Answer and Explanation:
The journal entry to record the purchase of common stock is as follows:
Treasury stock (10,000 shares × $4 per share) $40,000
To cash $40,000
(being the purchase of common stock is recorded)
Here treasury stock is debited as it reduced the stockholder equity and the cash is credited as it also decreased the assets
Suppose Alex and Becky are playing a game in which both must simultaneously choose the action Left or Right. The payoff matrix that follows shows the payoff each person will earn as a function of both of their choices. For example, the lower-right cell shows that if Alex chooses Right and Becky chooses Right, Alex will receive a payoff of 5 and Becky will receive a payoff of 5.
Becky
Left Right
Alex Left 6, 6 6, 3
Right 4, 3 5, 5
The only dominant strategy in this game is for___ to choose_____ .
The outcome reflecting the unique Nash equilibrium in this game is as follows:
Alex chooses______ and Becky chooses_______ .
Answer:
The only dominant strategy in this game is for__Alex_ to choose__Right___ .
The outcome reflecting the unique Nash equilibrium in this game is as follows:
Alex chooses__Right____ and Becky chooses__Left_____ .
Explanation:
The game theory of the Nash equilibrium achieves the optimal outcome of a game because Alex and Becky are not incentivized to deviate from their chosen strategies after considering the opponent's choice. Neither of these two players can increase their payoff by choosing an action different from their current strategic action. Thus, this action profile achieves a Nash equilibrium for the two players because there exists randomization in the game.
Barbara is a single taxpayer who had a 2020 adjusted gross income of $25,000 and contributed $4,000 to her traditional IRA. Assuming she has a $2,000 income tax liability for the year, what is her maximum retirement contribution savings credit
Answer:
$200
Explanation:
The retirement contribution savings credit is designed to benefit low and middle income tax payers that contribute to retirement accounts.
The maximum credit ranges from $200 to $1,000 per taxpayer.
Since Barbara earned below $32,500, she applies for this tax credit.
Since her AGI is over $21,251, she can only deduct 10% of the first $2,000 contributed to her IRA account = $2,000 x 10% = $200
Last month, the budgeted level of activity was 1,090 cars washed and the actual level of activity was 1,080 cars washed. The cost formula for the washing expenses is $3.30 per car washed plus $18,500 per month.
Fixed cost per month Cost per car washed
Cleaning supplies $0.70
Electricity $1,300 $0.08
Maintenance $0.15
wages and salaries $4,900 $0.20
Depreciation $8,400
Rent $1,900
Administrative expenses $1,600 $0.05
For example. electricity costs are $1,300 per month plus $0.08 per car washed. The company expects to wash 8,000 cars in August and to collect an average Of $6.60 per car washed.
The actual operating results for August appear below.
Lavage Rapide Income Statement For the Month Ended August 31
Actual car washed 8100
Revenue 54,900
Expenses:
Cleaning supplies 6,100
Electricity 1910
Maintenance 1,440
Wages and salaries 6860
Depreciation 8,400
Rent 2100
Administrative expenses 1,900
Total expense 28170
Net operating income 26,190
Required:
Prepare a flexible budget performance report that shows the company's revenue and spending variances and activity variances for August.
Answer:
Flexible Budget Performance Report for August:
Flexible Actual Variances
Budget Budget Spending Activity Total
Activity levels 8,100 8,100
Revenue $53,460 $54,900 $1,440
Cleaning supplies $5,670 $6,100 (430)
Electricity $1,948 1,910 38
Maintenance $1,215 1,440 (225)
Wages and salaries $6,520 6,860 (340)
Administrative expenses $2,005 1,900 105
Depreciation $8,400 8,400 0
Rent $1,900 2,100 ($200)
Total expenses $27,658 $28,170 ($200) ($852) (1,052)
Net operating income $25,802 $26,190 $388
Explanation:
a) Data and Calculations:
Fixed cost Cost per
per month car washed
Cleaning supplies $0.70
Electricity $1,300 $0.08
Maintenance $0.15
Wages and salaries $4,900 $0.20
Depreciation $8,400
Rent $1,900
Administrative expenses $1,600 $0.05
Total costs $18,100 $1.18
Flexible costs:
Cleaning supplies $0.70 * 8,100 = $5,670
Electricity $1,300 $0.08 * 8,100 = $1,948
Maintenance $0.15 * 8,100 = $1,215
Wages and salaries $4,900 $0.20 * 8,100 = $6,520
Administrative expenses $1,600 $0.05 * 8,100 = $2,005
In 2020, Cullumber Company reported net income of $585000. It declared and paid preferred stock dividends of $111000 and common stock dividends of $54000. During 2020, Cullumber had a weighted average of 300000 common shares outstanding. Compute Cullumber's 2020 earnings per share.
