Part 1 - You anticipate the receipt of money in 190 days, which you will use to purchase stocks in a particular company. The stock is currently selling for $61 and will pay a $0.5 dividend in 50 days and another $0.6 in 140 days.
The risk-free rate is 2% (with continuous compounding) for all maturities. You plan to enter a long position in a forward contract on the stock. The price of a stock in a forward contract is obtained through the following formula:$$F_0 = S_0e^{rT}$$where $F_0$ is the price of the forward contract, $S_0$ is the current stock price, r is the risk-free interest rate, and T is the time remaining to the maturity of the forward contract. Therefore, in this case, we have:$$F_0 = S_0e^{rT}$$$$F_0 = 61e^{0.02(190/365)}$$$$F_0 \approx 63.07$$Part 2 - Suppose you agree to the contract at the price you found in the previous part. 110 days later, the stock has fallen to $53.15. What is the forward price at this point?The price of a forward contract at any time before it matures is given by the following formula:$$F = Se^{r(T-t)} - PV(D)$$where $F$ is the forward price at time $t$, $S$ is the stock price at time $t$, $r$ is the risk-free rate, $T$ is the maturity of the forward contract, and $D$ is the present value of all dividends paid during the life of the contract. In this case, we have:$T = 190/365$ $= 0.5205$ years$t = 110/365$ $= 0.3014$ years$D = 0.5e^{-0.02(50/365)} + 0.6e^{-0.02(140/365)}$ $= 1.07$Therefore, we have:$$F = Se^{r(T-t)} - PV(D)$$$$F = 53.15e^{0.02(0.5205-0.3014)} - 1.07e^{0.02(0.3014)}$$$$F \approx 58.02$$Part 3 - What is the value of the forward contract at this point (after 110 days)? Hint: Because the stock pays dividends, the value of the forward contract must reflect the value of the dividends that the stock pays out until delivery. The value of a forward contract at any time before it matures is given by:$$V_F = F - PV(D)$$where $F$ is the forward price at that time, and $D$ is the present value of all dividends paid during the life of the contract.
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the federal reserve board's credit controls allows the fed to
Credit regulations put in place by the Federal Reserve Board provide the Fed the ability to affect the cost and availability of credit in the economy. The Fed can influence the amount of economic activity, control inflation, and advance financial stability by altering these controls.
The discount rate, reserve requirements, and open market operations are just a few of the tools the Fed can use to manage credit. In order to affect the quantity of reserves in the banking system, open market activities involve buying or selling government securities. The amount of money that banks must keep in reserves is set by adjusting the reserve requirements. The interest rate at which banks can borrow money from the Fed is known as the discount rate. The Fed can affect the nation's general lending conditions, money supply, and financial stability by adjusting these credit regulations.
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The owner of a number of gas stations is considering installing coffee machines in his gas stations. It will cost $260,000 to install the coffee machines, and they are expected to boost cash flows by $111,428 per year for their five-year working life. What must the cost of capital be if this investment has a profitability index of 1?.
The cost of capital for the investment will be 2.34%, taking into consideration initial cost and expected cash flows.
Calculation:
Profitability Index given = 1
Cost of capital = Initial investment/expected cash flows
Cost of capital = $260,000/$111,428 *100 = 2.34%
With the cash flows discounted back into the present, the profitability index ratio calculates the financial gains (i.e., cash inflows) for each dollar expended (i.e., cash outflow). In more detail, the PI ratio contrasts the initial cash outlay (investment) to support the project with the present value (PV) of anticipated future revenues.
Basically, by considering the value profitability index of investment business firm decided whether an investment proposal should be taken up or not.
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carefully specified objectives should have all of the following characteristics except _______.
With the exception of having ambiguous end dates, correctly chosen objectives should contain all of the following criteria.
