Answer:
$2,889,000
Explanation:
Sales units = 270,000 units
Sale Price = $17.10
Fixed cost = $729,000
Sales Value = 270,000 * $17.10
Sales Value = $4,617,000
Contribution Margin = Sales- Fixed cost
Contribution Margin = $4,617,000 - $729,000
Contribution Margin = $3,888,000
Variable Cost = Contribution margin- Pretax income
Variable Cost = $3,888,000 - $999,000
Variable Cost = $2,889,000
So, $2,889,000 is the amount that should have been reported as variable costs in the company's contribution margin income statement for the year in question.
All That Blooms provides environmentally friendly lawn services for homeowners. Its operating costs are as follows.
Depreciation $1,224 per month
Advertising $153 per month
Insurance $1,683 per month
Weed and feed materials $10 per lawn
Direct labor $8 per lawn
Fuel $2 per lawn
All That Blooms charges $50 per treatment for the average single-family lawn.
Determine the company
Answer and Explanation:
The computation is shown below:
Total fixed costs is
= depreciation + advertising + insurance
= 1224 + 153 + 1683
= $3060 per month
Now
Total variable cost per unit
= weed + direct labor + fuel
= 10 + 8 + 2
= $20/ per lawn
Now
Contribution margin ratio = (sales per unit - variable cost per unit) ÷ sales per unit
= ($50 - $20) ÷ 50
= 60%
Now
Breakeven sales is
= fixed costs ÷ contribution margin ratio
= $3,060 ÷ 60%
= $5100
And,
Breakeven sales units is
= breakeven sales ÷ sales per unit
= 5100 ÷ 50
= 102 lawns
Identify a new product that is based on an innovation in technology, and draw up a strategic technical plan for its development. Be sure to discuss the risk factors at each stage, and indicate how you would deal with each.
"An electric car" is a new product that depends upon technological innovation.
Its progress is guided by a strategic technology plan:
The production of new ideas:
The lithium-ion battery throughout the electric vehicle will provide the energy needed to run its engine. Installation of the battery would ensure it can do all the functions which the consumer would expect from a typical vehicle.The idea is evaluated:
The lithium-ion battery-powered electric car ought to be able to equal the speed of a gasoline or diesel-powered vehicle.Analysis of the business environment:
Due to its reduced mileage, such a car would be perfect for customers who are unable to pay the rising cost of oil for the vehicles. Thus, electric vehicles would've been ideal to clients with fundamental part from middle income to high class. Its car would attract a huge number of customers, as consumers are looking for vehicles that may help them save cash on gasoline prices.Development:
The fuel or diesel cylinder and batteries would be fitted in the car's bonnet. The rest of the car assembly process will proceed normally usual.Commercialization:
Customers will be able to buy cars through a countrywide dealer network.The car's battery plays a significant role in each step of the process. Whereas if a car's batteries run out while it was on the road, it could be recharged using another energy source. During a crisis, solar plates will absorb the sun and power a battery. As a result, the vehicle will keep running smoothly.Learn more:
brainly.com/question/17578700
Each employee takes two 8 minute rest breaks and one 25 lunch break each shift. The company has 2 shifts per work day each with 4 employees. Compute the takt time if the company is planning to produce 1325 JU-4s.
Answer:
The appropriate answer is "[tex]0.657 \ mins/JU-4s[/tex]".
Explanation:
Given:
Demand,
= 1325 JU-4s
1 day = 2 shifts
Assuming a shift is of 8 hours duration.
then,
[tex]1 \ shift = (8\times 60)-(20+25)[/tex]
[tex]=480-45[/tex]
[tex]=435 \ mins[/tex]
Total day mins,
= [tex]435\times 2[/tex]
= [tex]870 \ mins[/tex]
hence,
The average throughput rate will be:
= [tex]\frac{870 \ mins}{1325 \ JU-4s}[/tex]
= [tex]0.657 \ mins/JU-4s[/tex]
Jasper Company has sales on account and for cash. Specifically, 61% of its sales are on account and 39% are for cash. Credit sales are collected in full in the month following the sale. The company forecasts sales of $523,000 for April, $533,000 for May, and $558,000 for June. The beginning balance of Accounts Receivable is $304,200 on April 1. Prepare a schedule of budgeted cash receipts for April, May, and June.
