Nighthawk Steel, a manufacturer of specialized tools, has $4,850,000 in assets.

Temporary current assets	$1,700,000
Permanent current assets	1,535,000
Capital assets	1,615,000
Total assets	$4,850,000

Short-term rates are 7 percent. Long-term rates are 12 percent. (Note that longterm rates imply a return to any equity). Earnings before interest and taxes are $1,030,000. The tax rate is 20 percent. If long-term financing is perfectly matched (hedged) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be? For an example of perfectly hedged plans, see Figure 6-8.

Earnings after taxes $

ElectronPlus manufactures and sells a unique electronic part. Operating results for the first three years of activity were as follows (absorption costing basis): Sales dropped by 20% during year 2 due to the entry of several foreign competitors into the market. ElectronPlus had expected sale to remain constant at 50.000 units for the year, production was set at 60.000 units in order to build a buffer against unexpected spur in demand, By the start of year 3 , management could see that spurts in demand were unlikely and that the inventory was excessive. work off the excessive inventories, ElectronPlus cut back production during year 3 , as shown below: Additional information about the company follows: a. The company's plant is highly automated. Variable manufacturing costs (direct materials, direct labour, and variable manufacturing overhead) total only $4 per unit, and fixed manufacturing overhead costs total $650,000 per year. b. Fixed manufacturing overhead costs are applled to units of product on the basis of each year's planned production. (That is, a new fixed overhead rate is computed each year). ElectronPlus manufactures and sells a unique electronic part. Operating results for the first three years of activity were as follows (absorption costing basis): Sales dropped by 20% during year 2 due to the entry of several foreign competitors into the market. ElectronPlus had expected sales to remain constant at 50,000 units for the year; production was set at 60,000 units in order to build a buffer against unexpected spurt in demand. By the start of year 3 , management could see that spurts in demand were unlikely and that the inventory was excessive. To work off the excessive inventories, ElectronPlus cut back production during year 3 , as shown below: Additional information about the company follows: a. The company's plant is highly automated. Variable manufacturing costs (direct materials, direct labour, and varlable manufacturing overhead) total only $4 per unit, and fixed manufacturing overhead costs total $650.000 per year. b. Fixed manufacturing overhead costs are applied to units of product on the basis of each year's planned production. (That is, a new fixed overhead rate is computed each year). Additional information about the company follows: a. The company's plant is highly automated. Variable manufacturing costs (direct materials, direct labour, and variable manufacturing overhead) total only $4 per unit, and fixed manufacturing overhead costs total $650,000 per year. b. Fixed manufacturing overhead costs are applied to units of product on the basis of each year's planned production. (That is, a new fixed overhead rate is computed each year). c. Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $68,400 per year. d. The company uses a FIFO inventory flow assumption. The management of ElectronPlus can't understand why profits tripled during year 2 when sales dropped by 20%, and why a loss was incurted during year 3 when sales recovered to previous levels. Required: Requirea: 1. Prepare a contribution format income statement for each year using variable costing. 2. Refer to the absorption costing income statements above. a. Compute the unit product cost in each year under absorption costing. (Show how much of this cost is variable and how much is fixed) (Round your onswer to 2 decimal ploces.) b. Reconcile the variable costing and absorption costing operating income figures for each year (Losses and deductible amounts should be indicated by a minus sign. Do not leave any empty spoces; input o 0 wherever it is required. Round your intermediate ElectronPlus manufactures and sells a unique electronic part. Operating results for the first three years of activity were as follows (absorption costing basis): Sales dropped by 20% during year 2 due to the entry of several foreign competitors into the market. ElectronPlus had expected sale to remain constant at 50.000 units for the year, production was set at 60.000 units in order to build a buffer against unexpected spur in demand, By the start of year 3 , management could see that spurts in demand were unlikely and that the inventory was excessive. work off the excessive inventories, ElectronPlus cut back production during year 3 , as shown below: Additional information about the company follows: a. The company's plant is highly automated. Variable manufacturing costs (direct materials, direct labour, and variable manufacturing overhead) total only $4 per unit, and fixed manufacturing overhead costs total $650,000 per year. b. Fixed manufacturing overhead costs are applled to units of product on the basis of each year's planned production. (That is, a new fixed overhead rate is computed each year). ElectronPlus manufactures and sells a unique electronic part. Operating results for the first three years of activity were as follows (absorption costing basis): Sales dropped by 20% during year 2 due to the entry of several foreign competitors into the market. ElectronPlus had expected sales to remain constant at 50,000 units for the year; production was set at 60,000 units in order to build a buffer against unexpected spurt in demand. By the start of year 3 , management could see that spurts in demand were unlikely and that the inventory was excessive. To work off the excessive inventories, ElectronPlus cut back production during year 3 , as shown below: Additional information about the company follows: a. The company's plant is highly automated. Variable manufacturing costs (direct materials, direct labour, and varlable manufacturing overhead) total only $4 per unit, and fixed manufacturing overhead costs total $650.000 per year. b. Fixed manufacturing overhead costs are applied to units of product on the basis of each year's planned production. (That is, a new fixed overhead rate is computed each year). Additional information about the company follows: a. The company's plant is highly automated. Variable manufacturing costs (direct materials, direct labour, and variable manufacturing overhead) total only $4 per unit, and fixed manufacturing overhead costs total $650,000 per year. b. Fixed manufacturing overhead costs are applied to units of product on the basis of each year's planned production. (That is, a new fixed overhead rate is computed each year). c. Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $68,400 per year. d. The company uses a FIFO inventory flow assumption. The management of ElectronPlus can't understand why profits tripled during year 2 when sales dropped by 20%, and why a loss was incurted during year 3 when sales recovered to previous levels. Required: Requirea: 1. Prepare a contribution format income statement for each year using variable costing. 2. Refer to the absorption costing income statements above. a. Compute the unit product cost in each year under absorption costing. (Show how much of this cost is variable and how much is fixed) (Round your onswer to 2 decimal ploces.) b. Reconcile the variable costing and absorption costing operating income figures for each year (Losses and deductible amounts should be indicated by a minus sign. Do not leave any empty spoces; input o 0 wherever it is required. Round your intermediate