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The following ad was placed by a used car dealer in town.

$2,000 down

$99 for first 12 months +


$199 for 36 months.
What is the price of the car if the interest rate is 12% per year?
Given,
Down 2,000
Monthly Payment

$99

Than $199
Interest Rate 12%

PV of next 36 installment

$5,991.39

PV of next 36 installment $5349.458484


PV of 12 payment

$1,114.25

Price of the Car

$8,463.71

-------------------------------------------------------2. ABC Costing System is very costly.


3.Because of the difference in the costing basis the costing and financial reports of the any
two org. in the industry can not be compared.
4.All companies cannot have too many activities which makes ABC will be worthless to
them.

5. ABC Costing System can easily misinterpret and can lead towards wrong decisions
------------------------------------------------------Cash conversion = Days of inventory outstanding + Days of sales outstanding Days of
payables outstanding
Days of inventory outstanding = Average inventory / cost of goods sold per day
= $5,000/($170,000/365) = 10.7816
Days of sales outstanding = Average accounts receivable / revenue per day
= $26,000/($235,000/365) = 40.3829
Days of payable outstanding = Average accounts payable / cost of goods sold per day
= $7,500/($170.000/365) = 16.1029
Cash conversion = 10.7816+40.3829-16.1029 = 35.0618 days
THE AUDITOR AS WHISTE BLOWER
Unless audit staff handles audit correctly they may can identify the triggers of whistle blower
mechanism. if they tell the audit partner. But if the revelation is not shared with the audit
partner then the quality of the audit may be in jeopardy. Before looking closer at the how
you can prepare your auditors and audit team members for a whistleblowers revelation, it is
useful to look at the benefits of protecting whistleblowers. Corporate cultures of silence,
which allow wrong doing to go undetected, are seen as contributing to the recent round of
local and international corporate failures. A regime protecting whistleblowers is seen as part
of the answer because it encourages reporting of contraventions by employees.
The auditor should be friendly to attract the whistle blower triggers.
Whistleblower legislation is becoming increasingly common. It has traditionally been more
common in the public sector than the private sector. But in the late 1990s it started to
become part of the international regulatory response to corporate fraud, particularly
covering up such fraud in the financial reports. In the USA the Sarbanes-Oxley Act gives

whistleblower protection for corporate employees and mandates companies establish


procedures to permit anonymous reporting by employees. It places the obligation to
establish these on the audit committee.
In the United Kingdom, the Combined Code of Corporate Governance establishes whistle
blower protections and recommends audit committees have whistleblower arrangements for
financial reporting irregularities.

In the audit of a concern the auditors responsibility is to express opinion on the financial
statements that whether they are free from material misstatement which is caused by error
or fraud. The primary responsibility to detect the fraud is of the management and the auditor
is not the sole responsible person to detect the fraud but when he comes through the fraud
he should consider the effect of fraud on the financial statements and should report to the
appropriate levels whether management or Those who charged with governance.
There three sources of fraud,
1. Incentive or pressure - Management or employees are under an incentive or pressure,
which gives the motivation to commit such a fraud.
2.Opportunity - Due to lack of presence controls or non presence of controls gives the
persons an opportunity to commit an fraud.
3.Rationalization / Attitude - Due to weak personal code of ethics the attitude of persons
could be that to commit such an fraud.
The auditor should maintain the professional skepticism that means the auditor needs to set
apart the past relationships with the client and should assess the client financial statements
independently.
The auditor should take decisions based on the audit evidences which can be external or
internal, past experiences and the integrity of management.
So mere the an employee is reporting that the manager in operations is earning much for
the past 2 years it can not be assumed that the manager is involved in the fraud.

There can be many reasons for the increased financial status of the manager for example
incentives from the company, other incomes, stock market gains etc..
There can be reasons for taking only two suppliers into consideration may be there can be
better prices are being offered by the suppliers or there may be lack of suppliers in the
market over a period of time etc
The auditor shall obtain audit evidence regarding there issues and shall analyze that
actually fraud existed or not. There may be a chance that the reporting employee may have
grudge on the manager or the information is falsified.
It is the responsibility of auditor to look into such matters

cost of new equity using the dividend growth rate is:


(Dividend / (Price * (1-Flotation Cost) ) + Growth Rate

The general trend among state governments is to allow the use of no par value stock,
since the practice of issuing par value stock at the absolute minimum amount has
essentially eliminated the reason for having par value. Thus, we may eventually see
the elimination of the par value concept as it relates to company stock.

The use of no par stock does not apply to other types of securities, such as bonds,
where the par value is essentially the same as the face value of the instrument.
-------------------------------------------------------------------------------------------------------------------------

Caluclation of NPV,

discount rate = 10 yr treasury bond yeild as on 10.41 AM on 07/05/2016 + 7% = 1.39% +


7% = 8.39%
Caluclation of net cashflows every year,
Net
operati
fixed
Sales
ye with

manufactu operati ng
ring cost ng cost profit

ar inflatio with
na

operati

with

ng
Tax

revenu

savings

e=

on

Tax expense

depreciat
inflation b inflatio D =aion
b-c
nc

operati
ng
profit tax
expen

Worki
ng
capita
l base
=
10%

Net
cash
inflow

of
sales

se
340,00
50,000
1

* 35 =
1750,0
00

50000 *
25.2 =
1260000

150,00
0

40000*0.

340,00 3 =
0

12000

340,000-

0-

12,000 =

98400 175,0 66,60

328000 * 30% =
= 98400

00

241,60
0

4
5

18375
00

19293
75
20258
44

1304100

1349743

1396984

15375 379,65
0

15759 422,03
4

16153 467,32
4

40000*0.
3=
12000

37965012000=36765 26935 18375 8560


0*0.3 =

123011

12000
40000*0.
3=

110295

40000*0.
3=

136598

12000

29902 19293 1060


7

90

33072 20258 1281


8

44

21271 1445879

16557 515,68 40000*0. 151105

36458 21271 1518

36

3=

67

12000
6

10

22334
93
23451
67
24624
26
25855
47
27148
24

1496485

1548862

1603072

1659179

1717251

16971 567,29
1

17395 622,35
4

17830 681,05
3

18276 743,60
0

18732 810,24
9

40000*0.
3=

166589

12000
40000*0.
3=

183105

12000
40000*0.
3=

200715

12000
40000*0.
3=

219482

12000
40000*0.
3=

239473

12000

40070 22334 1773


8

59

43924 23451 2047


6

29

48033 24624 2340


6

93

52412 25855 2655


6

71

57077 27148 2992


1

year

cashflow

PVF@ 8.39%

Discounted cashflow

- $400,000

- $400,000

66,600

0.9226

61445.16

85605

0.8512

72866.98

106090

0.7853

83312.48

128144

0.7245

92840.33

151867

0.6684

101507.9

89

177359

0.6167

109377.29

204729

0.5689

116470.33

234093

0.5249

122875.41

265571

0.4843

128616.03

10

299289

0.4468

133722.32

10

10,000

0.4468

4468

NPV

1,023,034.23

Caluclation of profitability index = PV of infows / PV of outflows = 1,423,034.23 / 400,000 =


5.495
IRR is caluclated by me on trail and error basis IRR = 18.7544%
Payback period = 4 years + 92840.33 / 101507.9 = 4.88205 years
The project can be accepted in all ways because NPV is positive , Porfitability index is more
than 1, IRR is more than cost of capital, payback period is also lesser.
NOTE - since it is an large solution it might have arthametical errors.

