Andrews Company has five employees participating in its defined benefit pension plan. Expected years of future service for these
employees at the beginning of 2014 are as follows. On January 1, 2014, the company amended its pension plan, increasing its projected benefit obligation by $72,000.
Compute the amount of prior service cost amortization for the years 2014 through 2019 using the years-of-service method, setting up appropriate schedules.
Compute the amount of prior service cost amortization for the years 2014 through 2019 using the years-of-service method, setting up appropriate schedules.
1 answer:
Answer and Explanation:
Computation of service years
Year Jim Paul Nancy Dave Kathy Total × Cost Amortization
2014 1 1 1 1 1 5 × 3,000 $15,000
2015 1 1 1 1 1 5 × 3,000 $15,000
2016 1 1 1 1 1 5 × 3,000 $15,000
2017 1 1 1 1 4 × 3,000 $12,000
2018 1 1 1 3 × 3,000 $9,000
2019 1 1 2 × 3,000 $6,000
Total $72,000
Future years of service
Jim 3
Paul 4
Nancy 5
Dave 6
Kathy 6
Total 24
Working note:-
Cost per service year = Benefit obligation ÷ Total
= $72,000 ÷ 24
= $3,000
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Answer:
a) $3
b) $2
c) 1449
Explanation:
Given:
The cost for a carton of milk = $3
Selling price for a carton of milk = $5
Salvage value = $0 [since When the milk expires, it is thrown out ]3
Mean of historical monthly demand = 1,500
Standard deviation = 200
Now,
a) cost of overstocking = Cost for a carton of milk - Salvage value
= $3 - $0
= $3
cost of under-stocking = Selling price - cost for a carton of milk
= $5 - $3
= $2
b) critical ratio =
or
critical ratio =
or
critical ratio = 0.4
c) optimal quantity of milk cartons = Mean + ( z × standard deviation )
here, z is the z-score for the critical ration of 0.4
we know
z-score(0.4) = -0.253
thus,
optimal quantity of milk cartons = 1,500 + ( -0.253 × 200 )
= 1500 - 50.6
= 1449.4 ≈ 1449 units