Accounting, Analysis, and Principles Concord Industries manufactures sump-pumps.
ID: 2343152 • Letter: A
Question
Accounting, Analysis, and Principles Concord Industries manufactures sump-pumps. Its most popular product is called the Super Soaker, which has a retail price of $1,130 and costs $540 to manufacture. It sells the Super Soaker on a standalone basis directly to businesses. Concord also provides installation services for these commercial customers, who want an emergency pumping capability (with regular and back-up generator power) at their businesses. Concord also distributes the Super Soaker through a consignment agreement with Menards. Income data for the first quarter of 2017 from operations other than the Super Soaker are as follows. Revenues $10,029,000 Expenses 7,027,000 Concord has the following information related to two Super Soaker revenue arrangements during the first quarter of 2017 1. Concord sells 3 Super Soakers to businesses in flood-prone areas for a total contract price of $54,800. In addition to the pumps, Concord also provides installation (at a cost of $160 per pump). On a standalone basis, the fair value of this service is $210 per unit installed. The contract payment also includes a $11 per month service plan for the pumps for 3 years after installation (Concord's cost to provide this service is $7 per month). The Super Soakers are delivered and installed on March 1, 2017, and full payment is made to Concord. Any discount is applied to the pump/installation bundle. 2. During ships 300 Super Soakers to Menards on consignment. By March 31, 2017, Menards has sold two-thirds of the consigned merchandise at the listed price of $1,130 per unit. Menards notifies Concord of the sales, retains a 5% commission, and remits the cash due Concord Determine Concord Industries' 2017 first-quarter net income. (Ignore taxes.) Net income Determine free cash flow for Concord Industries for the first quarter of 2017. In the first quarter, Concord had depreciation expense of $177,000 and a net increase in working capital (change in accounts receivable and accounts payable) of $275,000. In the first quarter, capital expenditures were $527,000; Concord paid dividends of $110,000. Free cash flowExplanation / Answer
Solution:-
1:-
Revenue from post-sales service:-
= ($11 * 3 years) * 3pumps
=($11 * 36 ) * 3
= $1,188
= ($6 * 36 ) * 3
= $648
= 1,188 - 648
= $540
= ($210 * 3pumps)
= $630
= $160 * 3 pumps
= $480
= 630 - 480
= $150
= 54,800 - 1,188
= $53,612
= 53,612 + 150 + 648
= $54,410
2:-
= 200 units
= 1,130 * 200
= $226,000
= 540 * 200
= $108,000
= $226,000 - $108,000
= $118,000
= $226,000 * 5%
= $11,300
= $118,000 - $11,300
= $106,700
First quarter net income:-
= 10,029,000 - 7,027,000
= $3,002,000
= 3,002,000 + 106,700 +54,410
= $3,163,110
Free cash flow:-
= $3,163,110 - ($275,000 + $527,000 + $110,000)
= 3,163,110 - 912,000
= $2,251,110
Revenue from post-sales service= ($11 * 3 years) * 3pumps
=($11 * 36 ) * 3
= $1,188
Cost of providing service= ($6 * 36 ) * 3
= $648
Income from post sales service= 1,188 - 648
= $540
Revenue from installation= ($210 * 3pumps)
= $630
Cost of installation= $160 * 3 pumps
= $480
Income from installation= 630 - 480
= $150
Income from sale of soakers= 54,800 - 1,188
= $53,612
Total= 53,612 + 150 + 648
= $54,410