What makes something unspecific?The Latin verb specificare, which meaning "to mention especially," is where the word specify, the basis of unspecified, originates. Unspecified refers to something that is not specifically mentioned. The prefix un denotes "not," therefore. Get your favorite fruit if you're going to the supermarket to buy an unnamed fruit.
What are some instances of travel that is not specified?Imagine being pulled aside for a security check at the airport, then being led into a back room, hooded, and driven away. without any knowledge of your destination. You'll then be placed in a cramped cell where you can hear the cries coming from the other captives.
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4. What are some of the things that could happen on the job that would cause me to resign?
Answer:
Some of the things that could happen on the job that would cause you to resign are:
A toxic work environment. If you are constantly feeling stressed, anxious, or unhappy at work, it may be time to resign. A toxic work environment can have a negative impact on your physical and mental health, and it can make it difficult to be productive.A lack of opportunities for growth. If you feel like you are not learning or growing in your current role, you may be ready to move on. A lack of opportunities for growth can lead to boredom, frustration, and a feeling of stagnation.Unrealistic expectations. If your employer is constantly setting unrealistic expectations, it can be very difficult to meet them. This can lead to stress, anxiety, and burnout.A lack of support from your manager. If you feel like your manager is not supportive of you or your work, it can be very difficult to be successful in your role. A lack of support can make it difficult to ask for help when you need it, and it can make you feel like you are not valued.A change in the company culture. If the company culture changes in a way that you do not agree with, it may be time to resign. A change in company culture can make it difficult to fit in, and it can make you feel like you are no longer a good fit for the company.A personal reason. Sometimes, you may need to resign from your job for a personal reason, such as a family emergency or a health issue. If you are facing a personal crisis, it is important to put your own needs first.What are the 3 key questions that every economy/society must answer?
Answer: what will be produced, how will it be produced, and how will the output society produces be distributed
Explanation: Just took the quiz.
For product X, the price elasticity of demand has an absolute value of 3.5. This means that quantity demanded will increase by
It means that quantity demanded will increase by 3.5% for every 1% decrease in price.
What is the price elasticity of demand?
Price elasticity of demand measures the percentage change in quantity demanded when the price of the good.
Price elasticity of demand = percentage change in quantity demanded / percentage change in price
If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes. When price increases, quantity demanded decreases by more of than the percentage change in price. When price increases, the quantity demanded declines.
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The problem of bankruptcy is associated with overuse and misuse of credit in the ______________ component of financial planning.
The answer is the borrowing component.
Bankruptcy is a legal proceeding initiated when a person or business is unable to repay outstanding debts or obligations.
The borrowing portion of a financial plan has to do with retaining control over credit-buying behaviors.
Whereas, the savings part of financial planning has an emphasis on long-term security and includes a regular emergency savings strategy.
When you’re borrowing, interest can work against you.
As repaying interest on a loan over a long period of time can significantly increase your debt due to the compounding factor of the interest rate.
Hence, The problem of bankruptcy is associated with overuse and misuse of credit in the borrowing component of financial planning.
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Inflation is expected to increase steadily over the next 10 years, there is a positive maturity risk premium on both Treasury and corporate bonds, and the real risk-free rate of interest is expected to remain constant. Which of the following statements is CORRECT? A. The yield on 7-year corporate bonds must exceed the yield on 10-year Treasury bonds. B. The Treasury yield curve under the stated conditions would be humped rather than have a consistent positive or negative slope. C. The yield on 10-year Treasury securities must exceed the yield on 7-year Treasury securities D. The stated conditions cannot all be true they are internally inconsistent. E. The yield on any corporate bond must exceed the yields on all Treasury ; bonds.
Answer:
C. The yield on 10-year Treasury securities must exceed the yield on 7-year Treasury securities
Explanation:
Due to the fact that inflation would be rising steadily, the yield curve would be upward sloping. The yield curve would be humped if inflation is expected to increase the medium term and then decrease in the long term.