#johnsonenterprises #uses a computer to handle its sales invoices, lately business


so has been good that it takes an extra 3 hours

existing
machine

new machine

Net income increase /


(decrease)

Operating costs
new machine cost
(depreciation)
salvage value

24,880
-

19,720
24,960 - 0 / 5 =
4992

$5,160
(4992)

9750

9750

Net income

= 9,918

The current machine should be replaced. since the net income from new machine is higher
than the older one.

The Apollo Delivery Service has the following information about its
truck fleet miles and operating costs: Year Miles Operating Costs
2011 250,000 $160,000 2012 300,000 $175,000 2013 350,000
$210,000 What is the best estimate of fixed costs for fleet operating
expenses in 2014 using the high-low method? $100,000 $ 35,000
$175,000 $ 50,000

Select the Highest and Lowest activities in operations i.e. 2011 & 2013.,
Variable cost per mile = Change in cost/ Change in activity
Variable cost per mile =[$210,000 - $160,000] / [350,000 250,000 ] =$0.5 per mile
Total cost = VC + FC = 210,000 = FC + 350,000 * 0.5
FC = $ 35,000

ACG 2071 - Managerial Accounting


Study Probes - Chapters 4, 5, and 6
Problems
1.

Marx Inc. supplied the following data:


Month
Miles
Total Cost
January
60,000
$95,000
February
70,000
103,000
March
50,000
83,000
April
80,000
101,000
Use the high-low method, to calculate variable cost per unit, total fixed costs, and the
cost equation (in good form).

Choose March and April....lowest activity levels.


VC per unit = [$101,000 $83,000] / [80,000 50,000] = $0.60 per mile
TC = VCx + FC
$101,000 = $0.60*80,000 + FC
FC = $53,000
TC = 0.60X + 53,000
2. Accustaff Company's high and low level of activity was 8,000 units during March and
3,000 units produced in August. Machine maintenance costs were $29,000 in March
and $12,000 in August. Using the high-low method, how much will total maintenance
cost be in January of the following year if production is expected to be 7,000 units?
VC per unit = [$29,000 $12,000] / [8,000 3,000] = $3.40 per unit
TC = VCx + FC
$29,000
FC = $1,800

[8,000*$3.40]

FC

TC at 7,000 units:
TC = 7,000*$3.40 + $1,800
TC = $25,600
3. The following totals are available from accounting records of Steering Company in
May when it sold 1,000 widgets with sales totaling $35,000:
Fixed product costs
$8,000
Variable operating costs
$6,000
Variable product costs
12,000
Fixed operating
costs
10,000
How much is contribution margin per unit? What information does this amount
provide?
[$35,000 $12,000 $6,000] / 1,000 = $17 per unit
Steering Company has $17,000 available to cover fixed costs and to
contribute to profit.
How much is the gross profit ratio? What information does this amount provide?
[$35,000 $12,000 $8,000] / $35,000 = 42.86%
Steering Company has about 43 cents out of every sales dollar available to
cover operating costs and to contribute to profit.

4. Clark Company produces flash drives for computers, which it sells for $20 each.
Each flash drive costs $6 of variable costs to make. During April, 1,000 drives were
sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month.
How much is the contribution margin ratio for April?
CMR for April: [$20 - $6] / $20 = 70%
Operating income?

Operating income: [$20 - $6]*1,000 $1,000 = $13,000

5.

Two costs at Watson, Inc. appear below for specific months of operations.
Delivery costs

Utilities

Month
January
February
March

January
February
March
Which type of costs are these? Justify.

Amount
$42,000
42,000
42,000

Units Produced
40,000
60,000
54,000

$ 84,000
126,000
113,400

40,000
60,000
54,000

Delivery: Fixed cost since total cost at all 3 activity levels is the same total.

Utilities: FC ruled out since total cost at both activity levels is different.
VC per unit is $84,000/40,000 = $$2.10; and $126,000/60,000 = $2.10;
and $113.400/54,000 = $2.10; Since VC per unit is the same for all activity
levels, the cost is variable.
6. Regression output appears below. How much is the total expected cost is 3,100 units
are produced and sold?
Regression Statistics
0.956548
Multiple R
5
R Square
0.914985
Adjusted R
0.906483
Square
5
Standard
67.79943
Error
2
Observatio
ns
12

ANOVA
df
Regression
Residual
Total

Intercept
X Variable
1

SS
49432.
1
37
45967.
10
62
11 540700

Coefficie Standar
nts
d Error
847.9829
9
407
1.315078
1
0.127

MS
494732
4596.76
29

F
107.
6

Pvalu
t Stat
e
0.06
2.084
4
0.00
10.37
6

Significan
ce F
1E-06

Lower
95%
-58.8
1.033

Uppe
r
95%
1755
1.59
8

Lower
95.0%

Uppe
r
95.0
%

-58.8

1755

1.033

1.598

y = 1.3150781*3,100 + 847.98299 = $4,925

7. Butts, Inc. collected the following production data for the past
month:
Units
Produced
1,600
1,300
1,500
1,000

Total Cost
$44,000
38,000
45,000
33,000

If the high-low method is used, what is the monthly total cost equation?
[$44,000 - $33,000] / [1,600 - 1,000] = $18.33 per unit
$44,000 = $18.33333*1,600 + FC
FC = $14,667
TC = $18.33x + $14,667
8. Golden Company produced 1,000 items and had the following costs-Depreciation, $10,000; Materials, $8,000; Rent, $5,000, and Labor, $15,000.
How much is variable cost per unit?
[$8,000 + 15,000] / 1,000 = $23 per unit

9. Information concerning amounts for Bridges, Inc. appears below:


Cost
Units
January
$100,000
1,200
February
120,000
1,600
March
90,000
1,100
April
85,000
1,250
May
110,000
1,300
Using the high-low method, what is the fixed portion of costs?