Answer:
Jasper Company
Budgeted CAsh Receipts:
April May June
Cash sales (39%) $203,970 $207,870 $217,620
Cash collections 304,200 360,870 325,130
Total cash receipts $508,170 $568,740 $542,750
Explanation:
a) Data and Calculations:
April May June
Forecast sales $523,000 $533,000 $558,000
Cash sales (39%) 203,970 207,870 217,620
Credit sales (61%) 360,870 325,130 340,380
Cash collections 304,200 360,870 325,130
Budgeted CAsh Receipts:
April May June
Cash sales (39%) $203,970 $207,870 $217,620
Cash collections 304,200 360,870 325,130
Total cash receipts $508,170 $568,740 $542,750
. If it outsources the navigation system, fixed costs could be reduced by half, and the vacant facilities could be rented out to earn $2000 per month of rental income. What is the maximum contract cost that Fruit Boat Company should pay for outsourcing
Answer: $2,425
Explanation:
Fruit Boat should not pay more for the contract than they would if they were producing the good themselves.
= Variable cost + Avoidable fixed costs + Opportunity cost per month
Avoidable fixed cost = (39,000 / 2) / 10 boats = 19,500 / 10 = $1,950
Opportunity cost per month = 2,000 / 10 boats
= $200
Contract price = 275 + 1,950 + 200
= $2,425
Under absorption costing, which of the following costs would not be included in finished goods inventory? a.overtime wages paid to factory workers b.the salaries for salespeople c.hourly wages of assembly worker d.straight-line depreciation on factory equipment
Answer:
b.the salaries for salespeople
Explanation:
Absorption costing is the method of costing that tries to itemise all factors that are used in manufacturing a product. These include direct materials, direct labour, and overhead.
However there is no provision for items under contributing margin (that is costs that are derived from sales revenue). Such costs can include salaries of sales people that are taken out of sales revenue.
Other items such as overtime wages paid to factory workers, hourly wages of assembly worker, and straight-line depreciation on factory equipment are all included in absorption costing
Crawley, Inc. has a line of credit with HNC Bank that allows the company to borrow up to $800,000 at an interest rate of 12 percent. However, Crawley, Inc. must keep a compensating balance of 18 percent of any amount borrowed on deposit at the bank. Crawley, Inc. does not normally keep a cash balance account with HNC Bank. What is the effective annual cost of credit?
Answer: 14.63%
Explanation:
Based on the information given in the question, the effective annual cost of credit will be calculated as:
Effective annual cost of credit = [Interest rate/ (100 - Deposit Rate)] x 100
= [12 /(100 - 18)] x 100
= (12 / 82) × 100
= 0.1463 × 100
= 14.63%
The effective annual cost of credit is 14.63%.
Prepare the December 31 adjusting entries for the following transactions.
a. Fees accrued but not billed, $6,300.
b. The Supplies account balance on December 31, $4,750.
c. Supplies on hand, $960
d. Wages accrued but not paid, $2,700
e. Depreciation of office equipment, $1,650
f. Rent expired during year, $10,800.
Answer and Explanation:
The journal entries are shown below:
a. Account receivable Dr $6,300
To Fees Revenue $6,300
(Being fees accrued is recorded)
b Supplies Expense $3,790 ($4,750 - $960)
To Supplies $3,790
(being supplies expense is recorded)
d. Wages Expense $2,700
To Wages Payable $2,700
(being wages expense is recorded)
e. Depreciation Expense $1,650
To Accumulated Depreciation $1,650
(being depreciation expense is recorded)
f. Rent Expense $10,800
To Prepaid Rent $10,800
(being rent expense is recorded)
Chico Company paid $950,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture, $190,000; Building, $740,000; and Land, $132,000. Based on this information, what is the cost that should be allocated to the office furniture
Answer:
$171,000
Explanation:
The company psid $950,000 for office furniture, building and land
The market value of the assets is
Office furniture= $190,000
Building= $740,000
Land= $132,000
Therefore the cost that should be allocated to the office furniture can be calculated as follows
= 18/100 × 950,000
= 0.18×950,000
= 171,000
what are the first steps to start business
Answer:
finding a market for your product then finding a marketing strategy then get your assets set up
Explanation:
You have just made your first $5,837 contribution to your retirement account. Assume you earn a return of 9.8 percent per year and make no additional contributions. What will your account be worth when you retire in 45 years
Philadelphia Company has the following information for March: Sales $450,000 Variable cost of goods sold 240,000 Fixed manufacturing costs 70,000 Variable selling and administrative expenses 52,000 Fixed selling and administrating expenses 35,000 Determine the March: a. Manufacturing margin $fill in the blank 1 b. Contribution margin $fill in the blank 2 c. Operating income for Philadelphia Company $fill in the blank 3
Answer:
a.$210,000
b. $158,000
c. $53,000
Explanation:
Calculation to determine the March (a) manufacturing margin, (b) contribution margin, and (c) income from operations for Philadelphia Company.
