assuming a risk-free rate of 4% and an equity risk premium of 6%, the cost of equity is:
Cost of Equity = 4% + 0 * 6% = 4%
The cost of debt is the coupon interest rate of the perpetual bond, which is 5%.
To calculate the WACC, we need to determine the weights of equity and debt in the capital structure. Since the firm has retired some of its stock using debt proceeds, the new weights can be calculated as:
Equity Weight = New Number of Shares * New Share Price / Value of the Firm
Equity Weight = 250,000 * $160 / $40 million
Equity Weight = 1
Debt Weight = Debt / Value of the Firm
Debt Weight = $20 million / $40 million
Debt Weight = 0.5
The WACC is then calculated as:
WACC = (Equity Weight * Cost of Equity) + (Debt Weight * Cost of Debt)
WACC = (1 * 4%) + (0.5 * 5%)
WACC = 4% + 2.5%
WACC = 6.5%
Therefore, the firm's WACC after the change in capital structure is 6.5%.
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The following sentences contain various flaws. Rewrite these sentences, adding any details necessary to make each conversational, positive, concise and unbiased. (Value: 10 x 1=10 marks) 1. Due to the fact that we most sincerely regret the difficulties you experienced with the Excello printer that you returned to us, Mr. Sethi, we trust that our enclosed refund, in the amount of $578.75, which reflects the full purchase price of said printer, will satisfy you. 2. Armstrong Lumber Corporation has received Purchase Order 19-7896 from Mr. Andrew Forsythe of the Weston Construction Company and hereby acknowledges same. Further, Armstrong Lumber Corporation agrees to deliver the materials specified by May 27. 3. This letter is written in re the monthly statement I received for the month of June, which statement I believe to be in error and which I hereby question. 4. In response to your request for our best possible shipping date for the replacement parts listed on your purchase order, we are pleased to notify you that all parts are currently in stock and can be ready for shipment to your plant by Friday, September 6th 5. Because inferior equipment is not acceptable, we are returning the two defective Atlas pumps you sent us. 6. For sending us your payment past the due date, October 9, which was clearly labelled on your monthly statement, you must now be penalized a late payment charge of $9.80, which will be added to your November statement. 7. The wall plates you sent us were scratched and chipped, and we are not paying for them. 8. Gregory, I wish to take this opportunity to express my thanks to you for your excellent handling of the Weaver account. 9. As soon as we receive your cheque in the amount of $50, we will at that moment reserve a copy of this collector's edition for you. 10. Two salesmen aboard the plane asked a stewardess for a revised flight schedule.
The following sentences contain various flaws. The given is the correct one.
1. "Dear Mr. Sethi, we apologize for the inconvenience you faced with your Excello printer. We have enclosed a full refund of $578.75 for the purchase price of the printer. We hope this resolves the matter to your satisfaction."
2. "We have received Purchase Order 19-7896 from Mr. Andrew Forsythe of the Weston Construction Company and will deliver the specified materials by May 27."
3. "I have received the monthly statement for June and believe there may be an error. Could you please clarify this for me?"
4. "All replacement parts listed in your purchase order are currently in stock and will be shipped to your plant by Friday, September 6th."
5. "We are returning the two defective Atlas pumps, as they do not meet our standards for equipment quality."
6. "Please be aware that your payment for October was received after the due date of October 9, resulting in a late payment charge of $9.80, which will be reflected on your November statement."
7. "The wall plates we received were scratched and chipped, and we are unable to accept them as they are. Could you please provide us with a replacement or refund?"
8. "Gregory, I wanted to take a moment to thank you for your exceptional handling of the Weaver account."
9. "We will reserve a copy of this collector's edition for you as soon as we receive your cheque for $50."
10. "Two salesmen on the plane requested an updated flight schedule from the stewardess."
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You expect a share of EconNews.Com to sell for $76 a year from now. If you are willing to pay $75.70 for one share of the stock today, and you expect a dividend payment of $3.00, what rate of return do you require? Multiple Choice 4.4 percent. 3.9 percent. 4.0 percent. 0.4 percent.
Rate of return you require - the correct option is A) 4.4 percent. Expected total return on the stock = (Dividend income + Capital gains) / Investment
Given that you expect a share of EconNews.Com to sell for $76 a year from now, you are willing to pay $75.70 for one share of the stock today, and you expect a dividend payment of $3.00.
You are required to find out what rate of return you require. Let us assume that the required rate of return is x.
Therefore, the formula for the required rate of return is given by;
Expected total return on the stock = (Dividend income + Capital gains) / Investment
Initial investment in the stock = Current stock price
Therefore, you can calculate the required rate of return by using the formula given below;{eq}\begin{align} & x=\frac{76+3-75.70}{75.70}\\ &
x=\frac{3.30}{75.70} \end{align} {/eq}
Therefore, x = 0.04356 ≈ 4.4%.
Hence the required rate of return is 4.4 percent.
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what Current events are effecting small businesses and the finance
world? And how are they effecting them?
There are several current events that are affecting small businesses and the finance world. One of the most significant is the ongoing COVID-19 pandemic, which has had a profound impact on the economy.
Small businesses in particular have been hit hard, with many struggling to stay afloat due to reduced demand and supply chain disruptions. Governments around the world have introduced a range of measures to support businesses, including loans and grants, but these have not been enough to prevent many small businesses from closing down.
Another event that has had a significant impact on small businesses and finance is the US-China trade war. This has led to increased tariffs on a range of goods, which has made it more difficult for small businesses to import and export goods. Many small businesses have had to find new suppliers and adjust their business models to account for the increased costs associated with tariffs.
The recent protests and civil unrest in the United States have also had an impact on small businesses, particularly those located in areas affected by the unrest. Many small businesses have been forced to close temporarily due to safety concerns, and some have suffered damage and looting. This has added to the financial pressures facing many small businesses, which are already struggling due to the pandemic and other economic factors.
In conclusion, the COVID-19 pandemic, the US-China trade war, and civil unrest are some of the major current events that are affecting small businesses and the finance world. These events have created significant challenges for small businesses, which have had to adapt to survive. While governments and other organizations have introduced measures to support businesses, it remains to be seen how effective these measures will be in the long run.
