ElegantWood is a manufacturer of modern style furniture and accessories. It considers two online suppliers to purchase its main raw material wood. Both online suppliers provide a similar price and shipping rate. Their service levels and lead times are also similar. However, they have a quite different charging structures. The first online supplier charges 5 percent commission on the market price of wood while the second online supplier requires a subscription fee of $10 million as an up-front payment for a 2-year period. The second online supplie also charges a commission of 1 percent on the market price of wood. Even though ElegantWood spends about $150 million on the purchase of wood each year, this amount varies depending on utilization. Production manager thinks that the next year's utilization will potentially be high and keep the wood spending at $150 million level. However, he also predicts that there is a 25 percent chance that the spending will drop by 10 percent. For the second year, he assumes that the spending level will stay where it was in the first year with a

ElegantWood is a manufacturer of modern style furniture and accessories. It considers two online suppliers to purchase its main raw material wood. Both online suppliers provide a similar price and shipping rate. Their service levels and lead times are also similar. However, they have a quite different charging structures. The first online supplier charges 5 percent commission on the market price of wood while the second online supplier requires a subscription fee of $10 million as an up-front payment for a 2-year period. The second online supplie also charges a commission of 1 percent on the market price of wood. Even though ElegantWood spends about $150 million on the purchase of wood each year, this amount varies depending on utilization. Production manager thinks that the next year's utilization will potentially be high and keep the wood spending at $150 million level. However, he also predicts that there is a 25 percent chance that the spending will drop by 10 percent. For the second year, he assumes that the spending level will stay where it was in the first year with a

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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ElegantWood is a manufacturer of modern style furniture and accessories. It considers two online suppliers to purchase its main material wood. Both online suppliers provide a similar price and shipping rate. Their service levels and lead times are also similar. However, they have a quite different charging structures. The first online supplier charges 5 percent commission on the market price of wood while the second online supplier requires a subscription fee of $10 million as an up-front payment for a 2-year period. The second online supplier also charges a commission of1 percent on the market price of wood. Even though ElegantWood spends about $150 million on the purchase of wood each year, this amount varies depending on utilization. Production manager thinks that the next year's utilization will potentially be high and keep the wood spending at $150 million level. However, he also predicts that there is a 25 percent chance that the spending will drop by 10 percent. For the second…
Bria Furniture sells bed frames and mattresses. One of its products is a premium therapeutic bed set produced by OmniSleep, which comes with a mattress and a bed frame. Bria offers a package consisting of the mattress, the frame, and on-site installation by its staff. All of these components can be sold separately, as often done by other vendors, so Bria concludes that these are separate performance obligations. Bria sells the OmniSleep package for $3,000. The mattress and the frame are sold separately for $2,000 and $900, respectively. Other vendors in the same area typically charge $200 for on-site installation. Bria does not sell on-site installation separately. On average, the prices charged by Bria are 10% higher than those of its competitors. Bria estimates that it incurs about $100 of compensation and other costs to provide the installation service. The profit margin over cost is estimated to be approximately 35%. Required: (a) Estimate the stand-alone selling price of the…
O’Hara Associates sells golf clubs, and with each sale of a full set of clubs provides complementary clubfitting services. A full set of clubs with the fitting services sells for $1,500. O’Hara estimates that it incurs$60 of staff compensation and other costs to provide the fitting services, and normally earns 30% over coston similar services. Assuming that the golf clubs and the club-fitting services are separate performance obligations, estimate the stand-alone selling price of the club-fitting services using the expected cost plus marginapproach.
O’Hara Associates sells golf clubs, and with each sale of a full set of clubs provides complimentary club-fitting services. A full set of clubs with the fitting services sells for $1,500. Similar club-fitting services are offered by other vendors for $110, and O’Hara generally charges approximately 10% more than do other vendors for similar services. Assuming that the golf clubs and the club-fitting services are separate performance obligations, estimate the stand-alone selling price of the club-fitting services using the adjusted market assessment approach.
Wilson Links Products sells a product that involves two separate performance obligations: the SwingRight golf club weight and the SwingCoach teaching software. SwingRight has a stand-alone selling price of $185. Wilson sells both the SwingRight and the SwingCoach as a package deal for $270. The SwingCoach software is not sold separately. Wilson is aware that other vendors charge $170 for similar software, and Wilson’s prices are generally 10% lower than what is charged by those vendors. Wilson estimates that it incurs approximately $100 of cost per copy of the software, and usually charges 50% above cost on similar products.Estimate the stand-alone selling price of the software using the adjusted market assessment approach.
