Vibrant Company had $850,000 of sales in each of three consecutive years 2016–2018, and it purchased merchandise costing $500,00
0 in each of those years. It also maintained a $250,000 physical inventory from the beginning to the end of that three-year period. In accounting for inventory, it made an error at the end of year 2016 that caused its year-end 2016 inventory to appear on its statements as $230,000 rather than the correct $250,000. Required: 1. Determine the correct amount of the company's gross profit in each of the years 2016−2018. 2. Prepare comparative income statements to show the effect of this error on the company's cost of goods sold and gross profit for each of the years 2016−2018.
1 answer:
Answer:
Please, for answer see attached file.
Explanation:
The difference will be between the gross profit in the years 2016 and 2017, because of the error. This is because the error will cause a difference in the cost of sold goods.
In the year 2018, there will be no difference because the beginning inventory and final inventory are right.
But, for the three-year period, there will no be a difference in the total, because both, beginning and final inventory are correctly registered.
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Answer: a)The decision tree is attached as a document to this question.
b)$140000
Here is the complete question:
. A manager is trying to decide whether to buy one machine or two. If only one is purchased and demand proves to be excessive, the second machine can be purchased later. Some sales will be lost, however, because the lead time for purchasing this type of machine is 6 months. In addition, the cost per machine will be lower if both are purchased at the same time. The probability of low demand is estimated to be 0.20. The after-tax net present value of the benefits from purchasing the two machines together is $90,000 if demand is low and $180,000 if demand is high.
If one machine is purchased and demand is low, the net present value is $120,000. If demand is high, the manager has three options. Doing nothing has a net present value of $120,000; subcontracting, $160,000; and buying the second machines, $140,000.
a. Draw the decision tree for this problem.
b. Use the decision tree to determine how many machines the company should buy initially and give the expected payoff for this alternative.
Explanation:
Concepts and reason
The expected value of perfect information (EVPI)= EPPI - EP
(EPPI) =expected payoff with perfect information
(EP)= maximum expected payoff computed under uncertainty.
Fundamentals
The expected payoff = P₁X₁ + P₂X₂ +....PnXn,
The formula for the expected payoff is, E(X) = ΣxΡ(x)
Suppose you have a set of corresponding probabilities for playing your pure strategies = Pn
where the probabilities must all be greater than or equal to zero and they all sum to one.
b) the values at node 4 = $120000, $140000 and $160000
EV =maximum(node4)
=max($120000, $140000 , $160000)
=$140000
expected payoff at node 4 = $140000