[$120,000 - $90,000] / [1,600 - 1,100] = $60 per unit


$120,000 = $60*1,600 + FC
FC = $24,000
10. The following costs were incurred related to providing 80,000 car washes:
Car wash labor
$240,000 Electric power to move conveyor belt
Soap, cloth, and
32,000 Depreciation
supplies
Water
28,000 Supervisory salaries
How much is the variable cost per car to the nearest whole cent?
Car wash labor
$ 240,000
Soap, cloth, and
32,000
supplies
Water
28,000
Electric power to move conveyor belt
72,000
Total variable cost
$372,000
Variable cost per unit = $372,000/80,000 =

$ 4.65

11. Total costs amount to $6,000 when labor hours total 400, and $5,000 when labor
hours total is 300. Using the high-low method, what would be the total cost when labor
hours amount to 450 hours?

[$6,000 - $5,000] / [400 - 300] = $10 per hour = variable cost


Total cost = Variable cost + Fixed cost
$6,000 = $10 (400) + FC; so FC = $2,000;
$10(450) + $2,000 = $6,500

$72,000
64,000
46,000

12. Page Companys accountants provided the following information for its sales and
production of one product:
June
July
August
September October
Volume direct labor-hours per
50,000
60,000
70,000
80,000
90,000
month
Total cost per month
$15,000 $14,900 $18,000
$23,000 $22,800
When using the high-low method, which months data will be used to estimate
costs?
Choose June and October from the Units column.
[$22,800 - $15,000] / [90,000 - 50,000] = $0.195 per unit
TC = VC x + FC
$15,000 = 0.195 (50,000) + FC, so FC = $5,250
How do the results using regression differ from those using the high-low method
conceptually and why do they differ? Which is better?
Regression uses all the data points (all 5 months) while high-low uses only the highest
and lowest activity points. The high-low points can be outliers (extremes) that are not
representative of the linear function, so the regression is more accurate as it reflects all
activity.
Draw a large scale scattergraph (the larger the scale, the more accurate). Write the cost
equation based on your graph.

Extending the trendline to the y-axis shows that the line crosses at about $3,300 (fixed
costs). The variable cost is rise over run, in this case, approximately: $10,000/2,500
units = $4 per unit
TC = 4.00x + 3,300
13. RMA Companys accountants provided the following information:
June
July
August
September
October
Miles per month
13,000
9,000
9,500
11,500
14,000
Total cost per month
$210,000 $164,000 $160,00
$180,000 $208,000
0
Use the high-low method for parts A, B, and C.
A. Calculate the unit variable cost.
($208,000 - $164,000) / (14,000 - 9,000) = $8.80 per unit
B. Calculate total fixed cost.
TC = VC x + FC
$164,000 = $8.80(9,000) + FC
so FC = $84,800
C. Write the total cost equation:
y = 8.80X + 84,800
14. Sale Company produced and sold 5,000 tuples. At this level of production, each unit
has a selling price of $22, a variable cost of $10, and a fixed cost of $5. How much is
the total cost if Sale produces and sells 4,000 tuples?
Total fixed cost at 5,000 units = 5,000 x $5 = $25,000
Fixed cost is the same in total regardless of the number of units, so at 4,000 units, FC =
$25,000.
Total cost at 4,000 units:
Variable cost = 4,000 x $10 = $40,000
Fixed cost = $25,000
Total cost = $65,000
15. Which of the following costs are variable?
Cost
8,000 Units
10,000 Units
1
$100,000
$125,000
2
40,000
50,000
3
80,000
110,000
Costs 1 and 2 are variable since the cost per unit is the same at both levels.
. Variable costs per unit are the same at any level of activity. Costs per unit are:
Cost 1: $100,000/8,000 = $12.50 and $125,000/10,000 = $12.50
Cost 2: $40,000/8,000 = $5.00 and $50,000/10,000 = $5.00

Cost 3 is a mixed cost since the total cost is different, however, since the cost per unit is
not the same at both levels, this is a mixed cost.
Cost 3: $80,000/8,000 = $10.00 and $110,000/10,000 = $11.00
16. Acustaff Company's high and low level of activity was 10,000 units during March
and 6,000 units produced in August. Machine maintenance costs were $24,000 in
March and $19,000 in August. Using the high-low method, how much will total
maintenance cost be in January of the following year if production is expected to be
8,250 units?
Cost per unit using high-low method: [$24,000 - $19,000]/[10,000 - 6,000] = $1.25 per
unit
Total costs = VC + FC: $24,000 = (10,000*$1.25) + FC; so FC = $11,500
Total costs at 8,250 units = (8,250*$1.25) + $11,500 = $21,813
How does the concept of relevant range apply to this problem?
The cost function is assumed to be linear in a company's relevant range...its normal
level of operating activity. In this case, it appears that operating anywhere between
6,000 and 10,000 units. When operating outside this range, the company cannot expect
the fixed and variable costs to behave the same as within the relevant range.
17. Foress Company reported the following date for four months of 2004:
Month
Miles Total
Cost
January
60,00 $95,000
0
February
70,00 103,000
0
March
50,00
88,000
0
April
80,00 118,000
0
In applying the high-low method, how much is the variable cost per unit?
First the high and low activity levels are chosen---50,000 and 80,000. The costs
correlating to these levels are then chosen: [$118,000 - $88,000]/[80,000 - 50,000] =
$1.00 per mile
How much is the y-intercept value?
y-intercept = fixed costs:
$118,000 = $1*80,000 + FC;; FC = $38,000
Write the total cost equation in good form.

TC = 1.00x + 38,000
18. The following costs were incurred related to providing 20,000 oil changes:
Oil change labor
$24,000 Electric power to pump oil
Oil and filters
3,000 Depreciation
Supplies
2,000 Supervisory salaries
How much is the variable cost per oil change to the nearest whole cent?
Identify the variable costs: $24,000 + $3,000 + $2,000 + $7,000 = $36,000 (all these
costs increase when the number of oil changes increase.)
VC per unit = $36,000/20,000 = $1.80 per oil change
19. Clinton Cookies bakes chocolate chip cookies and ships them to fast food
restaurants for sale to customers. Clinton charges the restaurants $1.25 per cookie. The
company has projected the following costs for sales of 3,000 and 4,000 cookies for the
next months operation:
Cost Items
3,000 cookies
4,000 cookies
Cookie batter
$ 600
$ 800
Baking
1,150
1,300
employees
Packaging
450
600
Facilities
300
300
Shipping charges
160
200
Marketing
420
420
Total costs
$3,080
$3,620
Calculate the variable cost of each cookie and total fixed cost.