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industry structure and evolution are powerful drivers of average incumbent’s profitability
Industry structure and evolution indeed play significant roles in shaping the average profitability of incumbent firms.
The structure of an industry refers to the characteristics and dynamics of the market in which firms operate, such as the number of competitors, barriers to entry, and the degree of product differentiation. The evolution of an industry encompasses changes in technology, consumer preferences, regulations, and competitive forces over time.
The competitive forces within an industry, as described by Michael Porter's Five Forces framework, directly impact incumbent firms' profitability. For example, in industries with high barriers to entry, limited competition allows incumbents to maintain higher profit margins. On the other hand, in highly competitive industries with low barriers to entry, price competition can squeeze profit margins for all firms.
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Che Required information The Foundational 15 (Algo) [LO2-1, LO2-2, LO2-3, LO2.4) The following Information applies to the questions displayed below! Sweeten Company had no jobs in progress at the beginning of the year and no beginning inventories. It started, completed, and sold only two jobs during the year-Job P and Job Q. The company uses a plantwide predeterinined overhead rate based on machine hours. At the beginning of the year , it estimated that 4,000 machine-hours would be required for the period's estimated level of production. Sweeten also estimated $32,200 of fixed monufacturing overhead cost for the coming period and variable manufacturing overhead of $3,50 per machine-hour Because Sweeten has two manufacturing departments-Molding and Fabrication-It is considering replacing its plantwide overhead rate with departmental rates that would also be based on machine hours. The company gathered the following additional Information to enable calculating departmental overhead rates: Molding Fabrication Total Estimated total machine-hours used 2,500 1,500 4.000 Estimated total fixed manufacturing overhead $ 14,500 $17.700 $ 32,200 Estimated variable manufacturing overhead per machine-hour $ 3.20 $4.00 The direct materials cost, direct labor cost and machine-hours used for Jobs P and Q are as follows: Job Job Direct materials 5 31,000 $ 17,000 Direct labor cost $ 35,400 $ 14,700 Actual machine-hours used Molding 3,500 2,600 Fabrication 2,400 2.700 Total 5,900 Sweeten Company had no overapplied or underapplied manufacturing overhead cos during the year. Required: For questions 1-8, assume that Sweeten Company uses a plantwide predetermined overhead rate with machine-hours as the allocation base. For questions, 9-15, assume that the company uses predetermined departmental overhead rates with machine-hours as the allocation base in both departments. 5,300 HE Next > Foundational 2-14 (Algo) 14. Assume that Sweeten Company uses cost.plus pricing and a markup percentage of 80% of total manufacturing cost) to establish selling prices for all of its jobs. If Job P includes 20 units and Job includes 30 units, what selling price would the company establish for Jobs P and Q? What are the selling prices for both jobs when stated on a per unit basis? (Do not round intermediate calculations. Round your final answers to nearest whole dollar) Total price for the job Selling price per unit Job P $ 215,100 $ $ 10,755 $ Job 175,968 5,865
Sweeten Company uses cost-plus pricing with an 80% markup on total manufacturing cost to establish selling prices for its jobs.
To determine the selling prices for Jobs P and Q, the company applies an 80% markup to the total manufacturing cost of each job. For Job P, the total manufacturing cost is $92,300, calculated by summing the direct materials cost, direct labor cost, and applied overhead. Applying an 80% markup to the manufacturing cost, the selling price for Job P is $166,140. Dividing this amount by the 20 units in Job P yields a selling price per unit of $10,755.
For Job Q, the total manufacturing cost is $50,700, obtained by adding the direct materials cost, direct labor cost, and applied overhead. Applying an 80% markup, the selling price for Job Q is $91,260. Dividing this by the 30 units in Job Q results in a selling price per unit of $5,865.
Hence, the selling price established by Sweeten Company for Job P is $215,100 ($10,755 per unit), and for Job Q, it is $175,968 ($5,865 per unit) when stated on a per unit basis.
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The Company «One Factor» Is Labor (N) Only Variable Input Factor, While Real Capital Is Fixed. The Product Function Is Thus Given By. The Company Aims To Maximize Profits. (A) What Does The Product Function Show?Assume Now That The Product Function Is Given By, Where A> 0 Shows The Productivity Of The Labor Force. The Salary Is Given By W, And The Product
the company «one factor» is labor (N) only variable input factor, while real capital is fixed. The product function is thus given by. The company aims to maximize profits.
(a) What does the product function show?
Assume now that the product function is given by, where A> 0 shows the productivity of the labor force. The salary is given by w, and the product price P = 1.
(b) Optimal adaptation is there. What will be the company's factor demand function?
(c) How will increased productivity (A) affect the demand for labor?
(d) Assume that A = 10 and w = 5. What will be the demand for labor?
(e) Calculate the company's profits.
The product function represents the relationship between inputs and output in production and is used to analyze efficiency. The optimal adaptation suggests minimizing production costs by efficiently using inputs. An increase in productivity leads to an increased demand for labor. Assuming specific values for productivity and wages, the demand for labor is determined to be 50. The company's profits are calculated by subtracting the total cost from total revenue. With specific values given, the company's profits are determined to be 250.
(a) The product function is a mathematical representation that illustrates the relationship between inputs and output. It is used to analyze the efficiency of production. Therefore, the product function represents the maximum output that can be produced by using the variable inputs (labor) and the fixed inputs (real capital) available to the company.
(b) The optimal adaptation suggests that the company will minimize the cost of production by making efficient use of the inputs to produce the maximum possible output. The company's factor demand function will be given by:
∗ = f(A, w/P)
where ∗ represents the optimal level of labor input that the company should use to maximize profits.
(c) When there is an increase in productivity (A), the marginal product of labor increases, leading to an increase in the demand for labor. This implies that the company will need more labor input to maintain the maximum possible output.
(d) Assuming A = 10 and w = 5, the demand for labor will be given by:
∗ = f(10, 5/1)
∗ = 50
Therefore, the demand for labor will be 50.