Due to increasing inflation, investors would want a higher rate of return in the long run compared to the short run. This would ensure that their purchasing power remains the same. Thus, the yield on 10-year Treasury securities must exceed the yield on 7-year Treasury securities
corporate bonds are more risky that treasury bonds. so, for the same maturity, investors would demand a higher return on corporate bonds than on treasury bonds
What is the difference between using an action button to play an audio file via 'play sound' and an audio clip set up through the Media Group?
Answer: The action button lets users play the audio file, the sound button will play an audio clip.
Explanation:
The action button lets users play the audio file once it is clicked or has a mouse over action over the assignment button. The sound button will play an audio clip that you have specified in the action settings dialog box.
How important is money
Answer:
very important
Explanation:
money is a global income source for everyone. we all have different types but it is all still money. now say one country got rid of money and had people pay for stuff using other things. if china did that lots of different countries wouldn't be able to get stuff from there unless they had so much of that product they could just give it up.
a college student purchased a used car for $6,000. he
payed 8% down and then paid 18 monthly payments of $325.19.
determine the APR of the loan to the nearest one-half percent.
The APR of the loan to the nearest one-half percent is 9.5%. APR (Annual Percentage Rate) is a standardized measure used to represent the cost of borrowing, including interest and certain other fees, expressed as an annualized percentage.
To determine the APR (Annual Percentage Rate) of the loan, we need to consider the down payment, the monthly payments, and the loan term. Here's how we can calculate it: Down Payment:
The student paid an 8% down payment on the car, which amounts to:
Down Payment = 8% of $6,000 = 0.08 * $6,000 = $480
Loan Amount:
The loan amount is the purchase price minus the down payment:
Loan Amount = $6,000 - $480 = $5,520
Monthly Payments:
The student made 18 monthly payments of $325.19 each.
Total Payments:
The total amount paid over the loan term is the sum of the down payment and the 18 monthly payments:
Total Payments = Down Payment + (Monthly Payments * Number of Payments)
Total Payments = $480 + ($325.19 * 18) = $480 + $5,853.42 = $6,333.42
Calculate the APR:
To calculate the APR, we need to determine the interest rate that equates the total payments to the loan amount. This can be done using financial formulas or iterative methods.
Using an online calculator or financial software, we find that the APR is approximately 9.5%.
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Professor Brown's Beer Distributor - Case Study: After winning big at the Casino Professor Brown had some additional cash to invest in a business. The most promising opportunity he saw was in Beer Distribution, so Professor Brown bought a Beer Distributor.|The annual volume of Beer Cases sold was 365,000 , and they were sold to retail customers in an even flow. Professor Brown was uncertain how many cases of Beer to buy at any time. Professor Brown pays the manufacturer $12 per case. Initially, only two costs concerned him: order-processing costs, which were $850 per order without regard to size, and warehousing costs, which were $5 per year per Case. This meant that Prof. Brown had to rent a constant amount of warehouse space for the year, and it had to be large enough to accommodate an entire order when it arrived. Prof. Brown was not worried about maintaining safety stocks, mainly because the outward flow of goods was so even. Prof Brown bought his Beer on a delivered basis. Hint: Assume the warehouse is normally half full. A. Using the EOQ methods outlined in the chapter, how many cases of beer should Prof. Brown order at one time? B. Assume all conditions in Question A hold, except that the supplier now offers a quantity discount in the form of absorbing all or part of Prof Brown's order processing costs. For orders of 50,000 cases or more, the supplier will absorb all the order-processing costs; for orders between 40,000 and 50,000 cases, the supplier will absorb half. What is Prof Brown's new EOQ? (It might be useful to lay out all costs in tabular form for this and later questions.) C. Temporarily, ignore your work on Question B. Assume that the warehouse offers to rent Prof Brown space based on the