Heartland Company’s budgeted sales and budgeted cost of goods sold for the coming year are $144,000,000 and $99,000,000, respectively. Short-term interest rates are expected to average 10%. If Heartland can increase inventory turnover from its present level of 9 times a year to a level of 12 times per year, compute its expected cost savings for the coming year.
The expected cost savings for the coming year is $275,000.
The direct cost of manufacturing the goods sold by a corporation is known as the cost of goods sold (COGS). This amount directly covers the cost of materials and labor used in manufacturing the final product. When calculating COGS, indirect costs such as advertising and administrative costs are not included.
Average inventory (current) $11,000,000
Average inventory (new) $8,250,000
Calculation of Cost savings
What type of disclosure or accounting do you believe is necessary for the following items?
a) Because of a general increase in the number of labor disputes and strikes, both within and outside the industry, there is an increased likelihood that a company will suffer a costly strike in the near future.
b) A company reports a material unusual and infrequent loss on the income statement. No other mention is made of this item in the annual report.
c) A company expects to recover a substantial amount in connection with a pending refund claim for a prior year’s taxes. Although the claim is being contested, counsel for the company has confirmed the client’s expectation of recovery.
Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2018.
Cost of goods sold
Operating profit (loss)
Sales of segments B and C included intersegment sales of $20,000 and $100,000, respectively.
(a) Determine which of the segments are reportable based on the:
What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported.
a) Collection of a note written off in a prior period.
b) Issuance of a large preferred stock offering.
c) Acquisition of a company in a different industry.
e) Destruction of a major plant in a flood.
f) Death of the company’s chief executive officer (CEO).
g) Additional wage costs associated with settlement of a four-week strike.
h) Settlement of a federal income tax case at considerably more tax than anticipated at year-end.
Change in the product mix from consumer goods to industrial goods.
(Disclosure of Estimates) Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2017 and 2018. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2018. The controller, not sure of her supervisor’s motives, hesitates to suggest to Tercek that the company’s improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days.
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