Cookie batter
Baking employees
Packaging
Facilities
Shipping charges
Marketing
Total costs

variable cost/unit
$
0.20
0.15
0.15
0.04
$
0.54

fixed cost
700
300
40
420
1,460

Calculations of mixed costs:


Baking:

$1,300 - $1,150
4,000 - 3,000
$1,300 = 0.154,000 + FC
FC = $700

$0.15
per unit

$7,000
2,000
6,000

Shipping:

$200 - $160
4,000 - 3,000

$0.04
per unit

$200 = .04*4,000 +FC


FC = $40
20. Handley Company's activity for the first four months of 2004 is as follows:
Machine
Electrical
Hours
Cost
January
4,000
$2,800
February
4,800
$3,500
March
4,600
$3,600
April
3,800
$3,000
May
4,400
$3,100
Using the high-low method, how much is the cost per machine hour?
[$3,500 - $3,000]/[4,800 - 3,800] = $0.50; Note that the high and low amounts are
chosen from the activity column (machines hours), then the corresponding costs are
used.
21. Hanks Toys used high-low data from March and May to determine its unit variable
cost of $0.50.
Month
Units produced
Total costs
March
14,000
$25,600
May
18,000
27,600
If Hank produces 15,000 units in September, how much is its total cost expected
to be?
Variable rate = [$27,600 - $25,600]/[18,000 - 14,000] = $0.50 per unit
$25,600 = $0.50(14,000) + FC; so FC = $18,600
TC = $18,600 + $0.50(15,000) = $26,100
22. Johnson Manufacturing paid $5,000 for materials, $4,000 for production labor,
$3,500 depreciation of manufacturing equipment, $2,500 depreciation of office furniture,
and $5,000 for sales salaries. What is the average cost per unit to produce 50 units?
($4,000 + $5,000 + $3,500)/50 units = $250 each
23. At Fruit Company, the total cost to produce 50,000 units is $750,000. Total fixed
costs are $250,000. What is the expected cost to produce 48,000 units?

VC = ($750,000 - $250,000) = $500,000


VC per unit = $500,000/50,000 = $10
Cost at 48,000 units = $10(48,000) + $250,000 = $730,000
24. At Richetti Company, the total variable cost to produce 15,000 units is $45,000. Total
fixed costs are $21,000. What is the expected cost to produce 13,000 units?
VC per unit = $45,000/15,000 = $3 per unit
Total cost = variable cost + fixed costs = [$3*13,000] + $21,000 = $60,000
Note that product costs include both fixed and variable amounts. If the question
asked for the incremental cost, then $39,000, the variable cost would be the answer,
only if the difference in units was 13,000.
25. Duffy Company produced and sold 10,000 nits. At this level of production, the
selling price per unit is $10, the variable cost per unit is $4, and the fixed cost per unit is
$2. How much is the total cost per unit if management produces and sells 12,500
units?
Fixed costs cost $2 per unit when the company produces and sells 10,000 units....giving
a total fixed cost of $20,000. No matter how many units are produced and sold, fixed
costs don't change...they remain at $20,000.
Variable costs: $4 x 12,500 =
$50,000
Fixed costs
20,000
Total costs at 12,500 units
$70,000
Cost per unit: $70,000/12,500 =
$5.60
26. At Adeniran Company, the material and labor cost to produce 800 units is $5,000.
Total fixed costs are $6,000. What is the expected cost to produce 900 units?
VC per unit = $5,000/800 = $6.25;
At 900 units: [$6.25 x 900] + $6,000 = $11,625
27. PoolCo provided the following information for its pool cleaning business for selected
months:
January
Pools cleaned
Total cost

21,000
$194,000

February
25,000
$ 210,000

March
18,000
$164,500

April
18,600

May
23,200

June
24,600

$160,000

$180,000

$208,000

Management has also provided the following output from Excel. Answer the questions
that follow.
SUMMARY OUTPUT

Statistics
Multiple
0.839072
R
9
0.790702
R Squre
0
Adjusted 07488375
R
6
Standar
1074.516
dErr
9
Observa
tion
6

ANVA
Regressi
on

MS
1364290
4
11544463
2.4

F
15.97450
75

Sgnifianc
e
0.016286
429

Residual

Total

SS
1834298
0
4177859.
4
2298208
333

Coefficint
s

Std Error

t Stat

P-value

Lowe
95%

Uper 95

Lwer
95%

Uper
9%

4757.088
2

3495830
797

1.366114
712

0.243667
124

49302.76
423

144816.8
819

49302.
76

144816
.88

6.364705
882

1.595798
475

3.988414
566

0.016286
429

1.934059
018

10.79535
275

1.9340
59

10.795
353

Intrcept
X
Variable
1

df
1

A. Based on the regression:


1. How much is the variable cost per unit? $6.36
. If 22,000 pools were cleaned during July, what would be the total cost?
Y = 6.36X + 47,757
= ($6.364705882*22,000) + 4,757.0882 = $144,781
B. Use the high-low method to:
1. Calculate the variable cost per unit.
High and low points highlighted (select high and low activity levels, then
corresponding amounts)
[$210,000 - $164,500] / [25,000 - 18,000] = $6.50 per unit
2. Determine total fixed costs if 21,500 pools are cleaned during a month.
TC = VC x + FC
210,000 = 6.50 (25,000) + FC, so FC = $47,500
Note that FC are the same at every activity level
3. Write the cost equation in proper form.
y = 6.50X + 47,500
28. The following regression output was generated by Casio Enterprises based on
deliveries made and the related costs incurred for each.

SUMMARY OUTPUT
Regression Statistics
Multiple R

0.825358

R Square
Adj
RSquare

0.681216

Standard
Error
Observati
ons
ANOVA

39.35892
2

0.656695

15
df

Regressio
n

SS
1

43,034.71

Residual

13

20,138.62

Total

14

63,173.33

Coefficie
nts

MS
43,034.
71
1,549.1
2

F
27.780
017

Sig F
0.000151

Std Error

t Stat

Pvalue

Lower
95%

Upper
95%

Lower
95%

Upper
95%

Intercept

262.2198
72

101.8073
52

2.6267
25

0.0209
17

47.4784
60

487.3612
84

47.478
460

487.361
284

X Variable
1

35.58346
15

6.102342

5.2706
75

0.0001
51

18.9801
54

45.34677
0

18.980
154

45.3467
70

Answer the questions that follow Do not round in the interim. Use proper decimal
notation.
1. Based on the regression, write the cost equation in good form:
TC = 35.69X + 262
2. If Casio makes 19 deliveries, how much is the expected
cost?
TC = $35.5834615*19 + $262.219872 = $938

Multiple Choice
1. What type of information does the high-low method usually produce?
a. A reasonable estimate of variable and fixed costs
b. A very precise estimate of the behavior of the costs
c. A very conservative estimate of costs for analysis purposes
d. A exact calculation of variable and fixed costs to be incurred
None of the methods product an exact cost calculation.

