Calculation of Issue Price of the Bond & Issue P

Issue Price of a Bond is Equals to Sum of (Pre

a. Issue Price of the Bond:

b.
culation of Issue Price of the Bond & Issue Price as a Percentage :

ue Price of a Bond is Equals to Sum of (Present Value of Interest Payments during life of Bond + Present Value of Matured Pr

ssue Price of the Bond:

Principal Amount $800,000.00
Coupon Rate 6%
Interest Payment Semi annual (6%x1/2) $24,000.00
Number of Periods (10 x 2times per year) 20

1. Present Value of Interest Payments Calculation :

Market Rate of Interest (8% x 1/2) 4.00%
Present Value of Annuity Factor for 4% for 20 periods

PVAF (r% , n) =

in above formula, r = Market Rate = 4% and n=20

from above formula, PVAF = 13.59
Present Value of Interest Payments = $24000*13.59 $326,160.00

2. Present Value of Matured Proceeds of the Bond:

Formula for Present Value Factor is as follows:

Present Value Factor at 8% for 10 periods (1/(1.08)^10) = 0.46

Present Value of Maturity proceeds ($800000*0.46) $368,000.00

Issue Price (1+2) $694,160.00

Issue Price as a Percentage:
Issue Price/Face VALUE x100%
$694160/$800000 X 100% 86.77%
nt Value of Matured Proceeds)
a. Income Statement Under Absorption Costing:

Shawnee Motors Inc.,

Absorption Costing Income Statement
For the Month Ended August 31

Sales (13500 Units )

Less: Cost of Goods Sold:
Direct Materials ($880,600 /17000 x 13500)
Direct Labor ($423,300/17000 x 13500)
Variable Factory Overhead ($210,800/17000 x 13500)
Fixed Factory Overhead ($141,100/17000 x 13500)
Gross Profit Margin
Less: Selling And Administrative Expenses
Net Operating Income

b. Income Statement Under Variable Costing:

Shawnee Motors Inc.,

Absorption Costing Income Statement
For the Month Ended August 31

Sales (13500 Units )

Less: Cost of Goods Sold:
Direct Materials ($880,600 /17000 x 13500)
Direct Labor ($423,300/17000 x 13500)
Variable Factory Overhead ($210,800/17000 x 13500)

Gross Contribution Margin

Less: Variable Selling And Administrative Expenses
Contribution Margin
Less: Fixed Costs:
Fixed Factory Overhead
Fixed Selling And Administrative Expenses
Net Operating Income
c. Reason for the difference in the amount of income from Operations re

Under the Absorption Costing method, the fixed manufacturing cost include
with the revenues. Under Variable Costing method, all of the fixed manufact
is incurred, regardless of the amount of inventory change. Thus, when invento
the Absorption Costing income statement will have a higher income from op
ors Inc.,
come Statement
ed August 31

$ 1,890,000.00

$ (699,300.00)
$ (336,150.00)
$ (167,400.00)
$ (112,050.00) $ (1,314,900.00)
$ 575,100.00
$ (355,900.00)
$ 219,200.00

ors Inc.,
come Statement
ed August 31

$ 1,890,000.00

$ (699,300.00)
$ (336,150.00)
$ (167,400.00)
$ (1,202,850.00)
$ 687,150.00
$ (256,600.00)
$ 430,550.00

$ (141,100.00)
$ (99,300.00) $ (240,400.00)
$ 190,150.00
income from Operations reported in (a) and (b):

manufacturing cost included in the cost of goods sold is matched

hod, all of the fixed manufacturing cost is deducted in the period in which it
y change. Thus, when inventory increases,
have a higher income from operations than will the variable costing income statement.
 8.3

3500
 29050

$29,050.00
Calculation of Net Operating Income as per Flexible Budget fo

Revenue (40 Customers x $6,100)

Less: Employee Salaries and wages
($68,000+(40x$1,500))
Less: Travelling Expenses (40 x $600)
Less: Other expenses
Net Operating Income

Manufacturing Overhead Per Unit

Total Manufacturing Cost

(2000x$88.40; 3000x$65.60)

Variable Manufacturing Cost Per Unit = (Total Cost at 3000 unit

=
=

So Variable Manufacturing Overhead Cost Per Unit = $20.00

We know that , Total Cost = Total Variable Cost + Total Fixed Co

At 3000 Units level, Total Manufacturing overhead Cost = $196
So, $196,800 = (3000x$20)+Fixed overhead Cost
Fixed Manufacturing Overhead = $196,800 - $60000
=

So Option B is Correct Answer.

 ng Income as per Flexible Budget for the month of May:

$ 244,000.00

$ (128,000.00)
$ (24,000.00)
$ (47,000.00) $ (199,000.00)
$ 45,000.00

2000 Units 3000 Units

$ 88.40 $ 65.60

$ 176,800.00 $ 196,800.00

ost Per Unit = (Total Cost at 3000 units - Total Cost at 2000 units)/(3000-2000)
($196,800-$176,800)/(3000-2000)
$ 20.00

Overhead Cost Per Unit = $20.00

= Total Variable Cost + Total Fixed Cost

Manufacturing overhead Cost = $196,800
)+Fixed overhead Cost
head = $196,800 - $60000
$ 136,800.00