Bundle: Managerial Accounting, Loose-leaf Version, 14th - Book Only
14th Edition
ISBN: 9781337541398
Author: Carl Warren; James M. Reeve; Jonathan Duchac
Publisher: Cengage Learning
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Chapter 10, Problem 5DQ
To determine
Explain the circumstances reasonable to purchase from the supplier.
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Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which will affect the actual cost of asset being sold for the buyer and the seller.
Consider this case:
Green Moose Industries buys most of its raw materials from a single supplier. This supplier sells to Green Moose on terms of 1/10, net 30.
The cost per period of the trade credit extended to Green Moose is ________(1.23%, 0.89%, 1.01%, 1.05%) (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.).
Green Moose’s trade credit has a nominal annual cost of _______ (22.85%, 19.17%, 16.59%, 18.43%) , assuming a 365-day year. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)
If Green Moose Industries’s supplier shortens its discount period to five days, this will _______ (Increase, Decrease) the cost of the trade credit.
Cost of trade credit
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit. These terms will affect the cost of the asset for both the buyer and the seller.
Consider the following case:
Blue Elk Manufacturing buys most of its raw materials from a single supplier. This supplier sells to Blue Elk on terms of 2/15, net 45. The cost per period of the trade credit extended to Blue Elk, rounded to two decimal places, is___________%
Blue Elk’s trade credit has a nominal annual cost—expressed as an annual percentage rate (APR)—of_________%, assuming a 365-day year. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)
If Blue Elk’s supplier shortens the discount period by five days, this will _____________(Increase or decrease pick one) the cost of the trade credit.
One Corporation has two potential suppliers. Both are supplying the items at similar list prices and trade,discounts. However, Supplier A.offered a credit term of 2/10, n/30 and the other offered a term of 3/10, n/40. Which of the following statements is true?
a. Alpha should choose Supplier A and pay on the 10th day.b. Alpha should choose Supplier B and pay on the 10th day.c. Alpha can choose either supplier and always pay on the 10th day.d. If Alpha chose Supplier B, the former should pay on the 30th day so that it can maximize the trade discount
Chapter 10 Solutions
Bundle: Managerial Accounting, Loose-leaf Version, 14th - Book Only
Ch. 10 - Explain the meaning of (A) differential revenue,...Ch. 10 - A company could sell a building for 250,000 or...Ch. 10 - A chemical company has a commodity-grade and...Ch. 10 - A company accepts incremental business at a...Ch. 10 - Prob. 5DQCh. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Although the cost-plus approach to product pricing...Ch. 10 - How does the target cost method differ from...Ch. 10 - Prob. 10DQ
Ch. 10 - Prob. 1BECh. 10 - Prob. 2BECh. 10 - Prob. 3BECh. 10 - Replace equipment A machine with a book value of...Ch. 10 - Prob. 5BECh. 10 - Prob. 6BECh. 10 - Prob. 7BECh. 10 - Prob. 8BECh. 10 - Prob. 1ECh. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Prob. 9ECh. 10 - Differential analysis for machine replacement Kim...Ch. 10 - Sell or process further Calgary Lumber Company...Ch. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 14ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Product cost method of product costing Smart...Ch. 10 - Target costing Toyota Motor Corporation (TM) uses...Ch. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Product decisions under bottlenecked operations...Ch. 10 - Total cost method of product pricing Based on the...Ch. 10 - Variable cost method of product pricing Based on...Ch. 10 - Differential analysis involving opportunity costs...Ch. 10 - Differential analysis for machine replacement...Ch. 10 - Differential analysis for sales promotion proposal...Ch. 10 - Prob. 4PACh. 10 - Product pricing using the cost-plus approach...Ch. 10 - Product pricing and profit analysis with...Ch. 10 - Prob. 1PBCh. 10 - Differential analysis for machine replacement...Ch. 10 - Prob. 3PBCh. 10 - Prob. 4PBCh. 10 - Prob. 5PBCh. 10 - Prob. 6PBCh. 10 - Service yield pricing and differential equations...Ch. 10 - Prob. 2ADMCh. 10 - Prob. 3ADMCh. 10 - Aaron McKinney is a cost accountant for Majik...Ch. 10 - Prob. 3TIF
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- Beto Company pays $5.10 per unit to buy a part for one of the products it manufactures....arrow_forwardAn insurance company pays its employees a commission of 6 percent on each sale. What is the proper classification of the cost of sales commissions? a) Constant cost. b) Variable cost. c) Mixed cost. d) Fixed cost.arrow_forwardA retailer is considering the purchase of 1,000 units of a specific item from either of two suppliers. Their offers are as follows: Supplier One: $34.80 a unit, 1/10, n/30, no charge for freight.Supplier Two: $35.00 a unit, 2/10, n/30, plus freight of $200.arrow_forward