2. Which one of the following is a relatively accurate method of analyzing cost behavior
that relies on an analysis of all cost levels?
A. Regression analysis
B. Relevant range approach
C. Scatter diagram approach
D. High-low analysis
3. Information concerning amounts for Bridges, Inc. appears below:
Costs
Units
January
$100,000
1,200
February
120,000
1,600
March
90,000
1,100
April
85,000
1,250
May
110,000
1,300
Using the high-low method, what periods would be used?
A. February and April
B. March and February
C. March and April
D. Either February and March or February and April
Select the months with the highest and lowest activity levels.
4. The cost estimation method that uses all relevant data points is
A. regression analysis
B. scatter graphs
C. high-low method
D. A, B, and C
E. Both A and C
Scatter-graphs involve graphing data points and eye-balling a line through points,
however, the line doesn't go through all the points. Account analysis involves using
judgment about which costs are variable and which are fixed and adding them together
for one period. The high low method uses on the largest and the smallest activity level.
5. Which of the following best describes the relationship between total fixed costs and
total variable costs, as total volume decreases?
A. Total fixed costs stays the same and total variable costs stays the same.
B. Total fixed costs decreases and total variable costs stays the same.
C. Total fixed costs stays the same and total variable costs decrease.
D. Total fixed costs decrease and total variable costs decrease.
Note that total fixed costs stays the same no matter what happens to activity.
6. Saylor, Inc. provided the following results:
2003
2002
Units
2,600
3,000
Total
$17,550
$20,250
Cost
What form of cost behavior is represented by the above results?

A. Fixed Cost
B. Opportunity Cost
C. Mixed Cost
D. Variable Cost
$17,500/2,600 = $6.75 per unit; $20,250/3,000 = $6.75 per unit. Since unit cost is the
same, this is a variable cost.
7. What is the best explanation for the use of regression analysis by accountants?
A. Regression analysis provides the exact measure of variable costs.
B. Regression analysis is more difficult to use than the high-low method.
C. Regression analysis provides an estimate based upon statistical measures.
D. Regression analysis produces a graph that is just as accurate as a manually
prepared graph.
Regression analysis is an estimation of costs, not an exact measure, though it it much
more accurate than a manual graph or the high-low method.
8. A significant weakness of the high-low method is that
A. a significant amount of management expertise is necessary to break out the
variable and fixed costs.
B. the two data points that are used may not be representative of the general
relation between cost and activity.
C. the calculations are so complex that a computer is usually necessary in order to
get accurate results.
D. monthly data must be collected for at least three years before the method can be
used.
Answer A applies to the account analysis method. Answer C likely applies to regression
analysis.
9.When units produced and total production costs are graphed, the result is called
A. incremental analysis.
B. a profit graph.
C. a scatter graph
D. a CVP analysis graph
A CVP graph is more than only production costs. It represents the components of the
income statement.
10. What is cost behavior?
a. The way management chooses to estimate its costs
b. The method used to allocate costs to products
c. How a cost is used in setting selling prices
d. The manner in which a cost changes as the related activity changes
11. Costs that remain constant in total dollar amount as the level of activity changes and
cost that remains constant per unit in dollar amount as the level of activity changes are
called (respectively)
a. fixed costs and variable costs
b. mixed costs and fixed costs

c. mixed costs and variable costs


d. variable costs and fixed costs
Mixed costs are those that contain both fixed and variable components.
12. Which of the following describes the behavior of the fixed cost per unit?
a. Decreases with decreasing production
b. Decreases with increasing production
c. Remains constant with changes in production
d. Increases with increasing production
Note that it is asking about 'per unit'. e.g., if rent is $800 per month, the cost for one
person is $800 per person, the cost for two people is $400 per person, and so on....on a
decreasing basis.
13. A mixed cost
A. fluctuates between fixed to variable from period to period.
B. changes in proportion to changes in volume both in unit and in total.
C. includes both a variable cost component and a fixed cost.
D. is omitted from CVP analysis since it does not fit either fixed or variable
categories.
To include in a CVP analysis, we must break out the fixed and variable portions.
14. Why do management accountants use regression analysis and the high-low
method?
A. To verify actual costs incurred during the period.
B. To determine the profitability of a company or division
C. To calculate break even amounts
D. To estimate the relation between cost and activity
While a company may ultimately want to determine profitability or calculate break even
points, these methods help estimate the fixed and variable costs.
15. Why is identification of a relevant range important?
A. It is required under GAAP.
B. Cost behavior outside of the relevant range is not linear, which distorts CVP
analysis.
C. It directly impacts the number of units of a product a customer buys.
D. It is a cost that is incurred by a company that must be accounted for.
Since CVP is for management purposes and not required under GAAP, relevant range
has no role in external GAAP reporting.
16. For what purpose is the high low method primarily used?
A. To analyze the behavior of fixed costs
B. To separate mixed costs into the fixed and variable portions
C. To analyze the behavior of variable costs
D. To determine how much to price products
Answer: B is the best answer since that is what regression and the high-low method do.
Before these methods can be performed, answer A must occur.

17. What is a relevant range of activity?


A. The geographical locations in which the company operates
B. The activity level at which profits are maximized
C. The levels of activity over which the company expects to operate
D. The level of activity in which all costs are constant
This is the range we expect variable costs per unit and fixed costs in total to stay the
same.
18. In cost analysis, what does the term "cost" mean?
A. It includes all fixed and variable costs of products, but excludes period costs.
B. It includes all costs which are part of cost of goods sold, plus variable
operating expenses.
C. It includes all manufacturing costs and operating expenses.
D. It includes only manufacturing costs.
Manufacturing costs are product costs which include both fixed and variable. Operating
expenses are period costs which include both fixed and variable. Cost includes both of
these.
19. If a company identifies it has a mixed cost, which one of the following is a
reasonable option?
a. It should break it into a variable cost element and a fixed cost element.
b. It should consider it to be a fixed cost.
c. It should consider it to be a variable cost.
d. It should omit the cost from the analysis.
20. Which of the following is most likely a mixed cost?
a. Car rental fee
b. Storage unit rent
c. Equipment depreciation
d. Direct labor
Storage unit for one particular unit (i.e., at a relevant range) is fixed. Depreciation is
fixed. Direct labor is variable. Car rental fees such as Enterprise Car Rental can often
charge a flat fee per day, plus a cost per mile.
21. Why is the high-low method frequently not as accurate as regression analysis?
a. It assumes managers have classified costs correctly.
b. It uses analytical techniques which are questionable.
c. It assumes that costs behave linearly.
d. It uses extreme points which may not be representative of the rest of the data.
All estimation methods assume managers have classified costs correctly into fixed and
variable categories that behave linear.
22. In cost analysis, what does the term "cost" mean?
a. It includes all fixed and variable costs of products.
b. It includes all costs which are part of cost of goods sold.
c. It includes manufacturing costs plus selling and administrative expenses.
d. It includes all manufacturing costs.

