Friday 26 September 2014

Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to 2.7% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by trading costs? (Round your answer to 1 decimal place.)

Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to 2.7% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by trading costs? (Round your answer to 1 decimal place.)

  Fall in returns %  


Explanation:
The turnover rate is 50%. This means that, on average, 50% of the portfolio is sold and replaced with other securities each year. Trading costs on the sell orders are 2.7%; the buy orders to replace those securities entail another 2.7% in trading costs. Total trading costs will reduce portfolio returns by: 2 × 0.027 × 0.5 = 0.027 or 2.7%

The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of .5% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return net of operating expenses is 10% annually.

The Investments Fund sells Class A shares with a front-end load of 6% and Class B shares with 12b-1 fees of .5% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return net of operating expenses is 10% annually.

a. If you plan to sell the fund after four years, are Class A or Class B shares the better choice for you?
   
  Class B

b. What if you plan to sell after 15 years?
   
  Class A


Explanation:

Consider a mutual fund with $203 million in assets at the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $5 million. The stocks included in the fund's portfolio increase in price by 7%, but no securities are sold, and there are no capital gains distributions. The fund charges 12b-1 fees of 0.75%, which are deducted from portfolio assets at year-end.

Consider a mutual fund with $203 million in assets at the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $5 million. The stocks included in the fund's portfolio increase in price by 7%, but no securities are sold, and there are no capital gains distributions. The fund charges 12b-1 fees of 0.75%, which are deducted from portfolio assets at year-end.

a.
What is net asset value at the start and end of the year? (Enter your answers in dollars rounded to 3 decimal places.)
 
  Net Asset Value
  Start of the year $       
  End of the year       

   
b.
What is the rate of return for an investor in the fund? (Use rounded "Net Asset Value". Round your answer to 2 decimal places.)
 
  Rate of return %  


Explanation:

The Closed Fund is a closed-end investment company with a portfolio currently worth $215 million. It has liabilities of $6 million and 4 million shares outstanding.

The Closed Fund is a closed-end investment company with a portfolio currently worth $215 million. It has liabilities of $6 million and 4 million shares outstanding.

a.
What is the NAV of the fund? (Round your answer to 2 decimal places.)

  NAV $   

b.
If the fund sells for $49 per share, what is its premium or discount as a percent of NAV? (Input the amount as a positive value. Round your answer to 2 decimal places.)

  The fund sells at an % Discount from NAV.


Explanation: a.
NAV =
Market value of assets – Market value of liabilities
Shares outstanding

=  
$215,000,000 – $6,000,000
 = $52.25
4,000,000

b.
Premium (or discount) = 
Price – NAV 
 = 
$49 – $52.25
 = –0.0622 = –6.22%
NAV $52.25

The fund sells at an 6.22% discount from NAV.

An open-end fund has a net asset value of $11.40 per share. It is sold with a front-end load of 7%. What is the offering price?

An open-end fund has a net asset value of $11.40 per share. It is sold with a front-end load of 7%. What is the offering price? (Round your answer to 2 decimal places.)

  Offering price $   


Explanation:
The offering price includes a 7% front-end load, or sales commission, meaning that every dollar paid results in only $0.93 going toward the purchase of shares. Therefore:
 
Offering price =
NAV
=
$11.40
 = $12.26
1 − load 1 − 0.07

Escher Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

Escher Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

  Overhead costs:  
  Wages and salaries $552,000  
  Other expenses
220,000  
  Total
$772,000  

Distribution of resource consumption
 
Activity Cost Pools
  Filling
Orders
Customer
Support
Other Total
  Wages and salaries 40%     55%     5%     100%    
  Other expenses 50%     45%     5%     100%    

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows:

Activity Cost Pool Activity
  Filling orders 5,400    orders
  Customer support 22    customers

What would be the total overhead cost per order according to the activity based costing system? In otherwords, what would be the overall activity rate for the filling orders activity cost pool?
$63.26
correct $61.26
$58.76
$67.76

Capizzi Corporation has an activity-based costing system with three activity cost pools-Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

Capizzi Corporation has an activity-based costing system with three activity cost pools-Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

  Overhead costs:  
  Equipment depreciation $81,200  
  Supervisory expense $7,000  

Distribution of Resource Consumption Across Activity Cost Pools:
 
Activity Cost Pools
  Machining Order Filling Other
  Equipment depreciation 0.50      0.20         0.30    
  Supervisory expense 0.50      0.10         0.40    

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow:

  Activity:    
  MHs (Machining) Batches (Order Filling)
  Product Y7 1,680           860            
  Product V2 9,710           2,240            
  Total
11,390          
3,100            

What is the overhead cost assigned to Product V2 under activity-based costing? (Round your intermediate calculations to 2 decimal places.)
$37,578
correct $49,808
$12,230
$60,340

Fogle Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

Fogle Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

  Overhead costs:  
  Wages and salaries $128,000  
  Other expenses 64,000  
  Total
$192,000  

  Distribution of resource consumption:
   Activity Cost Pools  
   Making
Bouquets
Delivery Other Total
  Wages and salaries 60%     30%     10%     100%   
  Other expenses 45%     50%     5%     100%   

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.

