a. Company A - $1000 Company B - $1000
b. Operating leverage is the use of fixed cost to increase net income, and company B uses more operating leverage.
c. Company A because it has lower fixed costs
d. Company B because it has lower variable costs that will increase proportionally
Lucy’s Lockets Desi’s Delights
2008 2007 2008 2007
...view middle of the document...
Cobb is apparently riskier because they had an 18 million asset impairment charge and also sold 32 million of additional assets. Also, Cobb was not able to cover its interest payments out of operating income in either year which shows that they can’t even meet their obligations and are therefore very risky.
The income statement reports the accrual-basis consequences while the statement of cash flows reports the cash-basis consequences of the operating activities
a. Total units sold = 70 + 60 + 60 = 190
Total units in ending inventory = 60
FIFO ending inventory = (60 × 15) = $900
FIFO cost of goods sold = $2,500
b. LIFO ending inventory = 60 × 12 = $720
LIFO cost of goods sold = $2,680
c. Total cost of goods available for sale = 1,200 + 700 + 1,500 = $3,400
Total units available for sale = 250
Weighted average cost of goods sold = 190 × $13.60 = $2,584
Weighted average ending inventory = 60 × $13.60 = $816
Weighted average cost per unit = 3,400 ÷ 250 = $13.60
a) This would be recorded in 2008 because it is recorded when it is sold
b) Estimated warranty costs should be expensed in the year of sale, therefore in 2007.
c) Bad debts should match the expenses of the year of sale, therefore in 2007.
d) Research and development costs should be expensed in 2007.