Cost means total costs, which include both fixed and variable. Since CVP analysis has
a goal of determining activity levels to reach desired profit levels, a determination of net
income is necessary. Net income calculates profits after ALL costs....both product and
period are subtracted.
23. Hanalia, Inc. provided the following results:
2004
2003
Units
2,400
3,000
Total
$19,200
$24,000
Cost
What form of cost behavior is represented by the above results?
A. Fixed Cost
B. Opportunity Cost
C. Mixed Cost
D. Variable Cost
Cost per unit is the same for both levels of activity:
2004: $19,200/2,400 = $8
2003: $24,000/3,000 = $8
24. Which is true as it relates to fixed costs?
A. Total fixed cost increases as production/sales increase
B. Fixed cost per unit declines as production/sales increases.
C. Fixed cost per unit increases as production/sales increases.
D. Total fixed cost declines as production/sales increase
As fewer units are produced/sold, the cost per unit goes up. Answers A and C are wrong
because total fixed costs remain the same regardless of the activity level.
25. Why is determination of a relevant range important?
A. Cost behavior outside of the relevant range is generally distorted.
B. It directly impacts the direct cost allocated to a product or service.
C. It is a relevant cost.
D. GAAP requires companies to report this information.
Managerial accounting is not a part of GAAP. Within the relevant range, the behavior of
costs is assumed to be linear.
26. For what purpose is regression analysis used in accounting?
A. To determine the break even point
B. To estimate the behavior of costs
C. To allocate costs to products, services, jobs, or departments.
D. To determine how profitably the companies activities are.
Then the costs can be used to predict future costs.
27.

Which statement describes a fixed cost?


A. It varies in total at every level of activity.
B. The unit cost varies directly to the activity level.
C. Its unit cost varies inversely to the level of activity.
D. It remains the same per unit regardless of activity level.

Answer D is wrong because fixed cost "per unit" declines as activity increases. Only
fixed costs in total remain the same at different levels of activity.
28. Which one of the following would most likely be considered a mixed
cost?
a. Cost of using a copy machine
c. Supervisory salaries
b. Direct labor
d. Direct materials
Answers B and D are variable costs. Answer C is a fixed cost.
29. Why do managers use scattergraphs?
A. To estimate the relation between cost and activity
B. To verify actual costs incurred during the period
C. To determine the profitability of a company or division
D. To calculate break even amounts
The relationship between cost and activity is how we determine which costs are fixed
and variable. Once we determine which costs are fixed and variable, they can be used
for a number of decisions, such as break even analysis, pricing products, budgets, etc.
30. When 200 gallons of ice cream are produced, the total cost is $200. When 300
gallons of ice cream are produced, the total cost is $250. Which of the following
statements is true?
A. This company has only fixed costs
B. This company has only variable costs
C. This company has both variable and fixed costs
D. It is impossible to determine this companys cost structure without more
information.
Since total costs are not the same at both 200 and 300 gallons, the costs are not fixed.
The cost per units are $1 and $1.20 respectively, which means they are not variable in
total. That leaves them at mixed costs which means a portion are fixed and a portion
are variable.
31. Variable costs per unit
A. can be estimated by using break even analysis.
B. remain the same on a per unit basis when the level of activity changes.
C. are represented by the slope of the total cost line.
D. Both B and C are correct, but not A.
E. A, B and C are correct.
Break even analysis is used to predict cost behavior, not estimate costs.
32. Why must a company determine what its relevant range is?
A. It directly impacts the indirect cost allocated to a product or service.
B. It is a relevant cost.
C. GAAP requires companies to report this information.
D. Cost behavior outside of the relevant range is generally distorted
33. Which of the following statements is false regarding regression analysis?
A. It is used to predict the fixed and variable components of a mixed cost.

B. It is used to predict whether or not a cost is a product or period cost.


C. It is usually more accurate than the high/low method.
D. It uses statistical methods to fit a cost line through a number of data points.
Since it uses all data points, it is more accurate than the high low method. It does not
attempt to decide the function of a cost, i.e., product or period.

What is a performance audit? In what significant ways do


performance audits differ from financial audits.?
Performance audit is an independent examination of a operation or the management
systems and procedures of a governmental or non-profit entity to assess whether the entity
is achieving economy, efficiency and effectiveness in the utilization of resources available.
The performance audit is more objective and conducted in systematic manner.
Audit of the economy of administrative activities in accordance with sound administrative
principles and practices, and management policies;
Audit of the efficiency of utilization of human, financial and other resources, including
examination of information systems, performance measures and monitoring arrangements;
Audit of the effectiveness of performance in relation to achievement of the objectiveness of
the audited entity, and audit of the actual impact of activities compared with the intended
impact.
Significant differences with the financial audit,
Performance audit

Financial audit
Financial audit is focused on obtaining

performance audit is focused the assurance that the financial


on the effective and efficient statements have been prepared in
FOCUS

utilization of resources

accordance with the applicable financial

available and their proper

reporting framework and they are free

employment in the business. from material misstatements caused by


error or fraud.
Reporting

Reporting to the

Reporting to the owners of business i.e.

governmental and regulatory to the shareholders.

authorities.
Performance audits have
Purpose

been carried out for the

the statutory compliances.

appraisal purposes.
Auditors help management
understand how to improve
Auditor

Financial audits may be carried out for

the system and use it better

suggestions to improve decisions,

Auditor requests the management to


remove the errors or misstatements
present in the financial statements
otherwise an qualified audit report will be

performance, and

issued by auditor.

accountability.
It is investigatory work that

It is an independent examination of

Skills

requires flexibility,

financial statements which requires

required

imagination and analytical

integrity, objectivity, professional

skills.

skepticism etc..

1.------------------------------------------------------------------------------Number Interest

Principal

Payment

Payment

Balance

9,157.50

7,335.39

157,664.61

8,750.39

7,742.50

149,922.11

8,320.68

8,172.21

141,749.89

7,867.12

8,625.77

133,124.12

7,388.39

9,104.50

124,019.62

6,883.09

9,609.80

114,409.82

6,349.75

10,143.14

104,266.68

5,786.80

10,706.09

93,560.59

5,192.61

11,300.28

82,260.31

10

4,565.45

11,927.44

70,332.87

11

3,903.47

12,589.42

57,743.45

12

3,204.76

13,288.13

44,455.33

13

2,467.27

14,025.62

30,429.71

14

1,688.85

14,804.04

15,625.67

15

867.22

15,625.67

Community Hosptial orders latex sanitary gloves from a hospital


supply firm. The hospital expects to use 40,000 pairs of gloves per
year. The cost to order and to have the gloves delivered is $180.
The annual carrying cost is 55% of price per pair of gloves. The
hospital supply firm offers the following quantity discount pricing
schedule: Determine the optimal order order size and total annual
inventory cost for the hospital.
Quantity

