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Natalka [10]
3 years ago
14

Jaybird Company operates in a highly competitive market where the market price for its product is $50 per unit. Jaybird desires

a $15 profit per unit. Jaybird expects to sell 5,000 units. Additional information is as follows: Variable product cost per unit $ 15 Variable administrative cost per unit 10 Total fixed overhead 45,000 Total fixed administrative 18,000 To achieve the target cost per unit, Jaybird must reduce total expenses by how much?
Business
1 answer:
frutty [35]3 years ago
4 0

Answer:

Profit if 5,000 units were produced   $                    $

Total sales (5,000 x $50)                                     250,000

Less:

Total cost:

Total variable cost (5,000 x $25) 125,000

Total fixed cost                               <u>63,000  </u>        <u>188,000</u>

 Net profit                                                               <u>62,000</u>

Desired profit = $15 x 5,000 units = $75,000

Difference in profit = Desired profit - Net profit

                               = $75,000 - $62,000

                               = $13,000

Reduction in total expenses = Difference in profit

Reduction in total expense = $13,000

New total expenses = $188,000 - $13,000 = $175,000

The company should reduce the total expenses by $13,000 in order to achieve the target cost per unit.

                   

                 

Explanation:

In this case, there is need to determine the net profit if 5,000 units were produced. Then, we will obtain difference in profit by deducting the net profit from the desired profit. The difference in profit represents reduction in cost. The new total expenses will be the original total cost less reduction in cost. The total variable cost is the aggregate of variable product cost and variable administrative cost while the total fixed cost is the sum of total fixed overhead and total fixed administrative overhead.

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a. Statement of Cash Flows

Operating activities:

Operating Income               $304,000

Add Depreciation                  300,000

Cash from operations        $604,000

Changes in working capital items:

Accounts receivable (net)       (5,000)

Inventory                                (70,000)

Prepaid expenses                    27,700

Accounts payable                 243,000

Notes payable                         0

Accrued expenses                 (18,900)

Interest expense                   (87,900)  

Taxes                                   (155,000)

Net cash from operations $537,900

Investing Activities:

Purchase of plant              (480,000)

Investments

 (long-term securities)         16,600

Financing Activities:

Bonds payable                      21,000

Preferred stock dividends  (10,000)

Common stock dividends (153,000)

Net cash flows                  ($67,500)

Reconciliation with cash:

Beginning Cash Balance   134,000                

Ending Cash Balance       $66,500

b. The book value per common share for both 20X1 and 20X2:

= Total stockholders’ equity/Common stock outstanding

         20X1                                    20X2

=  $ 1,445,400/150,000              $ 1,343,500/150,000

= $9.636                                     = $8.957

= $9.64                                       = $8.96

Market value = $8.96 * 3.6 = $32.256

c. If the market value of a share of common stock is 3.6 times book value for 20X2, P/E ratio =

P/E ratio = Market price/EPS

= $32.256/$ .34

= 94.87 times

Explanation:

a) Data and Calculations:

CROSBY CORPORATION

Income Statement

For the Year Ended December 31, 20X2

Sales                                                                          $ 3,880,000

Cost of goods sold                                                      2,620,000

Gross profit                                                                $ 1,260,000

Selling and administrative expense    656,000

Depreciation expense                          300,000           956,000

Operating income                                                       $ 304,000

Interest expense                                                              87,900

Earnings before taxes                                                 $ 216,100

Taxes                                                                              155,000

Earnings after taxes                                                      $ 61,100

Preferred stock dividends                                              10,000

Earnings available to common stockholders              $ 51,100

Shares outstanding                                                      150,000

Earnings per share                                                         $ .34

Statement of Retained Earnings

For the Year Ended December 31, 20X2

Retained earnings, balance, January 1, 20X2             $ 855,400

Add: Earnings available to common stockholders, 20X2 51,100

Deduct: Cash dividends declared and paid in 20X2     153,000

Retained earnings, balance, December 31, 20X2     $ 753,500

Comparative Balance Sheets

For 20X1 and 20X2

                                                        Year-End  20X1        Year-End  20X2

Assets

Current assets:

Cash                                                     $ 134,000                 $ 66,500

Accounts receivable (net)                     526,000                   531,000

Inventory                                                649,000                   719,000

Prepaid expenses                                   66,800                      39,100

Total current assets                        $ 1,375,800             $ 1,355,600

Investments (long-term securities)       99,500                     82,900

Gross plant and equipment         $ 2,520,000             $ 3,000,000

Less: Accumulated depreciation     1,450,000                  1,750,000

Net plant and equipment                 1,070,000                 1,250,000

Total assets                                  $ 2,545,300             $ 2,688,500

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable                           $ 315,000                $ 558,000

Notes payable                                    510,000                    510,000

Accrued expenses                              76,900                     58,000

Total current liabilities                   $ 901,900               $ 1,126,000

Long-term liabilities:

Bonds payable, 20X2                      198,000                     219,000

Total liabilities                            $ 1,099,900               $ 1,345,000

Stockholders’ equity:

Preferred stock, $100 par value   $ 90,000                   $ 90,000

Common stock, $1 par value          150,000                     150,000

Capital paid in excess of par         350,000                    350,000

Retained earnings                          855,400                    753,500

Total stockholders’ equity        $ 1,445,400               $ 1,343,500

Total liabilities and

 stockholders’ equity             $ 2,545,300              $ 2,688,500

Changes in working capital items:

                                                    20X1           20X2       Changes

Accounts receivable (net)      526,000       531,000        5,000

Inventory                                 649,000       719,000      70,000

Prepaid expenses                    66,800          39,100     -27,700

Accounts payable                $ 315,000  $ 558,000    243,000

Notes payable                         510,000      510,000   0

Accrued expenses                   76,900        58,000     -18,900

Bonds payable, 20X2          198,000         219,000      21,000

Investments (long-term securities) 99,500    82,900    16,600

Plant and equipment                    252,000  300,000  -48,000

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