A)Calculation to determine the March manufacturing margin
Using this formula
Manufacturing Margin =(Sales – Cost of Goods Sold)
Let plug in the formula
Manufacturing Margin=450,000 – 240,000
Manufacturing Margin= $210,000
(B)Calculation to determine contribution margin,
Using this formula
Contribution Margin =(Gross Manufacturing Margin – Variable Expenses)
Let plug in the formula
Contribution Margin=210,000 – 52,000
Contribution Margin= 158,000
(C)Calculation to determine the March income from operations for Philadelphia Company
Using this formula
Income from Operations= (Sales – All expenses)
Let plug in the formula
Income from Operations= 450,000 – 397,000
Income from Operations = 53,000
Therefore the March (a) manufacturing margin, (b) contribution margin, and (c) income from operations for Philadelphia Company are:
a.$210,000
b. $158,000
c. $53,000
A journal entry for a payment for rent expense was posted as a debit to Salaries Expense and a credit to Cash. Which of the following statements correctly states the effect of the error on the trialâ balance?
A. The sum of the credits will equal the sum of the debits.
B. The sum of the debits will exceed the sum of the credits by .
C. The sum of the debits will exceed the sum of the credits by .
D. The sum of the credits will exceed the sum of the debits by .
Answer:
A). The sum of the credits will equal the sum of the debits.
Explanation:
journal entry journal entry can be regarded as record of the business transactions which is made in a accountingbooks of a business.
journal entry that is documented properly will contains correct date as well as amounts to be debited and description of the transaction, it contain amount to be credited as well as a unique reference number.Note that "There is equal amount of credit as well as debit in a journal entry"
Trial balance can be regarded as report that give lists of balances of all general ledger accounts in a firm at a particular point in time, there is compilation of all ledger balance into debit as well as credit account column totals. As rule in trial balance, the total of the debit balances as well as credit balances that is been extracted from the ledger must tally with each other.
Casey transfers property with a tax basis of $3,800 and a fair market value of $6,800 to a corporation in exchange for stock with a fair market value of $5,250 and $720 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $830 on the property transferred. Casey also incurred selling expenses of $461. What is the amount realized by Casey in the exchange
Answer:
$5789
Explanation:
Calculation to determine the amount realized by Casey in the exchange
Fair market value of stock $5250
Add Cash in transaction $ 720
Add Liability which is going to the buyer $ 830
Less Selling expenses ($461)
Amount realized $5789
($5250+$720+$830-$461)
Therefore the amount realized by Casey in the exchange is $5789
Cameron is single and has taxable income of $58,046.
Required:
Determine his tax liability using the Tax Tables and using the Tax Rate Schedules.
Answer:
Cameron
Cameron's tax liability for the year as a single taxpayer is
= $12,770.12.
Explanation:
a) Data and Calculations:
Taxable income = $58,046
Tax rate = 22%
Tax liability = $12,770.12 ($58,046 * 22%)
b) The amount of tax that Cameron, who is within the 22% tax rate bracket, will pay to the IRS is $12,770.12. The tax liability represents the amount of tax that is due to be paid for his taxable income of $58,046 at the tax rate of 22%.
A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of Group of answer choices $5,000. $1,250. $120,000. $3,750.
Answer:
$3,750
Explanation:
Calculation to determine what it can increase its loans by
Using this formula
Loan increase=Excess reserves-(Reserve requirement percentage* Excess reserves)
Let plug in the formula
Loan increase=$5000-($25%*$5000)
Loan increase=$5,000-$1,250
Loan increase=3,750
Therefore it can increase its loans by a maximum of $3,750
The purpose of an analysis of an account is to illustrate - in the account for the period under audit
Answer:
all changes
Explanation:
Financial accounting is an accounting technique used for analyzing, summarizing and reporting of financial transactions like sales costs, purchase costs, payables and receivables of an organization using standard financial guidelines such as Generally Accepted Accounting Principles (GAAP).