Price

0-9,999

$0.34

10,00019,999

$0.32

20,00029,999

$0.30

30,00039,999

$0.28

40,00049,999

$0.26

50,000+

$0.24

D = annual demand

Carrying
Cost

S = ordering cost
I = carrying cost
Q* = (2DS / I)1/2

Quantity

Price

0-9,999

$0.34

carrying cost

Q*

Adjusted EOQ

0.187

8,775 gloves / order

8,775

10,000-19,999

$0.32

0.176

9,045 gloves / order

10,000

20,000-29,999

$0.30

0.165

9,342

20,000

30,000-39,999

$0.28

0.154

9,670

30,000

40,000-49,999

$0.26

0.143

10,035

40,000

50,000+

$0.24

0.132

Ord
Quantity

Unit price

er
QT
Y

0-9,999

$0.34

10,000-19,999

$0.32

20,000-29,999

$0.30

30,000-39,999

$0.28

Annu
Purch al
ase

order ing

cost

ing

10,0
00
20,0
00
30,0
00

Total

cost

cost

8,77 2,983. 820.


5

Hold

51

1641

5,445
.01

3,200 720

1760 5,680

6,000 360

3300 9,660

8,400 240

4620

13,26
0

40,000-49,999

$0.26

50,000+

$0.24

40,0 10,40
00

180

5720

16,30
0

In the guidance document issued by the PCAOB because there is a risk of producing
misleading figures in stock option pricing and fair value market estimates, board said that
auditors should be aware of possible pitfalls, such as how changes in assumptions can
affect the fair value of the options.
Auditors should pay attention if a company chooses an expected volatility that is the lowest
in the range of possible expected volatilities. The more volatile the stock price, the more
valuable the employee stock option, and the higher the cost to the company, so there will be
a chance of fake pricing and fair market value determination.
The board also suggested guidance while using the Black-Scholes model, and when to use
what is known as a lattice model. lattice model "might more fully reflect the substantive
characteristics" of the employee stock option.
lattice model uses factors that are specific to their companies.
It is important to see that which method for valuation of stock option has been used.,
Mostly they will use the Black schoels model .
It is important to review the following aspects.,
1. Check the main determinants of value - volatility, time remaining, risk free rate of interest,
strike price and stock price have been fairly considered.
2. some fair value assumptions are presented below using a Black-Scholes model are
reasonably good.
3.Take care that the company is not considering a lower volatility to get an higher fair value.
4.consider the time remaining for expiration is correct or not.
5. The management assumptions about the fair value are to be evaluated as they are
reasonable or not.
6.In calculating the exponential , standard normal cumulative distributive functions,
logarithms it should be ensured that it has no arithmetical errors.
7. check whether the volatility forecasting has been made as per GARCH model, the
weights given in calculation of volatility are exponential or equal.

working capital cycle makes incoming and outgoing payments to minimize net working
capital and maximize free cash flow. For example, a company that pays its suppliers in 30
days but takes 60 days to collect its receivables has a working capital cycle of 30 days. This
30-day cycle usually needs to be funded through a bank operating line, and the interest on
this financing is a carrying cost that reduces the company's profitability. Growing businesses
require cash, and being able to free up cash by shortening the working capital cycle is the
most inexpensive way to grow.
The working capital cycle is that the time between the conversion of cash into inventory ,
debtors, finished goods, i.e. current assets and their realization again into the cash.
yield to maturity on a zero coupon bond is:
Yield to Maturity = (Face Value / Current Price of Bond) ^ (1 / Years to Maturity) - 1
There may be several causes for the financial crisis in the business, the following are some
of them,
Rapid Increase in competition which leads to drop in sales.,
Lower number of clients who can not be pressed more for the sales collections,
Loss of a major contract or client,
Increased operating costs because of inflation or inefficiency,
Major changes in the industry leads to cost raising factors development,
Legal disputes with partners which leads to their settlements make the firm cashless,
High labor turnover,
Excessive expenses due to lack of planning which leads to blocking of investments.,
Receivables problems, due to inefficient debtors collections makes the working capital
cycle more than what it should be.
Inventory problems like stock outs may lead to loss of customers and poor inventory
purchased at higher price.
Incorrect sales mix.
Company ways to conceal the financial difficulties in financial statements.,
1.Window dressing by company.
2.Inflated sales volume and showing such ficticious sales as receivables.
3.Incorrect stock statements.
4.Forged bank statements.

5.Fradulent estimates and explanations by management.


6.Non disclosure of contingent liabilities.
7.Inflated valuation of assets than they actually present.
8.Companies often sell underperforming stock before reporting dates and purchasing a well
performing stock on reporting dates to boost their balance sheet values.
9.Advertising and creative marketing, which entails exaggeration of companys product and
service, while the negative attributes are kept hidden, in order to boost sales under false
pretenses.
10.Creating ficticious creditors on the books.
How these concealments affects the decision of investors in future.
The investor makes assessment of company performance based on its financial positioning
as on the date of reporting period and if the company is making window dressing and hiding
the financial difficulties on the financial statements, it will affects the decision of the
investors.
The investor assessment will be definitely different if the company discloses the accurate
information in the financial statements.
The investor who believed in the financial statements will lose their investment value in
future when the real picture came to known to the society.
The market price of the company stock will definitely falls which makes the investor lose all
his money.
Interest income - since it is an income which represents an receivable amount i.e. it will
have debit balance
Accounts payable - since it is an outstanding expense for purchases or similar reason which
represents amount payable by the firm which is a liability so it will show credit balance
Accounts receivable - since it is an income which represents an receivable amount i.e. it will
have debit balance
Sales - sales account usually will not have any balance because at the end its balance will
be transferred to the trading account.
Retained earnings - Retained earnings are part of capital employed and they are past
profits so they will have credit balance

Dividends - It is not clear that Dividends receivable or payable, assuming it is payable When dividend has been declared it will becomes a debt to the company and it has to be
paid with in specified time so it is an absolute liability it will have credit balance.
Royalty expense - since it is an outstanding expense which represents amount payable by
the firm which is a liability so it will show credit balance
Dividend income - since it is an income which represents an receivable amount i.e. it will
have debit balance
Notes payable - since it is an outstanding loan taken by the company for business purposes
which represents amount payable by the firm in a while which is a liability so it will show
credit balance
Computers - since it is an asset to the company it will show an debit balance.

Metallica Bearings, Inc., is a young start-up company. No dividends


will be paid on the stock over the next eight years, because the
firm needs to plow back its earnings to fuel growth. The company
will then pay a dividend of $12.75 per share 9 years from
today and will increase the dividend by 5.75 percent per year
thereafter. The required return on the stock is 13.75 percent.

Required:

What is the price of the stock 8 years from today? (Do not round
intermediate calculations. Round your answer to 2 decimal
places (e.g., 32.16).)