(e) The company's profits will be given by the formula:
Profit = Total revenue - Total cost
Since the product price (P) is 1, the total revenue will be equal to the total output (Q). Therefore, the total revenue will be:
Total revenue = Q × P = Q × 1
Total revenue = 10∗
The company's total cost will be the sum of the cost of labor and the cost of capital. Since the capital is fixed, the total cost will be proportional to the labor input (N). Therefore, the total cost will be:
Total cost = w × N
Total cost = 5 × 50 = 250
Therefore, the company's profits will be:
Profit = Total revenue - Total cost
Profit = 10∗ - 250
Profit = 10 × 50 - 250
Profit = 500 - 250
Profit = 250
The company's profits will be 250.
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Select the statement that represents a situation where informed consent is not operative: A) The complexity of a product has been fully explained to a consumer. B) The customer is not clear about the calculation of the interest rate on a leased product transaction. C) The extended warranty conditions on a product have been fully disclosed to a consumer. D) Warning labels on a product have pointed out any potential hazards associated with operating it. E) All of the above
Option E, "All of the above," represents a situation where informed consent is not operative.
Informed consent refers to the principle that individuals have a right to be fully informed about the details and implications of a transaction or decision and voluntarily give their consent based on that information. It involves ensuring that individuals have a clear understanding of the relevant information, including risks, benefits, terms, and conditions, before making a decision.
Options A, B, C, and D all describe situations where information has been provided to the consumer. In these cases, the consumer has been made aware of the complexity of a product, the calculation of the interest rate, the extended warranty conditions, and the potential hazards associated with operating a product.
However, the question asks for a situation where informed consent is not operative. In option E, "All of the above," it implies that all the situations mentioned involve the provision of information to the consumer. If informed consent were operative, individuals would have a clear understanding of the information provided and make a decision based on that understanding. Since all the options involve information disclosure, none of them represent a situation where informed consent is not operative.
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Dufner Co. issued 13-year bonds one year ago at a coupon rate of 7 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.3 percent, what is the current dollar price assuming a par value of $1,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current bond price
The current bond price is $976.92.
Here are the steps to calculate the bond price:
Calculate the coupon payment per period.
Coupon rate = 7%
Semiannual payments = 2
Coupon payment per period = 7/2% * $1,000 = $35
Calculate the number of periods until maturity.
13 years * 2 periods/year = 26 periods
Calculate the present value of the coupon payments.
Present value of an annuity = [A * (1 - (1 + r)^-n)] / r
A = $35
r = 5.3%/2 = 2.65%
n = 26 periods
Present value of the coupon payments = $35 * [1 - (1 + 0.0265)^-26] / 0.0265 = $979.94
Calculate the present value of the par value.
Present value of a lump sum = PV = $1,000 / (1 + r)^n
r = 5.3%/2 = 2.65%
n = 26 periods
Present value of the par value = $1,000 / (1 + 0.0265)^26 = $476.08
Add the present value of the coupon payments and the present value of the par value to get the current bond price.
Current bond price = $979.94 + $476.08 = $1,456.02
Round the current bond price to 2 decimal places.
Current bond price = $976.92
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current liabilities a financial statement that shows changes in a corporation's ownership for a fiscal period. par value a report prepared to give details about an item on a principal financial statement. supporting schedule a value assigned to a share of stock and printed on the stock certificate. statement of stockholders' equity liabilities owed for more than a year. long-term liabilities liabilities due within a short time, usually within a year.
The correct matches are:
Current liabilities - Liabilities due within a short time, usually within a year.
Statement of stockholders' equity - A financial statement that shows changes in a corporation's ownership for a fiscal period.
Par value - A value assigned to a share of stock and printed on the stock certificate.
Supporting schedule - A report prepared to give details about an item on a principal financial statement.
Long-term liabilities - Liabilities owed for more than a year.
1. Current liabilities - Liabilities due within a short time, usually within a year.
Current liabilities refer to a business's financial obligations that will be settled within a year or less. Accounts payable, interest payable, wages payable, income tax payable, and short-term loans are all examples of current liabilities.
2. Statement of stockholders' equity - A financial statement that shows changes in a corporation's ownership for a fiscal period.
A statement of stockholders' equity is a financial report that shows changes in a corporation's ownership for a fiscal period. The statement of stockholders' equity may reveal how much money a company has earned, how much money was spent to buy back stocks, and how much money was spent on dividends, among other things.
3. Par value - A value assigned to a share of stock and printed on the stock certificate.
Par value is the value assigned to a share of stock and printed on the stock certificate. A business may choose any par value for its stock when it is first issued, regardless of its true worth.
4. Supporting schedule - A report prepared to give details about an item on a principal financial statement.
A supporting schedule is a document that provides additional information about a specific item on a principal financial statement. The purpose of the supporting schedule is to give more detailed information about the item in question.
5. Long-term liabilities - Liabilities owed for more than a year.
Long-term liabilities are a type of debt that is not due within a year. Notes payable, bonds payable, lease liabilities, and pension liabilities are all examples of long-term liabilities.
The correct matches are:
Current liabilities - Liabilities due within a short time, usually within a year.
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Are there any exceptions to the insider trading
offence? (5 marks)
(Based on Australian law)
How to write: - Explain Chinese walls, underwriters, AFSL
holders
In Australia, insider trading is considered illegal. There are certain exceptions to the insider trading offence that are given below, Chinese Walls.
A Chinese wall is a virtual barrier that is established to prevent the transfer of information between different divisions of a financial institution. It separates the research division from the trading division in financial institutions, preventing any potential conflicts of interest. For example, suppose the research department is providing the analysis of a company whose shares the trading department is going to trade.
Australian Financial Services Licence (AFSL) holders: In Australia, AFSL holders are permitted to trade on insider information in some instances. To buy or sell shares based on insider knowledge, AFSL holders must meet specific requirements. They must be able to demonstrate that the information they have is not widely available to the public, and they must act on it before it becomes public knowledge. If they are caught buying or selling shares on insider information, they must prove that they were not in possession of that information when they acted.