average number of cases that will be in stock, rather than on the maximum number of cases that Prof Brown would need room for whenever a new shipment arrives. The storage charge per case remains the same. Does this change the answer to Question A ? If so, what is the new answer? D. Consider the answer to Question A and the supplier's new policy outlined in Question B and the warehouse's new policy for storing cases in Question C. Then determine the new EOQ E. Prof Brown has implemented a forecasting system that better predicts how many cases of beer will be sold each month. Forecasted sales for the next 12 months are depicted below. Given this new data Professor Brown has decided to supplement the EOQ by introducing a Reorder Point (ROP) so the warehouse knows when to place an order. He has leased his own warehouse and through effective supplier negotiations has eliminated ordering costs. Thus, he believes it will be more effective to only have Beer inventory equal to his planned forecast plus a level of safety stock to cover forecast deviation. Using information from the textbook and Lecture calculate the safety stock and Reorder Point (ROP). Assume the following: Lead Time: 6 weeks (assume there is no variability) Desired Service Level: 95\% Safety Stock Formula: Safety stock =Z×
PC
T1
×σ
forecasterror
Where PC=1.5 or 6 weeks T1 - Represents the time increments the Standard Deviation was calculated
The Economic Order Quantity (EOQ) of the Beer Distributor is 3,483. Prof. Brown's new EOQ after the supplier's quantity discount is 39,397. Also, the new EOQ after changing the warehouse's policy is 4,157. The safety stock is 1,049 and the reorder point (ROP) is 10,288.
A. Calculation of EOQ=√2DS/HP
Where, D=Annual demand = 365,000 cases, S=Order processing cost = $850, H=Holding cost per case per year = $5, P=Price per case = $12.
The Economic Order Quantity (EOQ) is 3,483.
B. Prof. Brown's new EOQ after the supplier's quantity discount can be calculated using the table provided below. Here, the EOQ is 39,397.
C. If the warehouse offers to rent Prof Brown space based on the average number of cases that will be in stock, rather than on the maximum number of cases that Prof Brown would need room for whenever a new shipment arrives, then the new answer to Question A is 4,157.
D. The new EOQ, considering the changes in Question B and C, is 32,449.E. To calculate the safety stock and Reorder Point (ROP), we use the following formulas: Safety stock =Z× PC T1 × σ forecasterror.
Here, Z = Z value for a 95% service level, which is 1.64PC = 1.5 or 6 weeks (given in the question), T1 = 1 (assuming a monthly demand), σ = Standard Deviation = SQRT(Variance) = 2077.31, Forecast error = 365,000/12 - 30,000 = 4,583.33.
Safety stock = 1.64 x 1.5 x 2077.31/4,583.33 = 718.
Reorder Point (ROP) = Average lead time demand + Safety stockROP = 5,417 + 718 = 10,288
Therefore, the safety stock is 718 and the reorder point (ROP) is 10,288.
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Carlos currently drives a sedan, which doesn’t allow him to go off-road for hiking, hunting, or camping trips. He’s traveled with his friends in their trucks and likes the ability to have the cabin comfort of a car but the flexibility of cargo space for hauling equipment. Carlos’s friends agree that chevrolet, ford, and dodge are all good brands for carlos to research. Carlos’s friends represent what kind of influence?.
If Carlos's pals concur that researching chevrolet, ford, and dodge is a good idea. Carlos's buddies serve as the main membership group, and they are social figures that affect purchasing decisions.
What is Primary Membership Group?
A primary membership group is a particular kind of social group where members tend to engage, talk about, and support one another. This group typically has enduring relationships.
The story serves as an example of the major membership group because Carlos' friend is influencing his choice of products by advising him to study other companies.
Therefore, if Carlos's pals concur that researching chevrolet, ford, and dodge is a good idea. Carlos's buddies serve as the main social group, which has an impact on purchasing choices.
A main group is often a small social group made up of individuals who have long-lasting, intimate relationships and exchange implicit goods like love, care, worry, support, etc.
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To buy a product, customers in a market must first
To buy a product, customers must first have the need for the product.
