Lost Peak ski resort located in Montana caters to day skiers from nearby towns. Last year the company had net operating income of $500,000 on sales of $1,300,000, Lost Peak's average operating assets for the year were $1,500,000 and its minimum required rate of return was 13% Required: Compute the company's residual income for the year. Residual income

Lost Peak ski resort located in Montana caters to day skiers from nearby towns. Last year the company had net operating income of $500,000 on sales of $1,300,000, Lost Peak's average operating assets for the year were $1,500,000 and its minimum required rate of return was 13% Required: Compute the company's residual income for the year. Residual income

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 8EA: Using the information in the previous exercises about Marleys Manufacturing, determine the operating...

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Poleski Manufacturing, which maintains the same level of inventory at the end of each year, provided the following information about expenses anticipated for next year: The selling price of Poleskis single product is 16. In recent years, profits have fallen and Poleskis management is now considering a number of alternatives. Poleski wants to have a net income next year of 250,000, but expects to sell only 120,000 units unless some changes are made. The president of Poleski has asked you to calculate the companys projected net income (assuming 120,000 units are sold) and the sales needed to achieve the companys net income objective for next year. Also, compute Poleskis contribution margin per unit, contribution margin ratio, and break-even point for next year. The worksheet CVP has been provided to assist you. Note that the data from the problem have already been entered into the Data Section of the worksheet.
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Able Transport operates a tour bus that they lease with terms that involve a fixed fee each month plus a charge for each mile driven. Able Transport drove the bus 7,000 miles and paid a total of $1,360 in June. In October. Able Transport paid $1,280 for the 5,000 miles driven. If Able Transport uses the high-low method to analyze costs, how much would Able Transport pay in December, if they drove 6,000 miles?
St. Johns Medical Center (SJMC) has five medical technicians who are responsible for conducting cardiac catheterization testing in SJMCs Cath Lab. Each technician is paid a salary of 36,000 and is capable of conducting 1,000 procedures per year. The cardiac catheterization equipment is one year old and was purchased for 250,000. It is expected to last five years. The equipments capacity is 25,000 procedures over its life. Depreciation is computed on a straight-line basis, with no salvage value expected. The reading of the catheterization results is conducted by an outside physician whose fee is 120 per test. The technicians report with the outside physicians note of results is sent to the referring physician. In addition to the salaries and equipment, SJMC spends 50,000 for supplies and other costs needed to operate the equipment (assuming 5,000 procedures are conducted). When SJMC purchased the equipment, it fully expected to perform 5,000 procedures per year. In fact, during its first year of operation, 5,000 procedures were run. However, a larger hospital has established a clinic in the city and will siphon off some of SJMCs business. During the coming years, SJMC expects to run only 4,200 cath procedures yearly. SJMC has been charging 850 for the procedureenough to cover the direct costs of the procedure plus an assignment of general overhead (e.g., depreciation on the hospital building, lighting and heating, and janitorial services). At the beginning of the second year, an HMO from a neighboring community approached SJMC and offered to send its clients to SJMC for cardiac catheterization provided that the charge per procedure would be 550. The HMO estimates that it can provide about 500 patients per year. The HMO has indicated that the arrangement is temporaryfor one year only. The HMO expects to have its own testing capabilities within one year. Required: 1. Classify the resources associated with the cardiac catheterization activity into one of the following: (1) committed resources, or (2) flexible resources. 2. Calculate the activity rate for the cardiac catheterization activity. Break the activity rate into fixed and variable components. Now, classify each activity resource as relevant or irrelevant with respect to the following alternatives: (1) accept the HMO offer, or (2) reject the HMO offer. Explain your reasoning. 3. Assume that SJMC will accept the HMO offer if it reduces the hospitals operating costs. Should the HMO offer be accepted? 4. Jerold Bosserman, SJMCs hospital controller, argued against accepting the HMOs offer. Instead, he argued that the hospital should be increasing the charge per procedure rather than accepting business that doesnt even cover full costs. He also was concerned about local physician reaction if word got out that the HMO was receiving procedures for 550. Discuss the merits of Jerolds position. Include in your discussion an assessment of the price increase that would be needed if the objective is to maintain total revenues from cardiac catheterizations experienced in the first year of operation. 5. Chandra Denton, SJMCs administrator, has been informed that one of the Cath Lab technicians is leaving for an opportunity at a larger hospital. She met with the other technicians, and they agreed to increase their hours to pick up the slack so that SJMC wont need to hire another technician. By working a couple hours extra every week, each remaining technician can perform 1,050 procedures per year. They agreed to do this for an increase in salary of 2,000 per year. How does this outcome affect the analysis of the HMO offer? 6. Assuming that SJMC wants to bring in the same revenues earned in the cardiac catheterization activitys first year less the reduction in resource spending attributable to using only four technicians, how much must SJMC charge for a procedure?
Using the information in the previous exercises about Marleys Manufacturing, determine the operating income for department B, assuming department A sold department B 1,000 units during the month and department A reduces the selling price to the market price.
Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)
Juniper Design Limited of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $490,000 on sales of $1,800,000. The company’s average operating assets for the year were $2,000,000 and its minimum required rate of return was 12%. Required: Compute the company’s residual income for the year.
Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $480,000 on sales of $2,200,000. The company’s average operating assets for the year were $2,400,000 and its minimum required rate of return was 10%. Required: Compute the company’s residual income for the year.
uniper Design Limited of Manchester, England, provides design services to residential developers. Last year, the company had net operating income of $470,000 on sales of $1,200,000. The company’s average operating assets for the year were $1,400,000 and its minimum required rate of return was 11%. Required: Compute the company’s residual income for the year.
Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of £600,000 on sales of £3,000,000.The company’s average operating assets for the year were £2,800,000 and its minimum required rate ofreturn was 18%. (The currency used in England is the pound, denoted by £.)Required:Compute the company’s residual income for the year
The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hoteland the number of occupancy-days over the last year. An occupancy-day represents a room rented out for oneday. The hotel’s business is highly seasonal, with peaks occurring during the ski season and in the summer.Month Occupancy-Days Electrical CostsJanuary ..................... 1,736 $4,127February .................... 1,904 $4,207March ........................ 2,356 $5,083April ........................... 960 $2,857May ........................... 360 $1,871June .......................... 744 $2,696July ............................ 2,108 $4,670August ....................... 2,406 $5,148September ................ 840 $2,691October ..................... 124 $1,588November ................. 720 $2,454December ................. 1,364 $3,529Required:1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost ofelectricity per occupancy-day.…
Santa Fe Company, a farm-equipment manufacturer, currently produces 20,000 units of gas filters for use in its lawnmower production annually. The following costs are reported according to the previous year's production: It is anticipated that gas-filter production will last five years. If the company continues to produce the product in-house, annual direct-material costs will increase at a rate of 5%. (For example, the annual direct-material costs during the first production year will be $63,000.) In addition, direct-labor costs will increase at a rate of 6% per year, and variable-overhead costs will increase at a rate of 3% while fixed-overhead costs will remain at the current level over the next five years. Tompkins Company has offered to sell Santa Fe Company 20,000 units of gas filters for $25 per unit. If Santa Fe accepts the offer, some of the facilities currently used to manufacture the gas filters could be rented to a third party at an annual rate of $35,000. In addition,…