Problem 1:
On July 1, Browning Corporation purchases 550,000 shares of its $6 par value common stock for the treasury at a cash price of $10 per share. On September 1, it sells 275,000 shares of the treasury stock for cash at $13 per share. The balance in the retained earnings account is $6,345,000.
Instructions: Journalize the two treasury stock transactions.
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Debit
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Credit
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Problem 2
Johnson Company has a unit-selling price of $450, variable costs per unit of $269, and fixed costs of $265,580.
Instructions: Compute the break-even point in units usingeither (a) the mathematical equationor (b) contribution margin per unit. Round answer up to the next whole unit.
Problem 3
Holmes Company has a factory machine with a book value of $89,851 and a remaining useful life of 4 years. A new machine is available at a cost of $315,275. This machine will have a 4-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $630,925 to $425,840.
Instructions: Prepare an analysis showing whether the old machine should be retained or replaced.
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Retain Equipment
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Replace Equipment
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Total costs
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The equipment should be _______________ because total costs are lower than to retain the machine.
Problem 4
For Perez Company, variable costs are 68% of sales, and fixed costs are $215,000. Management's net income goal is $68,610.
Instructions: Compute the required sales needed to achieve management's target net income of $68,610.
Essay Question:
Keller Company requires its marketing managers to submit estimated cost-volume-profit data on all requests for new products, or expansions of a product line.
Gina Lamb is a new manager. Her calculations show a fixed cost for a new project at $100,000 and a variable cost of $5. Since the selling price is only $15 for the proposed product, 10,000 would need to be sold to break even. That is approximately twice the volume estimate for the first year. She shares her dismay with Anne Smythe, another manager.
Anne strongly advises her to revise her estimates. She points out that several of the costs that had been classified as fixed costs could be considered variable, since they are step costs and mixed costs. When the data has been revised classifying those costs as variable costs, the project appears viable.
Required:
1. Who are the stakeholders in this decision?
2. Is it ethical for Gina to revise the costs as indicated? Briefly explain.
3. What should Gina do?