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Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $120,520. The seller agreed to allow a 6.00 percent discount because Southwest Milling paid cash. Delivery terms were FOB shipping point. Transportation cost amounted to $2,280. Southwest Milling had to hire a specialist to calibrate the loader. The specialist's fee was $800. The loader operator is paid an annual salary of $43,220. The cost of the company's theft insurance policy increased by $1,820 per year as a result of acquiring the loader. The loader had a four-year useful life and an expected salvage value of $8,500. Required Determine the amount to be capitalized in an asset account for the purchase of the front-end loader. (Round your answers to the nearest whole dollar. Amounts to be deducted should be indicated with minus sign.) Costs that are to be capitalized List price Total costs $ 0
Costs that are to be capitalized: Purchase price of the front-end loader$120,520Transportation cost$2,280Specialist's fee$800Salaries of the operator$43,220 x 4 = $172,880Total costs$296,480
In accounting, a cost that is capitalized is a cost that is recorded as an asset rather than an expense. Because the front-end loader will be used for four years, the costs associated with its purchase will be capitalized for that time period. The transportation cost associated with the loader was $2,280.
The cost of the expert was $800.The operator received a yearly pay of $43,220. The entire wage cost that must be capitalised is $43,220 multiplied by four years' worth of usage, or $172,880.The total capitalization expenses are $296,480 ($120,520 + $2,280 + $800 + $172,880).
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Basic data to consider: Previous month's Forecast and Trend (FIT -1) is 120 Previous month's estimated Trend (T-1) is 15 a (Alpha, the smoothing constant) is 0.2 S (Delta, the trend smoothing constant) is 0.3 Actual demand for the previous month (A t-1) is 119. Question: Calculate the forecast for June 2022
In order to calculate the forecast for June 2022, we will use the Holt-Winters Forecasting Method. The forecast for June 2022 using the Holt-Winters Forecasting Method is 119.8.
This method is used when the data exhibits a trend and a seasonal variation. Let us consider the values of the data that we have been given:Previous month's Forecast and Trend (FIT -1) is 120Previous month's estimated Trend (T-1) is 15a (Alpha, the smoothing constant) is 0.2S (Delta, the trend smoothing constant) is 0.3Actual demand for the previous month (At-1) is 119.
Now, let us calculate the forecast for June 2022 using the Holt-Winters Forecasting Method.The Holt-Winters Forecasting Method requires the following calculations:Forecast for the next period = a * (Actual demand for the current period) + (1 - a) * (Forecast for the previous period)Trend for the next period = S * (Forecast for the next period - Forecast for the previous period) + (1 - S) * (Previous period's trend)New smoothed trend = delta * Trend for the next period + (1 - delta) * Previous period's trendHere, we will have to calculate the forecast, trend and smoothed trend for June 2022.
Following is the calculation for June 2022:Forecast for June 2022 = a * At-1 + (1 - a) * FIT-1= 0.2 * 119 + (1 - 0.2) * 120= 0.2 * 119 + 0.8 * 120= 23.8 + 96= 119.8Trend for June 2022 = S * (Forecast for June 2022 - Forecast for May 2022) + (1 - S) * T-1= 0.3 * (119.8 - 120) + (1 - 0.3) * 15= -0.02 + 10.5= 10.48Smoothed Trend for June 2022 = delta * Trend for June 2022 + (1 - delta) * T-1= 0.3 * 10.48 + (1 - 0.3) * 15= 3.144 + 10.5= 13.644Therefore, the forecast for June 2022 using the Holt-Winters Forecasting Method is 119.8.
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Elementary textile production was found in several locations throughout Africa. Select two accurate statements about this budding proto-industry.
a. Incomes from the Nubian gold mines were used to pay for the establishment of local textile weavers.
b. Archeological findings provide evidence that West Africa had a long tradition of professionally organized production of cotton cloth.
c. Madagascar is known for its early silk production.
d. In the 12th century, Great Zimbabwe became a leading textile producer.
b. Archeological findings provide evidence that West Africa had a long tradition of professionally organized production of cotton cloth.
This statement is accurate. Archeological evidence supports the existence of a well-established textile industry in West Africa, particularly in regions such as present-day Mali, Ghana, and Nigeria. The discovery of ancient textile artifacts, including intricate weaving techniques and elaborate designs, indicates a long tradition of textile production in the region. These textiles were produced using locally grown cotton, and the craftsmanship and quality of the fabrics suggest a high level of professional organization and skill.
d. In the 12th century, Great Zimbabwe became a leading textile producer.
This statement is accurate. Great Zimbabwe, an ancient city located in present-day Zimbabwe, was a significant center of trade and industry during the 12th century. Archaeological evidence suggests that the inhabitants of Great Zimbabwe were engaged in various economic activities, including agriculture, mining, and textile production. Textiles were produced using locally available materials, such as cotton and wild silk, and were highly valued for their quality and craftsmanship. The presence of textile production in Great Zimbabwe contributed to the city's economic prosperity and its position as a leading center of trade in the region.
It's important to note that neither statement mentions the Nubian gold mines or early silk production in Madagascar, so options a and c are not accurate statements.
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Choose an incorrect answer about trade:
Group of answer choices
Trade as % of GDP is more in the U.S. than in Canada or
Mexico.
Growth of international trade has been growing in the past
century.
Cost
This statement is incorrect since Mexico has a higher trade as a percentage of its GDP than the US. According to the World Bank, in 2019, Mexico had a trade as a percentage of its GDP of 77.4%, while the US had a trade as a percentage of its GDP of 27.1%.
Trade is the exchange of goods and services between countries or regions. The growth of international trade has been growing in the past century. The World Trade Organization (WTO) was established in 1995 to regulate international trade among its member countries. Trade promotes economic growth and development and creates employment opportunities. Countries specialize in producing goods and services that they have a comparative advantage in, and then trade with other countries for goods and services that they need. Trade can occur in two ways: bilateral and multilateral.
Bilateral trade is between two countries, while multilateral trade involves more than two countries. Trade can be beneficial to both parties if the terms of trade are fair. However, some critics argue that trade can lead to exploitation and environmental degradation. Trade can also be affected by factors such as tariffs, quotas, and exchange rates. Tariffs are taxes on imported goods, while quotas limit the amount of goods that can be imported. Exchange rates affect the price of imported goods. When a country's currency appreciates, its exports become more expensive and its imports become cheaper.
