Case Study

Problem 1

Units
Cost per Unit
Total Cost
Production batch 1 4,000
$10
40,000
Production batch 2 60,000
$14
840,000
Production batch 3 40,000
$16
640,000
Production batch 4 36,000
$20
720,000

140,000

2,240,000

Problem 2
One Percent:

Net Receivables
Percent W/O
Allowance AMT
Year End Net Receivables 742,000
1%
7,420
734,580

Two Percent:

Net Receivables
Percent W/O
Allowance AMT
Year End Net Receivables
742,000
2%
14,840
727,160

The more accurate allowance method would be the "balance sheet" approach or the age of the receivables.
If we were given the amounts of the receivables, by age, we could make a more specific estimate for uncollectable accounts.

Problem 3
Example A

Example B

Original cost
4,500,000

Original cost
4,500,000
Useful life
10

Useful life
6
Residual Value
500,000

Residual Value
500,000

Depreciation per Year:
400,000

Depreciation per Year:
666,666.67
Year of Disposal
5

Year of Disposal
5

Problem 4 & 5
Company A

Tropical Wave Corporation Partial Income Statement

For the Year Ended December 31

Sales:

Water Sports Equipment
$4,500,000
Lotion
2,500,000
Net Sales
$7,000,000
Cost of Goods Sold:

Water Sports Equipment
$2,500,000
Lotion 1,680,000 Total Cost of Goods Sold
$4,180,000
Gross Margin
$2,820,000
Operating Expenses:

Bad Debts 7,420 Depreciation 400,000 General, Selling and Administration*
275,000
Interest
120,000
Supplies
65,000
Total Expenses
867420
Pre-Tax Income
$1,952,580

Company A

Tropical Wave Corporation Partial Balance Sheet

31-Dec

Current Assets:

Current Liabilities:

Cash
$512,863

Accounts Payable
$250,000
Accounts Receivable, net
734580

Long-term Liabilities:

Water Sports Equipment Inventory
620,000

Bonds Payable
450,000
Lotion Inventory
560000

Other
100,000
Other
8,825

Total Liabilities
$800,000
Total Current Assets