Answer: $1.58
Explanation:
Earnings per share is the amount of a company's earnings that is available to the common shareholders.
Formula is;
Earnings per share = (Net Income - Preferred dividends) / Weighted average common share outstanding
= (585,000 - 111,000) / 300,000
= $1.58
A-One Auto Sales, Inc., employs Best Collection Company as a collection agent. While repossessing goods from Carl, one of A-One's customers, Best causes an accident in which Carl is injured. Carl can recover from
Answer: c. A-One or Best.
Explanation:
Best Collection Company are the ones who cause the accident and so they can be held liable and have to compensate Carl for injuries and harm caused.
Best however, was acting as an agent on behalf of A-One Auto Sales so A-One can be held liable as well for the incident. Carl can therefore also be compensated by A-One as well.
Carl cannot be compensated by both for the same incident as this amounts to double compensation but can be compensated by either one of them.
A firm has market power if it can a. maximize profits. b. minimize costs. c. influence the market price of the good it sells. d. hire as many workers as it needs at the prevailing wage rate.
Answer:
Option C: Influence the market price of the good as it sells
Explanation:
Market Power is simply when a firm is able to raise price above the equilibrium level by not and without losing all of its customers. It depends on largely on the closeness of substiutes.
A firm has market power if it can Influence the market price of the good as it sells to its customer and can regulate it when necessary.
Assume that interest rate parity holds and that 90-day risk-free securities yield a nominal annual rate of 3% in the United States and a nominal annual rate of 3.5% in the United Kingdom. In the spot market, 1 pound 5 $1.29. a. What is the 90-day forward rate
Answer:
$1.55
Explanation:
Interest rate parity = (1+Rh) / (1+Rf) = F1 / S0
Rh = rate on home currency here US is home 3% p.a = 3%/4 = 0.75%
Rf= rate on foreign currency here Germany 3.5% p.a = 3.5%/4 = 0.875
F1 = Forward rate , S0= Spot market rate
So, (1+0.0075) / (1+0.00875) = F1 / 1.56
1.0075/1.00875 = F1 / 1.56
0.998761 = F1 / 1.56
F1 = 0.998761 * 1.56
F1 = 1.55806716
F1 = $1.55
Thus, the 90-day forward rate is $1.55
I Need help ASAP pls
Answer:
THis is hard
Explanation:
good luck
For the following statement/questions match the assertion that best matches: When auditing the following accounts identify what auditors are primarily concerned with:
a. Revune
b. Assests
c. Liabilities
d. Expenses
1. Overstatments
2. Understatments
Answer:
When auditing the following accounts, auditors are primarily concerned with:
Accounts Assertions
a. Revenue Overstatements
b. Assets Overstatements
c. Liabilities Understatements
d. Expenses Understatements
Explanation:
Auditors are generally concerned about these assertions when auditing financial statements and their related disclosures: accurate recording, completeness, cut-off, existence, rights and obligations, and valuation. For revenue and assets, they want to ensure that these are not overstated. Their overstatement will increase the reported profits of the entity, which is a kind of cooking the books to please analysts. They are also interested in ensuring that liabilities and expenses are not understated for the same purpose.
Melinda signs a three year contract for employment as a legal studies lecturer. Does this type of contract fall within the scope of the statute of frauds
Answer: Yes, because it is a contract whose terms prevent possible performance within one year
Explanation:
The Statute of Fraud mandates that certain contracts need to be written down. These contracts include the sale of land, amounts involving more than $500 and contracts that have a timeframe of over a year.
Melinda entered into a contract with terms that have to be fulfilled in more than a year. It is therefore under the Statute of Frauds.