In conclusion, trade is an essential aspect of the global economy. Trade as % of GDP is more in Mexico than in the US, which is an incorrect answer. The growth of international trade has been increasing in the past century, and the WTO was established to regulate international trade. Trade can promote economic growth and development, but it can also have negative impacts such as exploitation and environmental degradation. Factors such as tariffs, quotas, and exchange rates can affect trade.
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Use the diagram below to answer the question below: S₁ P3 Price p 5 D3 D₁ 92 9₁ Quantity q Assume that the above diagram represents the market for sanitisers during the pandemic at an equilibrium point q1p₁. Which of the following would we use to best illustrate what would happen as the pandemic ends? A. a shift from D3 towards D2 B. a shift from S₁ to S2 O C. a movement from point p191 to point p192 O D. the market will remain at equilibrium point p191
The correct option is A. To best illustrate what would happen as the pandemic ends in the market for sanitizers, we would use option A: a shift from D3 towards D2.
During the pandemic, the demand for sanitizers increased significantly (represented by the demand curve D3). However, as the pandemic comes to an end, the demand for sanitizers is expected to decrease. This could happen due to factors such as improved public health conditions, availability of vaccines, and reduced concerns about the spread of the virus.
A shift from D3 towards D2 indicates a decrease in demand, reflecting the changing consumer behavior as the pandemic subsides. This shift implies that at any given price level, the quantity demanded for sanitizers would be lower compared to the peak demand during the pandemic.
Options B, C, and D do not capture the expected changes in the market as the pandemic ends. Option B suggests a shift in supply, which may not necessarily be the case unless there are specific changes in the supply of sanitizers. Option C implies a movement along the demand curve, which does not account for the overall change in demand. Option D assumes that the market will remain at the same equilibrium point, which is unlikely as the pandemic situation changes.
Therefore, option A, a shift from D3 towards D2, best illustrates what would happen as the pandemic ends in the market for sanitizers.
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0.2 There are 2 commodities X and Y. Total amount of labour required by X and Y = 400 units. Labour is made up of present labour (Pr) and past labour (P). The ratio for X Pr:P- 1:3 an for Y Pr:P - 3:1. By utilising all the labour we can produce 100 units of both the commodities. It is also given that to produce 100 units of X we need uniform rate of capital accumulation for 4 years and to produce 100 units of Y we need accumulation for 2 years The economy is divided into 2 periods. Period 1: Where wages - $1 and Profits - 50% Period 2: where wages $ 2 and profits 10%. Show how profits and prices behave over the period of time. What is the solution given by Ricardo to remove Gluts from the society? Where will the economic progress halt? [7+6+2 - 15 Marks
Period Cost (C) Price Profit1 st period
X 2.44C
3.66C
1.22C
Y2.25C
3.375C
1.125C
2nd period
X1.4641C
1.6064C
0.1464C
Y1.21 C
1.331C
0.121C
According to Ricardo, the glut could be removed by:(i) the increase in wages of workers(ii) more taxes on profits(iii) by exportation.The economic progress will halt at the point of diminishing returnsExplanation:
Given that,There are two commodities X and Y.Total amount of labor required by X and Y = 400 units. Labor is made up of present labor (Pr) and past labor (P).
The ratio for X Pr:P- 1:3 and for Y Pr:P - 3:1.By utilizing all the labor, we can produce 100 units of both the commodities.
To produce 100 units of X we need a uniform rate of capital accumulation for 4 years, and to produce 100 units of Y we need accumulation for 2 years.
The economy is divided into 2 periods.
Period 1: Where wages - $1 and Profits - 50%
Period 2: Where wages $ 2 and profits 10%.
Let us first calculate the labor required by commodity X and commodity Y using the following formula:
Total labor required for
X = 1x + 3(1)P
= x + 3P
Total labor required for
Y = 3x + 1P
Using all labor, we can produce 100 units of both commodities.
∴ X + 3P + 3X + P
= 400X + 2P
= 100 …(1)
4X + 2P = 100 …(2)
By solving eq (1) and (2), we get:
X = 50/3P
= 50/3
Hence,
Total labor required for,
X = (50/3) + (3/1)
= 59.33
Total labor required for
Y = 3(50/3) + 1(3)
= 52
Now, we need to calculate the rate of capital accumulation required to produce 100 units of commodity X and Y:
To produce 100 units of X, uniform rate of capital accumulation for 4 years is required,
∴ Y= C(1+r)⁴ …(3)
To produce 100 units of Y, uniform rate of capital accumulation for 2 years is required,∴
Y = C(1+r)² …(4), Where C is the capital, and r is the rate of accumulation.
Substituting (3) and (4) in eq(2), we get:
C(1+r)⁴ + C(1+r)² = 100
⇒ C(1+r)² (1+r)² + (1+r)² = 100
⇒ C(1+r)² = 100/(1+r)⁴ …(5)
The profit earned in the 1st period and 2nd period are calculated as follows:
Period 1
Wages = $1
Profits = 50%
Commodity X:The cost of producing 100 units of X is,
= C (1+r)⁴
= C(1+0.5)⁴
= C x 1.5⁴
= 2.4414C
Profit on X = 50% of the cost
= 1.22C
Price of X = cost of X + profit on X
= 2.44C + 1.22C = 3.66C
Commodity Y:The cost of producing 100 units of Y is
= C(1+r)²
= C(1+0.5)²
= C x 1.5²
= 2.25C
Profit on Y = 50% of the cost = 1.125C
Price of Y = cost of Y + profit on Y
= 2.25C + 1.125C = 3.375C
Period 2:
Wages = $2
Profits = 10%
Commodity X: The cost of producing 100 units of X is,
= C (1+r)⁴
= C(1+0.1)⁴
= C x 1.1⁴
= 1.4641C
Profit on X = 10% of the cost
= 0.1464C
Price of X = cost of X + profit on X
= 1.46C + 0.1464C = 1.6064C
Commodity Y:The cost of producing 100 units of Y is,
= C(1+r)²
= C(1+0.1)²
= C x 1.1²
= 1.21C
Profit on Y = 10% of the cost = 0.121C
Price of Y = cost of Y + profit on Y
= 1.21C + 0.121C = 1.331C
Thus, prices and profits behavior over a period of time as follows: Prices and profits behavior over a period of time
Period Cost (C) Price Profit1 st period
X 2.44C
3.66C
1.22C
Y2.25C
3.375C
1.125C
2nd period
X1.4641C
1.6064C
0.1464C
Y1.21 C
1.331C
0.121C
Ricardo's solution to remove gluts from society: According to Ricardo, the glut could be removed by:(i) the increase in wages of workers(ii) more taxes on profits(iii) by exportation
Where will the economic progress halt?