An auditor refers to an authorized individual who review, examine and verify the authenticity and accuracy of business financial records or transactions.
The purpose of an analysis of an account is to illustrate all changes in the account for the period under audit. Thus, an audit of historical financial statements most commonly includes the balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders' equity.
There are two (2) main types of financial analysis;
I. Vertical analysis.
II. Horizontal analysis.
In Financial accounting, Horizontal analysis can be defined as an analysis and evaluation of a financial statement which illustrates or gives information about changes in the amount of corresponding financial statement items, benchmarks or financial ratio over a specific period of time. It is one of the most important technique that is used to measure how a business is doing financially. Hence, it is also referred to as the trend analysis.
Under the horizontal analysis of financial statement, we use the financial statements of two or more periods; earliest and latter periods.
Generally, the earliest is chosen as the base period while all other items on the statement for a latter period will be compared with the items on the statement of the base period.
Which statement does not describe a difference between government and household budgets? In the short term, economists would expect the budget deficits and surpluses to fluctuate up and down with the economy and the automatic stabilizers. Most economists view the proposals for a perpetually balanced budget with bemusement. Most economists agree with the proposals for a perpetually balanced budget. Economic recessions should automatically lead to larger budget deficits or smaller budget surpluses, while economic booms lead to smaller deficits or larger surpluses.
Answer:
Most economists view the proposals for a perpetually balanced budget with bemusement
Explanation:
A balanced budget is a budget where at the end of every year, revenue must equal expenditure. this type of budget can magnify the business cycle. This types of budget contrasts with a cyclically balanced budget
A Cyclically balanced budget is when in a recession, the government makes use of expansionary fiscal policy and in a boom, the government makes use of a contractionary fiscal policy to stabilise the economy. So, in a recession, deficits would be higher and in an expansion, surplus would be higher.
Government sector deficit occurs when government spending exceeds income of the government.
When deficit increases, debt increases. This is because a deficit would need to be funded by additional borrowing
When there is a surplus, government spending is less than the income of the government.
Perteet Corporation's relevant range of activity is 5,100 units to 10,500 units. When it produces and sells 7,800 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $6.80 Direct labor $3.45 Variable manufacturing overhead $1.90 Fixed manufacturing overhead $3.80 Fixed selling expense $0.65 Fixed administrative expense $0.35 Sales commissions $0.45 Variable administrative expense $0.50 If 5,400 units are produced, the total amount of manufacturing overhead cost is closest to:
Answer:
Total overhead= $39,900
Explanation:
Giving the following information:
Variable manufacturing overhead $1.90
First, we need to calculate the total fixed overhead:
Total fixed overhead= 7,800*3.8
Total fixed overhead= $29,640
Now, the total overhead for 5,400 units:
Total variable overhead= 1.9*5,400= 10,260
Total fixed overhead= 29,640
Total overhead= $39,900
During its first year of business, XYZ Inc. purchased $1,600 of supplies. By the end of
the year, only $500 of supplies remain in the supply cabinet. Determine the amount to be
reported in the Supplies account in the Adjusted Trial Balance section of the worksheet
prepared on December 31.
Answer:
$500
Explanation:
Since adjusted trial balance is often prepared at the end of an accounting period in which based on the information given the supplies in inventory is on the last day of the accounting period in which only the amount of $500 of supplies was remaining in the supply cabinet, therefore the amount to be
reported in the SUPPLIES ACCOUNT in the Adjusted Trial Balance section of the worksheet
prepared on December 31 will be $500 of supplies remaining in the supply cabinet.
While approaching a group of colleagues, Patrice overheard what she believed were inappropriate comments about another team member's physical attributes. Patrice mentioned the comments to her manager and indicated she was uncomfortable with colleagues speaking in that way in the workplace. As her manager, how should you respond
Answer:
The question is incomplete, the options are missing. The options are the following:
a) Suggest to Patrice that spreading negative information learned from eavesdropping is not healthy for the workplace.
b) Thank Patrice for speaking up and forward the item to a neutral third party for handling.
c) Immediately fire the team members who made the comments.
d) Contact the team member who was the subject of the comments to see if he or she was offended.
e) Thank Patrice for her input, but based on the harmlessness of the situation, take no further action.