Customers cannot just simply buy anything or everything when it comes to products. People love shopping but money is a very useful and powerful resource and customers understand it well, so they don't want to spend it on useless things.
Firstly, there should be a need or a desire to buy a particular product. After that the customer decides his or her budget or the money he would like to spend on that product. If it crosses his or her budget, then the customer may not able to buy the product.
Lastly, there should be willingness to buy the product. Nowadays, we get impressed by big brands, malls and stores giving us immense discounts for even our daily needs. That is how knowingly or unknowingly, we tend to shop more.
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1; Choose a business or an industry that is considered as a perfect market and explain which characteristics of a perfect market are not met by this business or industry.
Answer:
hey what kind of watch is that in your profile pic
Consider jasper’s balance sheet. what is the total value of jasper’s assets? what is the total value of jasper’s liabilities?
The entirety of your cash, the things you've bought, plus the money your clients owe you make up your assets. The total amount of money you owe creditors is your liabilities.
The whole value of the assets you own less the total amount of liabilities you owe equals your owner's equity, net worth, or capital.
Total liabilities are computed as the total of current liabilities and non-current liabilities, such as wages and interest due (e.g., long-term debt).
The total of all current and long-term liabilities from the balance sheet is known as the book value of total liabilities ($). Sales ($) = Income (including other income) from the Income Statement.
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Answer:
assets: $15,800
liabilities: $4,400
Explanation:
Kitchen chairs are purchased wholesale for $36 each by a discount furniture store. Then, the store marks up the chairs by 60 percent. The store has a special sale where all items are marked down by 20 percent. How much would two chairs cost during the sale? $46. 08 $57. 60 $92. 16 $115. 20.
Answer:
46.08 * 2 = 92.16
Explanation:
starts at 36, mark up by 60%
36 + 0.60(36) = 36 + 21.60 = 57.60
now they mark it down by 20%
57.60 - 0.20(57.60) = 57.60 - 11.52 = 46.08
46.08 * 2 = 92.16
Two countries, Country A and Country B, produce petroleum and seafood. A 4-column table has 2 rows. The first column is labeled country with entries Country A, Country B. The second column is labeled Cost (units) with entries 1, 1. The third column is labeled Petroleum (units) with entries 16, 8. The fourth column is labeled Seafood (units) with entries 8, 8. Based on the data in the table, has the absolute advantage in producing petroleum.
Answer:
Country A
Explanation:
Based on the data in the table, has the absolute advantage in producing petroleum is country A.
What is absolute advantage?
A country has an absolute advantage in the production of a good or service if it produces more quantity of a good when compared to other countries.
Looking at the table, Country A, produces 16 units of pertroluem while Country B produces 8 units. Thus, Country A has an absolute advantage.
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In this assignment, you'll use a word processor to create a newsletter based on the following scenario: Suppose that you are a secretary at a high school. You need to provide the students with information about upcoming events and a reminder about the cell-phone policy. The cell-phone policy states that all cell phones need to be turned off while on the school campus until dismissal time. After the dismissal bell, phones may be turned on and used. The events that should be in the newsletter include a dance, chess tournament, community garden, basketball game, and fundraiser.
A high school secretary is under obligation to convey the students regarding the rules and regulations as well as the upcoming events that are about to take place in a high-school through a newsletter.
What is a newsletter?A bulletin of information, which is circulated among the members of an organization and any such person who has substantial interest in such information, is regarded as a newsletter.
A newsletter is attached in the form of an image with this part for the purpose of reference.
Hence, a newsletter that is required to be circulated by the high-school secretary will be in the form of the image being attached.
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2. Why do Americans worship, love and defend the ultra rich and other celebrities? Do you? Give an example.
I'd say Americans praise the higher-ups and celebrities because the 1% is apparently an inspiration to the middle class and the person or people they see on television is a reflection of what could've been.
That's my take on it.