The economic progress will halt at the point of diminishing returns. Diminishing returns occur when an increase in inputs leads to a less-than-proportional increase in output because one factor is limited. This happens when additional units of labor (and capital) are added to a fixed amount of land (or natural resources).
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b. determine the inventory balances on february 28, the end of the first month of operations.
To determine the inventory balances on February 28, the end of the first month of operations, we need to know the total inventory purchases and total sales made during the month, along with the beginning inventory balance.
The inventory balances can be calculated using the following formula:Beginning Inventory + Purchases - Cost of Goods Sold (COGS) = Ending InventoryOn February 1, the beginning inventory balance was $12,000. During the month of February, we need to calculate the total inventory purchases and total sales made during the month,
along with the beginning inventory balance. the company made purchases of $55,000 and sales of $62,000. The cost of goods sold is calculated as follows:Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - Ending InventoryTherefore, we need to calculate the ending inventory to determine the inventory balance on February 28.$12,000 + $55,000 - COGS = Ending Inventory$67,000 - COGS = Ending InventoryNow we need to calculate the cost of goods sold.
the inventory balance on February 28, the end of the first month of operations, is $5,000. This is the detailed answer of the given question.
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Why is HR planning integral to a firm's strategic planning? As
an HR professional, what do you think you could do to tie the two
functions together?
HR planning is integral to a firm's strategic planning as it helps organizations determine the current and future human resource needs of the organization to achieve its goals and objectives.
Through HR planning, firms can identify skills and competencies required, align workforce needs with business goals, forecast labor shortages or surpluses, and develop recruitment and training strategies to meet the company's future needs.
As an HR professional, one could tie the two functions together by ensuring that HR plans are aligned with the firm's strategic goals and objectives, identifying the workforce skills, knowledge, and capabilities that are required to achieve these goals.
This will help in forecasting labor needs, developing recruitment strategies, and building employee capability programs to fill skill gaps. Additionally, an HR professional can provide input on the workforce implications of the firm's strategic plans and recommend human resource strategies to support the company's goals.
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On a foreign exchange diagram, the equilibrium exchange rate of USD/AUD is 0.90. If US demand for Australian beef increased, ceteris paribus, there would be excess __ AUD and the USD would __.
a. supply of, depreciate.
b. demand for, appreciate.
c. supply of, appreciate.
d. demand for, depreciate.
If US demand for Australian beef increased, ceteris paribus (assuming all other factors remain constant), there would be excess AUD (Australian dollars) and the USD (US dollar) would depreciate.
When the US demand for Australian beef increases, it implies that more US dollars are being exchanged for Australian dollars to purchase the beef. This increased demand for AUD leads to an excess supply of AUD in the foreign exchange market.
As a result, the excess supply of AUD puts downward pressure on the exchange rate of USD/AUD. In other words, the value of the AUD strengthens relative to the USD. Therefore, the USD would depreciate in this scenario.
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On January 1, 2020, Pear Company issued 10% bonds with a face amount of $240,000. The bonds were priced at $210,000 to yield 12%. Interest is paid semiannually on June 30 and December 31. Pear Company's fiscal year ends September 30. Instructions (a) What amount(s) related to the bonds would Pear Company report in its balance sheet at September 30, 2020? (b) What amount(s) related to the bonds would Pear Company report in its income statement for the year ended September 30, 2020? © What amount(s) related to the bonds would Pear Company report in its statement of cash flows for the year ended September 30, 2020? In which section() should the amount(s) appear?
a. The amount related to the bonds Pear Company would report in its balance sheet at September 30, 2020, includes two types of accounts -
(1) Current liabilities, and
(2) Long-term liabilities.
On January 1, 2020, Pear Company issued bonds with a face amount of $240,000, priced at $210,000.
Since Pear Company's fiscal year ends September 30, 2020, the amount of accrued interest for the period of July 1, 2020, to September 30, 2020, should be included in the current liabilities section of the balance sheet.
However, the face amount less the bond discount of $30,000 ($240,000 - $210,000) would be reported as long-term liabilities.
b. Pear Company would report the interest expense on the bond in its income statement for the year ended September 30, 2020. The interest expense is calculated as follows:
Face amount of bond x Interest rate = Annual Interest Payment
$240,000 x 10% = $24,000.
Since the interest is paid semi-annually, the interest expense for the six months ending
September 30, 2020, would be $12,000.
c. In its statement of cash flows for the year ended September 30, 2020,
Pear Company would report the payment of interest expense of $12,000 under the operating activities section.
Also, Pear Company would report the receipt of
$120,000 ($240,000 face amount x 10% interest rate x 6/12 payment period)
from bondholders under the investing activities section.
The company would not report the bond issue as a financing activity as Pear Company issued the bond on
January 1, 2020, which is outside the statement of cash flows period.
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Data, as raw facts, should be converted into meaningful and useful context. Describe challenges of converting big data into information to support business decision making.
One of the most significant challenges of converting big data into information to support business decision making is the complexity of handling a massive amount of data.
It is essential to create an accurate representation of the data to make it understandable and insightful for decision-makers. Big data refers to large amounts of data that cannot be handled by conventional data management systems. The increase in data generation from various sources such as sensors, social media, and others has led to the growth of big data.
The collection and processing of data, data management, and analytics are the primary challenges in converting big data into information to support business decision making. However, companies that can effectively harness the power of big data analytics can make data-driven decisions to drive growth, innovation, and success.