The amount of activity for the year is as follows:

  Activity Cost Pool Activity
  Making bouquets 57,390 bouquets  
  Delivery 12,500 deliveries  

What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool?
$6.49
$5.20
$3.92
correct $5.63

Matt Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 8,000 units and of Product B is 7,000 units. There are three activity cost pools, with total cost and total activity as follows:

Matt Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 8,000 units and of Product B is 7,000 units. There are three activity cost pools, with total cost and total activity as follows:

   
Total Activity
  Activity Cost Pool Total Cost Product A Product B Total
  Activity 1 $28,600   120     530     650    
  Activity 2 $42,550   920     230     1,150    
  Activity 3 $129,340   840     3,620     4,460    

The activity-based costing cost per unit of Product A is closest to: (Round your intermediate calculations to 2 decimal places.)
$2.46
correct $7.96
$5.76
$12.65

Spendlove Corporation has provided the following data from its activity-based costing system:

Spendlove Corporation has provided the following data from its activity-based costing system:

  Activity Cost Pool Total Cost Total Activity
  Assembly $1,660,260   59,000    machine-hours
  Processing orders $69,455.70   2,290    orders
  Inspection $126,338   1,810    inspection-hours

The company makes 780 units of product S78N a year, requiring a total of 1,140 machine-hours, 64 orders, and 36 inspection-hours per year. The product's direct materials cost is $58.21 per unit and its direct labor cost is $14.69 per unit. The product sells for $124.00 per unit.

According to the activity-based costing system, the product margin for product S78N is: (Round your intermediate calculations to 2 decimal places.)
$39,858.00
correct $3,324.48
$5,265.60
$5,837.28

Yedder Enterprises was a pioneer in designing and producing precision surgical lasers. Yedder’s product was brilliantly designed, but the manufacturing process was neglected by management with a consequence that quality problems have been chronic.

Yedder Enterprises was a pioneer in designing and producing precision surgical lasers. Yedder’s product was brilliantly designed, but the manufacturing process was neglected by management with a consequence that quality problems have been chronic. When customers complained about defective units, Yedder would simply send out a repairperson or replace the defective unit with a new one. Recently, several competitors came out with similar products without Yedder’s quality problems, and as a consequence Yedder’s sales have declined.

          To rescue the situation, Yedder embarked on an intensive campaign to strengthen its quality control at the beginning of the current year. These efforts met with some success—the downward slide in sales was reversed, and sales grew from $90 million last year to $100 million this year. To help monitor the company’s progress, costs relating to quality and quality control were compiled for last year and for the first full year of the quality campaign this year. The costs, which do not include the lost sales due to a reputation for poor quality, appear below:

 
Costs (in thousands)
      Last Year   This Year
  Product recalls $ 2,592    $ 600   
  Systems development $ 522    $ 950   
  Inspection $ 828    $ 1,240   
  Net cost of scrap $ 693    $ 1,470   
  Supplies used in testing $ 27    $ 100   
  Warranty repairs $ 4,374    $ 1,440   
  Rework labor $ 1,170    $ 2,000   
  Statistical process control $ 0    $ 170   
  Customer returns of defective goods $ 1,521    $ 1,110   
  Cost of testing equipment $ 180    $ 360   
  Quality engineering $ 504    $ 820   
  Downtime due to quality problems $ 855    $ 1,300   


Required:
1.
Prepare a quality cost report for both this year and last year. (Round your percentage answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and "%" signs in your response.)

Yedder Enterprises
Quality Cost Report (in thousands of dollars)
 
Last Year
This Year
          Amount
        (000s)
Percent of
Sales
        Amount
        (000s)
Percent of
Sales
  Prevention Costs:        
    Systems development $    %   $    %  
    Statistical process control    %      %  
    Quality engineering    %      %  
 



  Total prevention costs    %      %  
 



  Appraisal Costs:        
    Inspection    %      %  
    Supplies used in testing    %      %  
    Cost of testing equipment    %      %  
 



  Total appraisal costs    %      %  
 



  Internal failure costs:        
    Net cost of scrap    %      %  
    Rework labor    %      %  
    Downtime due to quality problems    %      %  
 



  Total internal failure costs    %      %  
 



  External failure costs:        
    Product recalls    %      %  
    Warranty repairs    %      %  
    Customer returns of defective goods    %      %  
 



  Total external failure costs    %      %  
 



  Total quality cost $    %   $    %