Premium priced products like those offered by Louis Vuitton are not likely to be distributed _______.
Answer:
b. intensively
Explanation:
Louis Vuitton products mostly deal with the suitcases, shoes, watches, jewelleries, sunglasses, etc. Their products would be sold via departments i.e. rental, online websites, stores, etc
So as per the given situation, their premium and pricing products could not be allocated intensively as for many people it cant be afforded due to the high prices.
So the correct option is b.
Moss exchanges a warehouse for a building he will use as an office building. The adjusted basis of the warehouse is $ 600,000 and the fair market value of the office building is $360,000. In addition, Moss receives cash of $ 150,000. What is the recognized gain or loss and the basis of the office building
Answer:
Moss
The recognized loss and the basis of the office building are:
Recognized loss = $90,000
Basis of office building = $360,000
Explanation:
a) Data and Calculations:
Adjusted basis of warehouse = $600,000
Fair market value of the office building = $360,000
Cash received in exchange = $150,000
Total value of assets received in exchange of the warehouse = $510,000 ($360,000 + $150,000)
Recognized loss = $90,000 ($600,000 - $510,000).
b) From the above transactions, Moss will recognize a loss of $90,000. This is the difference between the adjusted basis of the warehouse and the fair market value of the office building and the cash that Moss received in exchange for the warehouse.
A project begins in January 2014; it is to be completed in October 2016. The contract price is $3,900 and the estimated total cost of the project is $3,000. Additional data for the project is provided below:
2014 2015 2016
Costs Incurred To Date $300 $2,400 $4,200
Estimated cost to Complete 2,700 1,600
Estimated Total Cost $3,000 $4,000 $4,200
Percentage of completion [PC]= (Costs incurred to date)/(Estimated total cost)
Required:
Compute the gross profit/loss recognized for each year under the PC method.
Answer:
The Gross profit/loss recognized for each year under the PC method:
2014 2015 2016
Gross profit(loss) $90 $240 ($630)
Explanation:
a) Data and Calculations:
Project's contract price = $3,900
Estimated total cost of the project = $3,000
2014 2015 2016
Costs Incurred To Date $300 $2,400 $4,200
Estimated cost to Complete 2,700 1,600 0
Estimated Total Cost $3,000 $4,000 $4,200
Percentage of completion [PC]= (Costs incurred to date)/(Estimated total cost)
2014 2015 2016
Percentage of completion: $300/$3,000 $2,400/$4,000
Percentage of completion: 10% 60% 30% (100 - 70)
Revenue Allocation: 2014 2015 2016 Total
2014 $390 (10% of $3,900) $390 $390
2015 $2,340 (60% of $3,900) $2,340 $2,340
2016 $1,170 (30% of $3,900) $1,170 $1,170
Total Revenue $3,900
Actual costs incurred ($300) ($2,100) ($1,800) ($4,200)
Gross profit $90 $240 ($630) ($300)
Carlos bought a building (AB) for $113,000 in 2014. He added an leasehold improvements addition to the building for $26,000. In 2018, he sold (SP) it for $212,000. What was his long-term capital gain (LTCG) (ignore depreciation
Answer:
Long-term capital gain = $73,000
Explanation:
The long-term capital gain (LTCG) can be calculated using the following formula:
Long-term capital gain = Selling price - Cost of acquisition - Cost of improvement .............. (1)
Where;
Selling price = $212,000
Cost of acquisition = $113,000
Cost of improvement = $26,000
Substituting the values into equation (1), we have:
Long-term capital gain = $212,000 - $113,000 - $26,000 = $73,000
Note:
Since no information on cost inflation index is given in the question, that implies that there is no need to use indexed cost of acquisition and indexed cost of improvement in our calculation. Therefore, the Cost of acquisition and Cost of improvement has to be used as given in the question.
Koovuq131 is a division of a large corporation. Data concerning the most recent period appears below:
Sales $18,120,000
Net operating income $1,177,800
Average operating assets $4,450,000
What is Koovuq131's margin (closest to)?
