Step by Step Assistance

Monday, 13 June 2016

Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable costs are $84 per unit.

Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable costs are $84 per unit. The company’s annual fixed costs are $627,000. The sales manager predicts that annual sales of the company’s product will soon reach 39,700 units and its price will increase to $197 per unit. According to the production manager, the variable costs are expected to increase to $137 per unit but fixed costs will remain at $627,000. The income tax rate is 35%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?
 
Prepare a forecasted contribution margin income statement. 
 save image

Explanation:
BLANCHARD COMPANY
Forecasted Contribution Margin Income Statement
  Sales (39,700 × $197)   $ 7,820,900  
  Variable costs (39,700 × $137)     5,438,900  
   

 
  Contribution margin (39,700 × $60)     2,382,000  
  Fixed costs     627,000  
   

 
  Income before taxes     1,755,000  
  Income taxes (35% × $1,755,000)     614,250  
   

 
  Net income   $ 1,140,750  
   



 

 
  

Saturday, 12 March 2016

During 2015, Trombley Incorporated has the following inventory transactions.

Exercise 6-5 Calculate inventory amounts when costs are declining (LO3)
[The following information applies to the questions displayed below.]


During 2015, Trombley Incorporated has the following inventory transactions.


  Date Transaction Number
of Units
Unit
Cost
   Total Cost
  Jan. 1      Beginning inventory 18      $ 20       $ 360    
  Mar. 4      Purchase 23      19       437    
  Jun. 9      Purchase 28      18       504    
  Nov. 11      Purchase 28      16       448    


97      $ 1,749    





 
For the entire year, the company sells 71 units of inventory for $28 each.
Required:
1.
Using FIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.
 save image
Explanation:
1.
  Date Transaction Number
of Units
Unit
Cost
Ending Inventory
Nov. 11 Purchase 26 $ 16        $ 416

  
  Date Transaction Number
of Units
Unit
Cost
Cost of Goods Sold
Jan. 1        Beginning inventory 18        $ 20       $ 360       
Mar. 4        Purchase 23        19       437       
Jun. 9        Purchase 28        18       504       
Nov. 11        Purchase 2        16       32       


71*      $ 1,333       






* First 71 units purchased are assumed sold
 

Sales revenue = 71 units × $28 = $1,988
  
Gross profit = Sales revenue − Cost of goods sold
= $1,988 − $1,333 = $655

2.
Using LIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.
 save image
Explanation:
2.
  Date Transaction Number
of Units
Unit
Cost
Ending Inventory
  Jan. 1       Beginning Inventory 18       $ 20       $ 360     
  Mar. 4       Purchase 8        19       152     


26       $ 512     





    
  Date Transaction Number
of Units
Unit
Cost
Cost of Goods Sold
  Mar. 4       Purchase 15     $ 19       $ 285     
  Jun. 9       Purchase 28     18       504     
  Nov. 11       Purchase 28     16       448     


71*    $ 1,237     






* Last 71 units purchased are assumed sold
 
Sales revenue = 71 units × $28 = $1,988
  
Gross profit = Sales revenue – Cost of goods sold
= $1,988 − $1,237 = $751


Which method will result in higher profitability when inventory costs are declining?

FIFO LIFO Weighted
Average  
  Gross profit $ 655 $ 751 $ 708

     LIFO results in higher profitability when inventory costs are declining.

During 2015, TRC Corporation has the following inventory transactions.

Exercise 6-4 Calculate inventory amounts when costs are rising (LO3)
[The following information applies to the questions displayed below.]


During 2015, TRC Corporation has the following inventory transactions.


  Date Transaction Number
of Units
  Unit
  Cost
Total Cost
  Jan. 1       Beginning inventory 48      $ 40       $ 1,920    
  Apr. 7       Purchase 128      42         5,376    
  Jul. 16       Purchase 198      45         8,910    
  Oct. 6       Purchase 108      46         4,968    
   
 

    482        $ 21,174    
   

 






For the entire year, the company sells 427 units of inventory for $58 each.
Required:
1.
Using FIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.

 save image
Explanation:
1.
 Date Transaction Number
of Units
Unit
Cost
Ending Inventory
Oct. 6 Purchase 55 $ 46        $ 2,530
   

 


  Date Transaction Number
of Units
Unit
Cost
Cost of
Goods Sold
  Jan. 1      Beginning inventory 48     $ 40         $ 1,920    
  Apr. 7      Purchase 128     42           5,376    
  Jul. 16      Purchase 198     45           8,910    
  Oct. 6      Purchase 53     46           2,438    
   
 

    427*       $ 18,644    
   

 





*First 427 units purchased are assumed sold

Sales revenue = 427 units × $58 = $24,766

Gross profit = Sales revenue − Cost of goods sold
  = $24,766 − $18,644 = $6,122

Exercise 6-4 Part 2
2.
Using LIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.
 save image
Explanation:
2.
  Date Transaction Number
of Units
Unit
Cost
Ending Inventory
Jan. 1     Beginning Inventory 48 $ 40       $ 1,920     
Apr. 07   7 $42       $294     
   
 
    55   $ 2,214     
   

 




  Date Transaction Number
of Units
Unit
Cost
Cost of Goods Sold
  Apr. 7 Purchase 121 $ 42        $   5,082     
  Jul. 16 Purchase 198 45        8,910     
  Oct. 6 Purchase 108 46        4,968     
   
 
     427*   $ 18,960     
   

 



* Last 427 units purchased are assumed sold


Sales revenue = 427 units × $58 = $24,766


Gross profit = Sales revenue – Cost of goods sold
  = $24,766 ? $18,960 = $5,806

Exercise 6-4 Part 3
3.
Using weighted-average cost, calculate ending inventory, cost of goods sold, sales revenue, and gross profit. (Round your average cost per unit to 4 decimal places.)
 save image

Explanation:
3.
  Date Transaction Number
of Units
Unit
Cost
Total Cost
  Jan. 1       Beginning inventory 48       $ 40         $ 1,920   
  Apr. 7       Purchase 128       42            5,376   
  Jul. 16       Purchase 198       45           8,910   
  Oct. 6       Purchase 108       46           4,968   
   
 

    482         $ 21,174   
   

 




   
Weighted-average cost = $21,174/482 units = $43.9295 (rounded to 4 decimal places).
    
Ending inventory = 55 units × $43.9295 = $2,416
    
Cost of goods sold = 427 units × $43.9295 = $18,758 ($1 rounding error)
    
Sales revenue = 427 units × $58 = $24,766
    
Gross profit = Sales revenue − Cost of goods sold
  = $24,766 − $18,758 = $6,008