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A bond maturing in 10 years pays annual coupon payment $80 each year and $1,000 upon maturity. Assuming 10% to be discount rate (YTM), the present value of the bond is
a. $877.11
b. $1000.00
c. $1,216.39
d. $1, 785.67
To calculate the present value of the bond, we need to discount the future cash flows using the given discount rate (YTM) of 10%.
The bond has annual coupon payments of $80 for 10 years and a face value payment of $1,000 at maturity. Let's calculate the present value of each cash flow and then sum them up:
PV of annual coupon payments = ($80 / (1 + 0.10)^1) + ($80 / (1 + 0.10)^2) + ... + ($80 / (1 + 0.10)^10)
Using the formula for the present value of an ordinary annuity:
PV of annual coupon payments = $80 * [(1 - (1 / (1 + 0.10)^10)) / 0.10] = $577.10
PV of face value payment at maturity = $1,000 / (1 + 0.10)^10 = $385.54
Total present value of the bond = PV of annual coupon payments + PV of face value payment = $577.10 + $385.54 = $962.64
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Society creates and enforces laws that govern the behavior of businesses. Many of these laws are aimed at protecting citizens and consumers from potential harm. When businesses are impacted negatively, financial losses may be passed on to consumers in the form of higher prices or lower quality of goods and services. Political climates and positions can impact the type of restrictions placed upon businesses. Citizens elect politicians who represent them. Lobbyists influence politicians on behalf of businesses.
What are the expectations that society has regarding how businesses should operate? Which source(s) of law can be influences by citizens? by businesses? Should an understanding of the law and current political climate be part of every company’s managerial strategy? Why or why not?
The social obligations of a business are to ensure that its activities do not harm the environment or other stakeholders.
Corporate accountability: Businesses are responsible for providing correct information about their operations and performance, as well as their impact on society. They must report accurate financial and non-financial information. Businesses must also comply with regulatory guidelines. Legal compliance: Businesses must follow all relevant laws, rules, and regulations related to their business activity.
Judicial Law: It is established by court rulings, which are based on precedents set in previous court cases. Citizens may participate in court cases as plaintiffs or defendants, with the aim of setting a new legal precedent. They may also appeal court rulings to higher courts, which may result in new precedents. The following laws can be influenced by businesses: Regulatory law: It is a type of law that is established by administrative agencies that regulate specific industries or sectors.
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Bonds with the same maturity have different yields because they differ in A level of market efficiency and government intervention. B level of credit, liquidity and tax consideration. level of inflation expectation and transaction cost. D) level of debt contracts and principal-agent problem.
Bonds with the same maturity have different yields because they differ in option B) level of credit, liquidity, and tax considerations.
Bonds with the same maturity have different yields because they differ in the level of credit, liquidity, and tax considerations. Credit risk measures the likelihood of an investor losing their money due to the issuer's inability to pay back the principal and interest amounts as agreed. The level of credit of bonds with the same maturity will differ due to the creditworthiness of the issuers. Bonds with higher levels of credit risk will offer higher yields. Liquidity refers to the ease and speed with which an investor can sell or buy a bond. If the bond market is active and liquid, then bond yields will be lower. On the other hand, if the market is illiquid, bond yields will be higher as investors require a higher return for the additional risks they will have to take. Tax considerations are also important in determining bond yields. For instance, municipal bonds issued by local governments and agencies are usually tax-exempt at the federal level. Therefore, these bonds have lower yields than taxable bonds with the same credit quality and maturity level.
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Kraft Corporation has the following forecasted net income Year 2011: $478,246 Management expects net income to grow at a rate of 6% per year from 2011 to 2015. The company's cost of equity capital is 10%. Management has set a dividend payout ratio equal to 30% of net income and plans to continue this policy. Kraft's common shareholders' equity at January 1, 2011 is $2,224,401, and the long-term growth rate after 2015 is 5%. Requirement: a. Compute the value of Kraft as of January 1, 2011. Use the residual income valuation model. The company pays dividend at the end of the year. b. Assume the current market price is $70, and there are 100,000 shares outstanding. Is Kraft currently overvalued or undervalued? c. Assume that after 2012, Kraft stops paying dividend, is the company overvalued or undervalued?
To compute the value of Kraft as of January 1, 2011 using the residual income valuation model, we can use the following formula:
Value = Dividend / (Cost of Equity x (1 + Growth Rate))
where:
Dividend = 3,000,000(dividend pay out ratio of30
Cost of Equity = 10%
Growth Rate = 6%
Plugging in the values, we get:
Value = 3,000,000/(0.1x(1+0.06))=53,333,333
Therefore, the value of Kraft as of January 1, 2011 is 53,333,333.
b. The current market price of Kraft is 70,and there are 100,000 shares outstanding. To calculate the price−to−earnings ratio,we can use the following formula:
Price-to-Earnings Ratio = Market Price / Earnings per Sharewhere:
Market Price = 70
Earnings per Share = Value from part a
Plugging in the values, we get:
Price-to-Earnings Ratio = 70/53,333,333 = 13.0
Based on this P/E ratio, Kraft appears to be overvalued.
c. If Kraft stops paying dividends after 2012, the residual income model will no longer be applicable. To determine if Kraft is overvalued or undervalued without the dividend, we can use other valuation methods, such as the price-to-book value ratio or the price-to-sales ratio. However, without more information on Kraft's financial performance and industry conditions, it is difficult to make a definitive determination of its value.
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In a post COVID-19 world should countries pursue greater levels of regional economic integration with neighbouring countries or is there an interest in isolating countries to minimise negative impacts? In your answer consider current examples of regional economic integration. (10 marks, 400-word limit)
In a post-COVID-19 world, countries should pursue greater levels of regional economic integration with neighboring countries to promote economic recovery, resilience, and shared benefits.
In a post-COVID-19 world, regional economic integration can play a vital role in promoting economic recovery and resilience. By strengthening cooperation and reducing trade barriers with neighboring countries, countries can benefit from increased market access, economies of scale, and enhanced supply chain resilience. Regional economic integration can also facilitate the sharing of resources, expertise, and best practices, enabling countries to address common challenges collectively.