- Leo Consulting enters into a contract with Highgate University to restructure Highgate’s processes for purchasing goods from suppliers. The contract states that Leo will earn a fixed fee of $25,000 and earn an additional $10,000 if Highgate achieves $100,000 of cost savings. Leo estimates a 50% chance that Highgate will achieve $100,000 of cost savings. Assuming that Leo determines the transaction price as the expected value of expected consideration, what transaction price will Leo estimate for this contract?arrow_forwardAnselmo’s Engineering buys circuit boards with a list price of $32,000. If the supplier extends trade discounts of 42/32/12, what is the trade discount amount?arrow_forwardNeo Airconditioner Sdn Bhd primarily sells and installs air conditioner. As well as suppliers air conditioners, it also provide air conditioner repair and services to its customers. The business commonly sells the supply and installation, and maintenance and services support in a combined goods and services contract. The combined goods and services contract sells for $3,600, but if sold separately the supply and installation is sold for $2,500 and the maintenance and service support for $1,300 fir a period of 24 months. Required: If Neo Airconditioner sold a combined contract on 1 July 219, demonstrate how the transaction would be presented in the financial statements for the year ended 31 December 2019, using the 5 steps revenue recognition model.arrow_forward
- Leo Consulting enters into a contract with Highgate University to restructure Highgate’s processes for purchasing goods from suppliers. The contract states that Leo will earn a fixed fee of $66,000 and earn an additional $13,000 if Highgate achieves $130,000 of cost savings. Leo estimates a 70% chance that Highgate will achieve $130,000 of cost savings. Assuming that Leo determines the transaction price as the expected value of expected consideration, what transaction price will Leo estimate for this contract? Transaction price for the contract ?arrow_forwardYour firm purchases goods from its supplier on terms of 2.3/14, net 40. a. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 40?. (Round to one decimal place.) b. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 50? (Round to one decimal place.)arrow_forwardRAF has four possible suppliers, all of which offer different credit terms. Except for the differences in credit terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in the following table. (Note: Assume a 365-day year.) Supplier Credit terms J 1/10 net 30 EOM K 2/20 net 80 EOM L 1/20 net 60 EOM M 3/10 net 55 EOM Calculate the approximate cost of giving up the cash discount from each supplier. If the firm needs short-term funds, which are currently available from its commercial bank at 16%, and if each of the suppliers is viewed separately, which, if any, of the suppliers’ cash discounts should the firm give up? Explain why.arrow_forward
- cMr. Assad a Wholesaler buys a product from the Al Mazoon manufacturing company at RO 700 and pays VAT at the prescribed rate of 10%. a retailer buys a product from the wholesaler at RO 800 and the wholesaler charges VAT at the prescribed rate of 10%. The retailer fixes the price at RO 1000 and charges VAT at the same rate. Mr. Yousuf buys the product from the ABC LLC. What is the price including VAT that Mr. Yousuf has to pay to buy the Product? What is input tax and output tax? Discuss Amount of output tax for the retailer and wholesaler. How much VAT does the retailer pay to the government? VAT is different from sales tax system. Explain and give reason to your answerarrow_forward. A retailer is considering the purchase of 100 units of a specific item from either of two suppliers. Their offers are as follows: A: $780 a unit, total of $78,000, 1/10, n/30, plus freight of $1,500. B: $800 a unit, total of $80,000, 2/10, n/30, no charge for freight. Which of the two offers, A or B, yields the lower price? Answer: ______________________________________________________________________ Explain your answer: ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________arrow_forwardA retailer is considering the purchase of 500 units of a specific item from either of two suppliers. Their offers are as follows:Supplier One: $40 a unit, total of $20,000, 1/10, n/30, no charge for freight.Supplier Two: $39 a unit, total of $19,500, 2/10, n/30, plus freight of $500.Which of the two offers, Supplier One or Supplier Two, yields the lower price?arrow_forward
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