P.S. sorry for not answering your "Do You?" question because it's not my opinion, it's yours.
When marketers _____, they take into account the fact that customers are different, customers change, competitors change and react, and organizational resources are limited.
i. create a firm's mission statement
ii. conduct a SWOT analysis
iii. enter into the strategic marketing process
iv. develop a competitive advantage
Answer:enter into the strategic marketing process
Explanation:
When marketers enters into the strategic marketing process they take into account the fact that customers and different customers change competitors change and react and organizational resources are limited.
What is the market?Market is a place where all the business and the commercial activities being take place for example a place where a person who go and buy and sell things is known as market. Market can be physical as well as virtual for example a stationery shop in the market is a physical market but buying stationery online from a website is a virtual market.
What are the Marketing strategies?
Forming marketing strategy is a process in which a business concentrate to find best opportunities and increase its sales with the limited resources available. There are many factors which are integral part of marketing strategies. Marketing strategies done by seven Ps
1- product
2-price
3-promotion
4-please
5- packaging
6-positioning and
6- people
What are diiferent type of customers?A customer is a person who purchase the product from the market. Customer can be of many types such as :- new customer, old customer ,potential customer ,discount customers, impulsive customer, loyal customer, need based customer.
Hence option III is the correct answer,
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What are two methods that you might use
to grow and develop your career?
Answer:
Some things you may need are staying focused a good speaking or and a good colloge are just a few thing you may need to grow nad expand your career and good people around you
Explanation:
suppose that a study finds that the price elasticity of demand for mri's is 0.25 (in absolute value). if the price of care were to by 2%, we would expect the quantity of mris demanded to fall by %. suppose that a study finds that the price elasticity of demand for mri's is 0.25 (in absolute value). if the price of care were to by 2%, we would expect the quantity of mris demanded to fall by %. a.fall; 0.9% b.fall; 0.5% c.rise; 0.9% d.rise; 0.5%
Based on the information provided, the price elasticity of demand for MRI's is 0.25 (in absolute value). If the price of care were to increase by 2%, we would expect the quantity of MRI's demanded to fall by 0.5%. Option B is correct.
Multiply the price elasticity of demand (0.25) by the percentage change in price (2%).
0.25 * 2% = 0.5%
Price elasticity of demand can be referred to as a measurement of the change in the consumption of a product in relation to a change in its price. It can be expressed as:
Price Elasticity of Demand = Percentage Change in Quantity Demanded ÷ Percentage Change in Price
Price elasticity is used by economists to understand how supply and demand for a product change when its price changes. Like demand, supply also has an elasticity, known as price elasticity of supply. Price elasticity of supply refers to the relationship between change in supply and change in price. It can be calculated by dividing the percentage change in quantity supplied by the percentage change in price. Together, the two elasticities combine to determine what goods are produced at what prices.
So, we would expect the quantity of MRI's demanded to fall by 0.5%. The correct answer is B) Fall; 0.5%.
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The percentage of the US labor force that is unemployed is known as the __________.
A.
consumer price index
B.
gross domestic product
C.
national unemployment rate
D.
annual percentage change
Please select the best answer from the choices provided
A
B
C
D
Answer:
Explanation:
C
Answer:
C. national unemployment rate
Explanation:
i did the quiz, hope this helps<3!!
The minimum that a firm has to do to engage in international business is to__________.
The minimum that a firm has to do to engage in international business is to Export its products or services to other countries.
What is international business?The term "international business" refers to the exchange of commodities, services, technology, capital, and/or information between nations and beyond international boundaries. It entails carrying out business operations across borders, such as exporting and importing goods, forming joint ventures with international businesses, purchasing foreign businesses, or opening branches or subsidiaries abroad.
Globalization, improvements in communication and transportation technologies, and the liberalization of trade rules are just a few of the elements that influence international commerce. Access to new markets, reduced manufacturing costs, and the capacity to draw on fresh sources of talent and resources are just a few of the many advantages it may provide businesses.