Media Mogul Inc. is a marketing company that offers a variety of marketing offerings to its customers. Specifically: •Media will create a TV commercial for $1M, build an app for $500K, and build a Facebook page for $250K. These amounts represent Media’s charges for these items when Media sells them separately to customers. The TV commercial, the app, and the Facebook page are not interrelated; that is, each functions independently of the other offerings. •If a customer purchases all aforementioned items together, the total cost is $1.5M. Payment terms are 50 percent consideration due at contract signing, with the remaining 50 percent due over the rest of the development period (25 percent at mid-point, 25 percent at completion). •If the app is downloaded 500K times or more in the first month, there is a one-time bonus of $250K payable to Media. Stone, a customer, approaches Media with the hopes of reinventing its image to a younger customer base. Stone has a verbal agreement with Media…
Media Mogul Inc. is a marketing company that offers a variety of marketing offerings to its customers. Specifically: •Media will create a TV commercial for $1M, build an app for $500K, and build a Facebook page for $250K. These amounts represent Media’s charges for these items when Media sells them separately to customers. The TV commercial, the app, and the Facebook page are not interrelated; that is, each functions independently of the other offerings. •If a customer purchases all aforementioned items together, the total cost is $1.5M. Payment terms are 50 percent consideration due at contract signing, with the remaining 50 percent due over the rest of the development period (25 percent at mid-point, 25 percent at completion). •If the app is downloaded 500K times or more in the first month, there is a one-time bonus of $250K payable to Media. Stone, a customer, approaches Media with the hopes of reinventing its image to a younger customer base. Stone has a verbal agreement with Media…
Media Mogul Inc. is a marketing company that offers a variety of marketing offerings to its customers. Specifically: •Media will create a TV commercial for $1M, build an app for $500K, and build a Facebook page for $250K. These amounts represent Media’s charges for these items when Media sells them separately to customers. The TV commercial, the app, and the Facebook page are not interrelated; that is, each functions independently of the other offerings. •If a customer purchases all aforementioned items together, the total cost is $1.5M. Payment terms are 50 percent consideration due at contract signing, with the remaining 50 percent due over the rest of the development period (25 percent at mid-point, 25 percent at completion). •If the app is downloaded 500K times or more in the first month, there is a one-time bonus of $250K payable to Media. Stone, a customer, approaches Media with the hopes of reinventing its image to a younger customer base. Stone has a verbal agreement with Media…
The AB division sells goods internally to the CD division of the same company. The quoted external price in industry publications from a supplier near AB is P200 per ton plus transportation. It costs P20 per ton to transport the goods to CD. AB’s actual market cost per ton to buy the direct materials to make the transferred product is P100. Actual per ton direct labor is P50. Other actual costs of storage and handling are P40. The company president selects a P220 transfer price. This is an example of: Cost-based transfer pricing. Cost plus 20% transfer pricing. Market-based transfer pricing. Negotiated transfer pricing.
Marquette has an opportunity to sell its product through an online retailer. To begin selling through this online platform, they are required to ship 2,000 units to the retailers’ order fulfillment warehouse. The other condition of this offer is that they pay a one-time vendor marketing fee of $5,000. To get the units to the fulfillment warehouse by the deadline Marquette will need to pay for expedited shipping at a cost of $10 per unit. What is the minimum price Marquette should charge the retailer for this initial order of 2,000 units? (Show all supporting calculations). (NOTE: ignore taxes or other costs not specifically mentioned in the questions.)
Lockrite Security Company manufacturers home alarms. Currently, it is manufacturing one of its components at a total cost of $40, which includes fixed costs of $13 per unit. An outside provider of this component has offered to sell Lockrite the component for $29. Provide a differential analysis of the outside purchase proposal. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Make Component (Alternative 1) or Buy Component (Alternative 2) MakeComponent(Alternative 1) BuyComponent(Alternative 2) DifferentialEffects(Alternative 2) Unit costs: Purchase price Variable costs Fixed costs Total unit costs $
Diversified Industries manufactures sump-pumps. Its most popular product is called the Super Soaker, which has a retail price of $1,200 and costs $540 to manufacture. It sells the Super Soaker on a standalone basis directly to businesses. Diversified also provides installation services for these commercial customers, who want an emergency pumping capability (with regular and back-up generator power) at their businesses. Diversified also distributes the Super Soaker through a consignment agreement with Menards. Income data for the first quarter of 2017 from operations other than the Super Soaker are as follows. Revenues $9,500,000 Expenses 7,750,000 Diversified has the following information related to two Super Soaker revenue arrangements during the first quarter of 2017.1. Diversified sells 30 Super Soakers to businesses in flood-prone areas for a total contract price of $54,600. In addition to the pumps, Diversified also provides installation (at a cost of $150 per pump). On a…