And the correct answer is the option B: Thank Patrice for speaking up and forward the item to a neutral third party for handling.
Explanation:
To begin with, these kind of situations are most common than expected in the workplace so that is why that nowadays exist a lot of seminars about certain subjects that involves the behavior in the organization and furthermore there is the regular action of the Human Resources Department that takes cares of all the penalties and the solutions when it comes to subjects regarding the employees of the business and their relationship both with each other and with the company. So the correct way to act in this scenario would be to thank Patrice and tell her that the manager would inform to the Human Resources Department about it, being this last one a third party in the situation itself.
Suppose that a company has the following accounts receivable collection pattern: Paid in the month of sale 25% Paid in the month following sale 75% All sales are on credit. If credit sales for January and February are $250,000 and $120,000 respectively, the cash collection for February is:
Answer: $152,500
Explanation:
The cash collection for February would be:
25% of the sales in January as 25% are collected in the following months 75% of February credit sales as 75% are collected in the month of sale= (25% * 250,000) + (75% * 120,000)
= 62,500 + 90,000
= $152,500
Entry for Jobs Completed; Cost of Unfinished Jobs
The following account appears in the ledger prior to recognizing the jobs completed in August:
Work in Process
Balance, August 1 $8,920
Direct materials 72,520
Direct labor 78,230
Factory overhead 41,120
Jobs finished during August are summarized as follows:
Job 210 $36,140
Job 216 22,090
Job 224 42,170
Job 230 78,310
a. Journalize the entry to record the jobs completed.
b. Determine the cost of the unfinished jobs at August 31.
$
Answer:
a. Journal Entry to record the jobs completed:
Debit Finished Goods Inventory $178,710
Credit Work in Process $178,710
To record the jobs completed.
b. The cost of the unfinished jobs at August 31 is:
= $23,080
Explanation:
a) Data and Analysis:
Work in Process
Account Titles Debit Credit
Balance, August 1 $8,920
Direct materials 72,520
Direct labor 78,230
Factory overhead 41,120
Finished goods inventory $178,710
Balance (unfinished jobs) 23,080
Total $201,790 $201,790
Jobs finished during August are summarized as follows:
Job 210 $36,140
Job 216 22,090
Job 224 42,170
Job 230 78,310
Total $178,710
a. Journal Entry Analysis to record the jobs completed:
Finished Goods Inventory $178,710 Work in Process $178,710
b. The cost of the unfinished jobs at August 31 is:
= Total of work in process Minus Finished Goods
= $201,790 - $178,710
= $23,080
Each firm embraces objectives that management believes will make the firm more successful.
a. True
b. False
Answer:
a. True
Explanation:
Organizational objectives and goals are defined by strategic planning, which is a document that contains the organizational mission and values, as well as the action plans that the company must implement over a period of time to achieve its objectives and goals and be a profitable company and competitive in the market.
Therefore, the administration of each company will define what are its market objectives that will make it more successful and positioned in the long term.
Coronado, Inc. reported net income of $2.95 million in 2022. Depreciation for the year was $188,800, accounts receivable decreased $413,000, and accounts payable decreased $330,400. Compute net cash provided by operating activities using the indirect method
Answer:
Net cash provided by operating activities $3,221,400
Explanation:
The computation of the net cash provided by operating activities using the indirect method is given below
cash provided by operating activities
Net income $2,950,000
Add: depreciation $188,800
Add: decrease in account receivable $413,000
Less: decrease in account payable -$330,400
Net cash provided by operating activities $3,221,400
The finished goods inventory on hand on December 31, 2018 was 21,000 units. It is the company's policy to maintain a finished goods inventory at the end of each quarter equal to 20% of the next quarter's anticipated sales. Prepare a production budget for 2019.