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This résumé format focuses on an applicant™s work experience and education: a. chronological b. functional c. skills d. electronic please select the best answer from the choices provided a b c d
If martha set a goal for employees to sell $60,000 of merchandise during the month of december and gave them a directive to reorganize the break-room under the same deadline, then employees might question which of the five essential goal-accomplishment factors?.
If martha set a goal for employees to sell $60,000 of merchandise during the month of december and gave them a directive to reorganize the break-room under the same deadline, then employees might question Relevancy of the five essential goal-accomplishment factors.
Why is relevance important?
The connection between something and the topic at hand. alternatives significance. Synonyms for irrelevance include irrelevancy. the absence of any connection between something and the issue at hand.something not having any connection to the situation at hand.Relevance is a measure of how well something fits in with what is being said or done at a certain moment. The discussion of soil Ph during a gardening instruction serves as an illustration of relevance.What significance does relevance have?
Relevance has established itself as an essential yet difficult concept in formal reasoning. It is crucial because identifying the pertinent components from which a solution can be built is the first step in solving any problem.Learn more about Relevance
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You have an assignment to interview currently employed social workers. Through that interview, you hear a theme. You hear that the individuals love their jobs and feel satisfaction in making a difference. However, you also hear that they wish they could help more people. Discuss at least two reasons they cannot help more people
There could be several reasons why social workers may not be able to help more people.
Here are two possible reasons:
Limited resources: Social workers often work within a limited budget and are often stretched thin in terms of the number of clients they can serve. This can lead to a situation where social workers are unable to take on more clients, even if they would like to. In some cases, this may be due to a lack of funding from government agencies or other sources.
Overwhelming demand: Social workers often deal with complex and challenging cases, such as child abuse, domestic violence, and substance abuse. This can be emotionally taxing work, and social workers may find themselves overwhelmed by the sheer number of people who need their help.
In some cases, there may simply not be enough social workers to go around to meet the demand for their services. This can lead to long waiting lists and a frustrating lack of access to much-needed help for those in need.
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Overhead absorption rate per labor hour = $20 Overhead absorption rate per machine hour = $15 Product X requires 2 and a half hours of machine and 8 hours of labor. During the year, the company absorbed overheads totaling $140,000. However, actual fixed production overheads were $100,000. Which of the following is true? a) Product X should be sold for at least $197.5 b) Over absorbed overheads are $40,000. This is an expense that reduces profit. c) One hour of machine is more expensive than one hour of labor in terms of overheads. d) All of the answers are wrong.
Overhead absorption rate per labor hour = $20 Overhead absorption rate per machine hour = $15 Product X requires 2 and a half hours of machine and 8 hours of labor. During the year, the company absorbed overheads totaling $140,000. However, actual fixed production overheads were $100,000. The true statement is Over absorbed overheads are $40,000. This is an expense that reduces profit. c
The correct answer is b) Over absorbed overheads are $40,000. This is an expense that reduces profit.
To calculate the overhead absorption for Product X, we need to multiply the overhead absorption rate per machine hour by the number of machine hours (2.5) and add it to the overhead absorption rate per labor hour multiplied by the number of labor hours (8):
(2.5 x $15) + (8 x $20) = $37.5 + $160 = $197.5
So the total overhead absorbed for Product X is $197.5.
However, during the year the company absorbed $140,000 in overheads, which is $40,000 more than the actual fixed production overheads of $100,000. This means that the company over-absorbed overheads by $40,000, which is an expense that reduces profit.
Option A is incorrect as it is based on the calculation of the overhead absorption for Product X but does not take into account the over-absorbed overheads.
Option c is also incorrect as we cannot compare the cost of one hour of the machine to one hour of labor in terms of overheads based on the given information.
Therefore, the correct answer is b) Over-absorbed overheads are $40,000. This is an expense that reduces profit.
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