Examples like the European Union (EU) and the Association of Southeast Asian Nations (ASEAN) demonstrate the benefits of regional economic integration. The EU has established a single market and customs union, facilitating the free movement of goods, services, capital, and labor among its member states. This integration has fostered economic growth, enhanced competitiveness, and promoted stability within the region. Similarly, ASEAN has made significant strides in regional economic integration, including the establishment of the ASEAN Economic Community, which aims to create a single market and production base.
While there may be arguments for isolation to minimize negative impacts, such an approach can hinder economic recovery and limit opportunities for collaboration and shared growth. By pursuing greater levels of regional economic integration, countries can leverage collective strength, foster cooperation, and build a more resilient and prosperous post-COVID-19 future.
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The story of the Lac Mégantic incident represents an important chapter in the modern era of procurement, transportation, and risk management. On July 6, 2013, a runaway train composed of 72 tank cars transporting volatile crude oil from North Dakota to the east coast derailed in the center of a town in rural Quebec- leaving part of Lac Megantic incinerated...and 47 people dead. Soon after of the crash – when many bodies were still being identified -- lawyers from America turn up in town, offering to help families fight for compensation. Working with them, behind the scenes is a shadowy Texan who's made a career out of turning disasters into dollars. He’s not a lawyer...but he has plenty of experience doing one thing: signing up victims of tragic accidents -- and referring them to law firms for a fee. A kind of ambulance chaser, or what’s called a "case runner." It’s a practice that has grown so out of hand in Texas they made it illegal. But nothing stopped the Texan from making millions in Quebec. Radio-Canada’s Enquete program, Mark Kelley reports on The Case Runner. The case also provides valuable lessons in global logistics and procurement.
What are the responsibilities of the countries to protect their own people regarding the procurement and transportation of dangerous products?
The Exporters:
The Importers:
The Government:
What are lessons that can be learned in risk products supply chain?
There are many lessons that can be learned in risk products supply chain as the Lac Mégantic incident represents an important chapter in the modern era of procurement, transportation, and risk management. Given below are the responsibilities of the countries and the lessons that can be learned in risk products supply chain.
The Exporters: The exporters have the responsibility of producing goods of safe quality and ensuring the safety of products that are exported. The exporters should carry out testing and provide clear information on products, including labelling, packaging, and instructions for safe use.
The Importers: The importers have a responsibility to ensure that the products they import are safe. Importers should check with their suppliers to ensure that the goods they import meet the safety standards set by the government. The importers should keep track of the products they receive and should report any defects or safety issues to the government.
The Government: The government has a responsibility to establish regulations and standards for the production, transportation, and sale of goods. The government should establish safety standards and enforce them by carrying out inspections and imposing penalties for violations.
The government should work with the industry to develop guidelines for the safe handling and transportation of hazardous materials. Lessons that can be learned in risk products supply chain are: It is important to establish clear and enforceable regulations for the transportation and handling of hazardous materials.
Training should be provided to employees to ensure they understand the risks associated with hazardous materials. The industry should be encouraged to use safer alternatives to hazardous materials wherever possible. Effective communication is key to ensuring the safety of hazardous materials during transportation and handling.It is important to carry out regular safety inspections and maintenance of equipment used for the transportation and handling of hazardous materials.
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c. Jennings believes that a $1 reduction in price will in- crease sales by 50 percent. Is this enough for Jennings to break even? If not, by how much would sales have to increase? d. Jennings is considering ways to either stimulate sales volume or decrease variable cost. Management be- lieves that either sales can be increased by 30 percent or that variable cost can be reduced to 85 percent of its current level. Which alternative leads to higher contributions to profits, assuming that each is equally costly to implement? (Hint: Calculate profits for both alternatives and identify the one having the greatest profits.) e. What is the percent change in the per-unit profit contribution generated by each alternative in part (d)? 2. A product at the Jennings Company enjoyed reasonable sales volumes, but its contributions to profits were disap- pointing. Last year, 17,500 units were produced and sold. The selling price is $22 per unit, the variable cost is $18 per unit, and the fixed cost is $80,000. a. What is the break-even quantity for this product? Use both graphic and algebraic approaches to get your answer. b. If sales were not expected to increase, by how much would Jennings have to reduce their variable cost to break even?
Previous question
c. To determine if Jennings will break even, we need to calculate the contribution to profits from the increase in sales.
Current sales volume = 17,500 units
Current selling price = $22 per unit
Current variable cost = $18 per unit
Current fixed cost = $80,000
Profit per unit = Selling price - Variable cost = $22 - $18 = $4
Contribution to profits from current sales = Profit per unit × Current sales volume = $4 × 17,500 units = $70,000
If the price is reduced by $1, the new selling price will be $22 - $1 = $21.
The expected increase in sales is 50 percent. Therefore, the new sales volume will be 17,500 units + (0.5 × 17,500 units) = 26,250 units.
Contribution to profits from increased sales = Profit per unit × Increased sales volume = $4 × 26,250 units = $105,000
Since the contribution to profits from the increased sales ($105,000) is higher than the current contribution to profits ($70,000), Jennings will break even.
d. To compare the alternatives, let's calculate the profits for both scenarios:
Alternative 1: Increase sales volume by 30%
New sales volume = 17,500 units + (0.3 × 17,500 units) = 22,750 units
Profit from increased sales volume = Profit per unit × New sales volume = $4 × 22,750 units
Alternative 2: Reduce variable cost to 85% of its current level
New variable cost per unit = 0.85 × Current variable cost = 0.85 × $18
Profit from reduced variable cost = Profit per unit × Current sales volume = $4 × 17,500 units
To determine which alternative leads to higher contributions to profits, compare the profits from each alternative.
e. To calculate the percent change in the per-unit profit contribution, we can use the following formula:
Percent change = ((New value - Old value) / Old value) × 100
For Alternative 1 (increased sales volume):
Percent change in per-unit profit contribution = ((Profit from increased sales volume - Current profit per unit) / Current profit per unit) × 100
For Alternative 2 (reduced variable cost):
Percent change in per-unit profit contribution = ((Profit from reduced variable cost - Current profit per unit) / Current profit per unit) × 100
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