Question Completion:
Benet Company has budgeted the following unit sales for 2019 and 2020:
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1
Sales units 105,000 60,000 75,000 120,000 90,000
Answer:
Benet Company
Production Budget for 20198:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales units 105,000 60,000 75,000 120,000
Ending inventory 12,000 15,000 24,000 18,000
Units available for
sale 117,000 75,000 99,000 138,000
Beginning inventory 21,000 12,000 15,000 24,000
Production 96,000 63,000 84,000 114,000
Explanation:
a) Data and Calculations:
Budgeted unit sales for 2019 and 2020:
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1
Sales units 105,000 60,000 75,000 120,000 90,000
Ending inventory 12,000 15,000 24,000 18,000
Units available for
sale 117,000 75,000 99,000 138,000
Beginning inventory 21,000 12,000 15,000 24,000 18,000
Production 96,000 63,000 84,000 114,000
A beautiful bridge is being built over the river that runs through a major city in your state. The cost of the bridge is estimated at $600 million. Annual costs of the bridge will be $200,000, and the bridge is estimated to last a very long time. If accountants in city hall use 3% as the interest rate for analysis, what is the annualized cost of the bridge project
Answer:
$18.20 million
Explanation:
Net present value = Initial cost + (Annual cost/3%)
Net present value = $600 million + $200,000/3%
Net present value = $600 million + $6.67 million
Net present value = $606.67 million
Annualized cost = Net present value * 3%
Annualized cost = $606.67 million * 3%
Annualized cost = $18.20 million
So, the annualized cost of the bridge project is $18.20 million.
The following data are given for Stringer Company: Budgeted production 929 units Actual production 1,031 units Materials: Standard price per ounce $1.80 Standard ounces per completed unit 11 Actual ounces purchased and used in production 11,681 Actual price paid for materials $23,946 Labor: Standard hourly labor rate $14.47 per hour Standard hours allowed per completed unit 4.1 Actual labor hours worked 5,309.65 Actual total labor costs $80,972 Overhead: Actual and budgeted fixed overhead $1,040,000 Standard variable overhead rate $27.00 per standard labor hour Actual variable overhead costs $148,670 Overhead is applied on standard labor hours. Round your intermediate calculations and final answer to the nearest cent. The direct materials price variance is a.$2,920.25 favorable b.$7,300.62 unfavorable c.$7,300.62 favorable d.$2,920.25 unfavorable
Answer:
d.$2,920.25 unfavorable
Explanation:
Actual purchase price = Actual price paid for material / Actual ounces purchased and used in production
Actual purchase price = $23,946 / 11,681
Actual purchase price = $2.05
Direct materials price variance = Actual ounces purchased and used in production * (Actual purchase price - Standard price per ounce
Direct materials price variance = 11,681 * ($2.05 - $1.80)
Direct materials price variance = 11,681 * $0.25
Direct materials price variance = $2,920.25 Unfavorable
type of power based on manager's ability to influence employees with something of value to them.
Answer:
incentive or reward
Explanation:
incentive pay, time and a half pay for overtime are examples
Biochemical Corp. requires $690,000 in financing over the next three years. The firm can borrow the funds for three years at 9.25 percent interest per year. The CEO decides to do a forecast and predicts that if she utilizes short-term financing instead, she will pay 7.50 percent interest in the first year, 12.15 percent interest in the second year, and 8.25 percent interest in the third year. Assume interest is paid in full at the end of each year.
a. Determine the total interest cost under each plan.
Interest Cost
Long-term fixed-rate $
Short-term variable-rate $
b. Which plan is less costly?
Short-term variable-rate plan
Long-term fixed-rate plan
Answer:
a. We have:
Interest cost of long-term fixed-rate = $191,475
Interest cost of short-term variable-rate = $192,51
b. Long-term fixed rate plan is less costly
Explanation:
a. Determine the total interest cost under each plan.
Interest cost of long-term fixed-rate = Amount required to be borrowed * Fixed interest rate per year * Number of years = $690,000 * 9.25% * 3 = $191,475
Interest cost of short-term variable-rate = (Amount required to be borrowed * First year interest rate) + (Amount required to be borrowed * Second year interest rate) + (Amount required to be borrowed * Third year interest rate) = ($690,000 * 7.50%) + ($690,000 * 12.15%) + (($690,000 * 8.25%) = $192,510
b. Which plan is less costly?
Since the $191,475 interest cost of long-term fixed-rate is less than $192,510 interest cost of short-term variable-rate, this implies that long-term fixed rate plan is less costly.