Answer:
0.065
Explanation:
Koovuq131 has sales of $18,120,000
The net operating income is $1,177,800
The average operating assets is $4,450,000
Therefore the margin can be calculated as follows
= Net operating income/sales
= 1,177,800/18,120,000
= 0.065
Hence the margin is closest to 0.065
Novak Corp. had accounts receivable of $140,000 on January 1, 2022. The only transactions that affected accounts receivable during 2022 were net credit sales of $3,795,000, cash collections of $3,725,000, and accounts written off of $20,000.
Required:
a. Compute the ending balance of accounts receivable.
b. Compute the accounts receivable turnover for 2016.
c. Compute the average collection period in days.
Answer:
a $210,000
b 21.69 times
c 16.83 average days
Explanation:
a. The ending balance of accounts receivable
= Accounts receivables at the beginning - Cash collections + Net Credit sales
Given that;
Accounts receivables at the beginning = $140,000
Cash collections = $3,725,000
Net Credit sales = $3,795,000
Ending balance of accounts receivable
= $140,000 + $3,795,000 - $3,725,000
= $210,000
b. Compute the accounts receivable turnover
= Net credit sales + [(Beginning account receivable + Ending account receivable) / 2]
= $3,795,000 ÷ [ ($140,000 + $210,000)/2]
= $3,795,000 ÷ $175,000
= 21.69 times
c. Compute the average collection period
= Average accounts receivable ÷ [Annual sales ÷ 365]
= $175,000 ÷ ($3,795,000 ÷ 365)
= $175,000 ÷ $10,397
= 16.83 average days to collect receivables
Suppose a food pantry received a donation and allowed volunteers to vote on how the funds were to be spent. Three options were provided, with the donation only covering the cost of one project. The projects included improvements to the building, additional purchases of food, and purchasing a vehicle for food delivery. The majority of volunteers voted for purchasing a vehicle for food delivery with building improvements coming in second. Since only one project could be funded, what is the opportunity cost of the decision to purchase a vehicle
Answer:
improvements to the building,
Explanation:
Opportunity cost is the foregone advantage of not setting certain options in decision making. When a particular option is preferred over others, then benefit from the other options not selected are forfeited. The forfeited benefits represent the opportunity cost.
The value of opportunity cost is equated to the value of the next best alternative. Where there were more than two alternatives available, the next best alternative from the chosen option becomes the opportunity cost. In this case, improvement to the building was voted the second preferred option; hence it becomes the opportunity cost.
Claire Corporation is planning to issue bonds with a face value of $240,000 and a coupon rate of 8 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Claire uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 12 percent.
Required:
a. Provide the journal entry to record the issuance of the bonds.
b. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year.
c. What bonds payable amount will Claire report on this year’s December 31 balance sheet?
Answer:
a) issue price
PV of face value = $240,000 / (1 + 3%)⁸ = $189,458
PV of coupon payments = $4,800 x 7.0197 (PV annuity factor, 3%, 8 periods) = $33,695
market price = $223,153
January 1, bonds issued at a discount
Dr Cash 223,153
Dr Discount on bonds payable 16,847
Cr Bonds payable 240,000
b) discount amortization = ($223,153 x 3%) - $4,800 = $1,895
discount amortization = ($225,048 x 3%) - $4,800 = $1,951
discount amortization = ($226,999 x 3%) - $4,800 = $2,010
discount amortization = ($229,009 x 3%) - $4,800 = $2,070
March 31, first coupon payment
Dr Interest expense 6,695
Cr Cash 4,800
Cr Discount on bonds payable 1,895
June 30, second coupon payment
Dr Interest expense 6,751
Cr Cash 4,800
Cr Discount on bonds payable 1,951
September 30, third coupon payment
Dr Interest expense 6,810
Cr Cash 4,800
Cr Discount on bonds payable 2,010
December 31, fourth coupon payment
Dr Interest expense 6,870
Cr Cash 4,800
Cr Discount on bonds payable 2,070
c) bonds' carrying value at December 31 = $231,169
What type of special title insurance policy covers the possibility of a mechanic's lien have priority over a mortgage or deed of trust
Answer:
Depending on the state this type of coverage is called slightly different names. E.g. in Colorado, this type of coverage in included under Comprehensive Coverage. In other states it is simply called Mechanic's Lien Coverage. Most title insurance companies that are registered in ALTA (American Land Title Association) offer some type of mechanic's lien coverage since it is one of the most common sources of litigation regarding real estate.
