Chapter 9 Assignments Part 1 ACCOUNTING
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Chapter 9 Assignments Part 1
Alreen Sorathiya
University of the Cumberlands
Strategic Mgmt Accounting (BACC-532-B01)
Dr. Margaret Combs
11/26/2023
2
Chapter 9 Assignments Part 1
P 9–4: MacGiver Brass
MacGiver Brass is a brass plating firm with sales of $8 million and profits before taxes of
$625,000. MacGiver has a loan outstanding at its local bank for working capital purposes.
As the loan officer reviewing MacGiver’s loan application, you are charged with making a
recommendation as to whether the $608,000 loan should be renewed for another year.
Upon reviewing MacGiver’s most recent annual report, you find the following footnote:
“Underabsorbed overhead of $462,000 was prorated to inventories (2/3) and cost of goods
sold (1/3).”
Required:
a. How should you evaluate MacGiver’s annual report in light of this footnote? In
particular, how does this footnote affect your recommendation regarding the loan?
Sales =8 millions
Profits before tax =625000
Loan 608000
462000
foot note valuation:
inventories =308000
COGS =154000
the foot note recommends to renew the loan
3
b. In preparing for your meeting with MacGiver’s president and chief financial officer,
what questions do you want to ask regarding this footnote?
I will ask the financial officer whether they need the additional capital to generate more income
than the interest or not?
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