Price in 8 years

What is the current share price? (Do not round intermediate


calculations. Round your answer to 2 decimal places (e.g.,

32.16).)

Current share price

1. The price of the stock after 8 years


Year cashflow

PVF @13.75% Discounted cashflow

Dividend = $12.75

0.8791

$11.21

10

Dividend = $12.75 * 1.0575 = $13.483

0.7728

$10.42

0.7728

141.44

P8

= $163.07

Price P10 = D11 /( Ke - g)


10

= 13.846 * 1.0575 /(13.75% - 5.75%)


= 14.643 / 0.08 = $183.03

since in the for the 8th year 9th year will be immediate year so PVF is taken for one year.
2. Value of share today = $163.07 * 1 / (1.1375)8
= $163.07 * 0.3568
= $ 58.178
since the value of share today is what we receive tomorrow discounted at required rate of
return so we'll receive prive at the 8th year discounted to today.
contribution per unit =selling price per unit - variable cost per unit = 24,500 /1000 - 13,500 / 1000 = $11 /1.sales increased to 1,001 unit the increase in operating income = contribution per 1 unit only = $ 11

2.

Sales

1,250 * 24.5 = $30,625

Variable expenses 1,250 *15 = $18,750


Contribution margin

= $11,875

Fixed expenses

= $9,700

Net operating income

=$2,175

3.Break even poin in units = Fixed cost / contribution per unit


= 7,700 / 11
= 700 units
4.Break even point in dollors = Fixed cost / Contribution margin ratio = 7,700 / 44.9% = $ 17,149.22
contribution margin ratio = 11,000 / 24,500 = 44.9%
5.Target profit = $7,150
Fixed cost = $7,700
Total contribution = $14,850
contribution per unit = $11
No of units must be sold to acheive $7,150 profit = $14,850 / $11 = 1,350
6.Margin of safety = sales - break even point = 1,000 - 700 = 300
7. Margin of safety % = 300 / 1,000 = 30%
8.Operating leverage = contribution / operating income = 11,000 / 3,300 = 3.33
9.5% increase in sales results in to increase in operating income by = 5 * 3.33 = 16.65%
10.Operating leverage = contribution / operating income = ($24.500 - $7,700) / $3,300 = 5.1 times
11.Operating leverage = contribution / operating income = ($24.500 - $7,700) / $3,300 = 5.1 times
increase in operating income = 5.1 * 5 = 25.5%

The treasury bond yields 5.5%, but the investor keeps 72% of this,
then the yield will be 3.96%(=5.5% * 0.72)
The muni yields 4.25% tax free.
It is purely on the decision of investor.
If investor wants the higher return he will select municipality bond,
however if the investor wants safe return with 100% chance of getting income they
will select treasury bond.
The treasury bond and municipality bond are uncomparable with respect to their return or
their characteristics.
So we need to bring them to one line of return,
So the municipality bond return has to be brought to the fully taxable equivalent yield.,
Fully taxable equivalant yield= Yield on municipal bond/1- Tax rate
= 4.25 / 0.72 =5.833%
But where as the Treasury bill gives only 5.5%.
So we can select municipality bond with respect to their returns only,
But if we consider the other factors also then Treasury bond is preferable because there will
Be more guaranty that the return on treasury bill will be paid to investor than the
municipality bond because the treasury bond will be assured by US govt.

A moving average is a type of trailing average. Trailing average to means that the
information used in calculating the average is historical. A trailing 3-periods average data is
the average of the data over the last 3 periods.
While it is entirely different in case of a moving 3-periods data average that for every period
we should leave the first period data and add the new period data.
So here for period 6 trailing moving average means,
Average of 3 periods which are 4 , 5, and 6
i.e., moving average = (34+38+26) / 3 = 32.67

Without naming the company,There is a company which is working as an NGO, to serve the
needy and poor people. Its manager is very well committed to its objectives and he collects
donations from various reputed and rich people in society. The company in turn issues
receipts to them for their tax planning to claim deductions on these donations.

However when the accountant observed , it is found that the receipts are issued for more
than what they have contributed to facilitate more tax deduction to the donors.
When he reports the same to the manager he replied that it happens so casually we have to
issue such falsified receipts to them, otherwise we will not be receiving funds in future which
will leads to the lack of funds and no more help to the poor and needy people.
Ethical dilemma is arising here for the accountant. That they are misleading the
incometax / government authorities by doing this other side the poor people will not be
receiving funds anymore.
Solution
The accountant should report the same to the higher authorities about these irregularities to
take an action about it.
If there is no higher authority or there is no proper response from the higher authorities the
accountant should recluse himself from the duties.
9. contribution = sales - variable cost, whcih means excess of sales revenue over variable
cost
10.variable cost varies with direct praportion to the activity level, i.e. variable cost per unit
will be constant at any level and will be variable at an activity level.
11.Fixed cost = $240,000
selling price = $32
variable cost = $20
contribution per unit = $12
BEP = fixed cost / contribution per unit = $240,000 / $12 = 20,000 units
new selling price = $36
contribution = $16
BEP = fixed cost / contribution per unit = $240,000 / $ 16 = $15,000 units
12.In CVP analysis costs are classified as Variable and Fixed costs.

13.
Fixed cost = $1,200,000
selling price = $240
variable cost = $110
contribution per unit = $130
BEP = fixed cost / contribution per unit = $1,200,000/$110 = 9,231units
14. Margin of safety means sales over and above the break even sales.
15. Machine operator wages are direct labor. since they are machine specific.
16.Managerial accounting reports are prepared according to the management reporting
needs.
The APV( adjusted present value) method also called as Base case NPV model and under
APV model it is assumed that the project is wholly financed by equity and then will be
evaluated. Base case NPV will be adjusted for benefits leverage. The main benefit can be
tax shield on the interest payments. APV model is more useful in case of a leveraged
buyout, since it is with an maximum portion of debt, so that tax shield will be more.
1.calculation of the value of the firm,
Ke = Rf + beta * market risk premium = 8% + 1*5% = 13%
Value of firm = FCF / Ke = $1,000 / 13% = $7,692.31
2. debt = $5,000
Interest = $5,000 * 4% = $200
Tax shield on interest payments = $200*20% = $40
3. The discount rate to be used is WACC which is to be calculated after tax
WACC = {Ke * E /( E+D) } +{ Kd * D /( D+E) *(1-t) }
= {13% * 7692.31 /(12,692.31) } +{ 4% * 5000 /( 12,692.31) *(1-0.2) }
= 0.0788 + 0.0126 = 9.14%
4. present value of future tax savings = $40/9.14% = $437.64
Value of levered firm = value of unlevered firm + Tax rate* value of debt
= 7,692.31 + 20%*5,000 = $8,692.31