Mechanic's liens have priority over other types of liens and they are retroactive to the moment when the construction process began. E.g. the contractor started working on January 2, 2020, and decides to file a claim due to unpaid services on November. So the mechanic's lien is retroactive to January 2, 2020. If a mortgage was recorded on June, the mechanic's lien will have priority even though it was recorded at a later date.
Although the cost-plus method approach to product pricing may be used by management as a general guidance, when are some examples of other factors that managers should also consider in setting product prices?
Answer: value-based pricing.
Explanation:
In its literal sense, value-based pricing means basing pricing on the advantages of the product perceived by the consumer rather than on the exact cost of product creation. A painting, for example, may be priced as much more than canvas and paint prices: in fact, the price depends a lot on who the painter is.
A trial balance before adjustment included the following: Debit Credit Accounts receivable $120,000 Allowance for doubtful accounts 730 Sales $510,000 Sales returns and allowances 8,000 Give journal entries assuming that the estimate of uncollectibles is determined by taking (1) 5% of gross accounts receivable and (2) 1% of net sales.
Answer and Explanation:
The journal entries are as follows:
a. Allowance for doubtful debts Dr. $5,270 ($120,000 × 5% - $730)
To Accounts Receivables $5,270
(Being allowance for doubtful debts is recorded)
Here the allowance for doubtful debt is debited as it increased the assets and credited the account receivable as it decreased the assets
2. Allowance for doubtful debts Dr. $4,290 ($510,000 × 1% - $730)
To Accounts Receivables $4,290
(Being allowance for doubtful debts is recorded)
Here the allowance for doubtful debt is debited as it increased the assets and credited the account receivable as it decreased the assets
What notation, if any, is made in a formal business letter that contains additional documents in the envelope?
“More”
“Enc.” or “Att.”
“Add plus 1”
None of the above
Answer:
The notation that is made in a formal business letter that contains additional documents in the envelope is:
“Enc.” or “Att.”
Explanation:
"Enc." means "Enclosures," while "Att." means "Attention." These notations draw the attention of the letter recipient to the fact that there are other documents that may be accompanying the business letter. The plural form of the word "Enclosures" is regularly used with the number of enclosures indicated. But if it is one document, then the word "Enclosure" is preferred, indicating that the document is not more than one. When "Attention" or "Att." is used, the documents are listed.
On July 1, 2011, Hale Kennels sells equipment for $66,000. The equipment was originally purchased on July 1, 2007 at a cost $180,000, had an estimated 5-year life and an expected salvage value of $30,000. The company books depreciation annually. What is the balance in Accumulated Depreciation as of December 31, 2010? What is the journal entry to update depreciation as of July 1, 2011? What is the journal entry to record the sale of the equipment?
Answer:
journal entry to update depreciation as of July 1, 2011
Depreciation Expense $16,000 (debit)
Accumulated Depreciation $16,000 (credit)
journal entry to record the sale of the equipment
Cash $66,000 (debit)
Accumulated Depreciation $128,000 (debit)
Equipment $180,000 (credit)
Profit and Loss $14,000 (credit)
Explanation:
If Hale Kennels uses the straight line method then the calculations will be as follows :
Annual Depreciation Charge = (Cost - Residual Value) ÷ Estimated Useful Life
= ($180,000 - $30,000) ÷ 5
= $32,000
Therefore,
Depreciation Charges for the period in use will be as follows :
2007 = $16,000 ($32,000 × 1/2)
2008 = $32,000
2009 = $32,000
2010 = $32,000
2011 = $16,000 ($32,000 × 1/2)
Total Accumulated depreciation = $128,000
Explaining journal entry to record the sale of the equipment
1. Derecognize the Cost of the Asset
2. Derecognize the Accumulated depreciation
3. Recognize the Cash Proceeds
4. Recognize the Profit or Loss arising from the sale
Shelby Cabinets, Inc. produces custom cabinets. The following inventory balances appeared on its balance sheet.
12/31/2012
12/31/2011
Raw materials inventory
$ 8,000
$ 10,000
Work-in-process inventory
600,000
550,000
Finished goods inventory
350,000
410,000
Shelby Cabinets had $1,265,000 in sales for the year ended December 31, 2012. The company also had the following costs for the year:
Selling
$ 90,000
General and administrative
$240,000
Raw materials purchases
$100,000
Direct labor used in production
$125,000
Manufacturing overhead
$630,000
Of the total raw materials placed in production for the year, $12,000 was for indirect materials and must be deducted to find direct materials placed in production.
Using the above information, what was Shelby’s Cost of Goods Manufactured?
(Hint: You must first calculate Direct materials placed in production before calculating the Cost of Goods Manufactured.)
Group of answer choices
$795,000
$845,000
$855,000
$1,395,000
Answer:
$855,000 yippie!!!
Which consequences can victims of identity theft face?
Check all that apply.
1. difficulty getting a loan or credit card
2. an increase in debt
3. the loss of a job
4. difficulty keeping assets
5. a loss of money
6. difficulty landing a new job
Answer:
The correct answers would be
1. Difficulty getting a loan or credit card
2. An increase in debt
4. Difficulty keeping assets
5. Loss of money
Explanation:
Hope this helps! Have a Happy New Year!
Barbara's employer offers health coverage to its employees. However, Barbara feels it is unaffordable and wants to apply for a health insurance premium tax credit. In order for the coverage to be deemed unaffordable in 2020, Barbara's self-only premium must exceed ___% of her household income.
Answer:
9.83%
Explanation:
If the health insurance premium represents 9.83% of Barbara's income or less, it is considered affordable coverage. Only if it exceeds the 9.83% threshold, will Barbara be able to request a health insurance premium tax credit. Theoretically, if Barbara's health insurance was purchased in the Health Insurance Marketplace, the tax credit should be automatic and her premium should be lowered so that it can become affordable.
In choosing between the range of alternative investments typically available to U.S. households, which of the following will play a role in influencing their selection of a particular investment type?
a. the expected rate of return, risk, and liquidity of each kind of investment
b. the interest rate and the expected rate of return
c. whether or not the majority of households are early stage investors
d. the form of dividends, angel investors, future expectations
Answer: B. the interest rate and the expected rate of return
Explanation:
What most firms and Industries look out for when going into a business is the interest rate and the expected return on investment. This is a guide for anyone carrying out a study on any business. If these are not considered it'll be assumed the firm is running a charity organization and would run at a loss sooner or later. What will influence the decision of any investment is the interest rate and the expected rate of return
X Corporation and its two divisions, Domestic and Foreign, appear below:
Sales revenues, Domestic $640,000
Variable expenses, Domestic $371,300
Traceable fixed expenses, Domestic $76,500
Sales revenues, Foreign $493,900
Variable expenses, Foreign $281,800
Traceable fixed expenses, Foreign $63,900
In addition, X's common fixed expenses totaled $173,300 and were allocated as follows: $90,000 to the Domestic division and $83,300 to the Foreign division.
What is the segment margin for the Domestic division?
a. $178,700
b. $371,300
c. $102,200
d. $192,200
Answer: $192,200
Explanation:
Based on the information that have been provided in the question, the segment margin for the domestic division will be calculated as:
Segment Margin = Segment Sales Revenue - Segment Variable Expenses - The Traceable Fixed Cost
= $640,000 - $371,300 - $76,500
= $192,200
Suppose that the market for painting services is perfectly competitive. Painting companies are identical; their long-run cost functions are given by: Market demand is: The long-run equilibrium price in this industry is $____. 173.5 162.5 194.5 155.5
Answer:
b. 162.5
Explanation:
Missing question "long-run cost functions are given by TC(Q)= 6Q^3-30Q^2+200Q"
TC(Q)= 6Q^3-30Q^2+200Q"
Marginal cost = 18Q^2 - 60Q + 200
Average Total Cost = 6Q^2 - 30Q + 200
ЭATC / ЭQ = 0
12Q - 30 = 0
Q = 2.5
ATC = 6Q^2 - 30Q + 200
ATC = 6*(2.5)^2 - 30(2.5) + 200
ATC = 37.5 - 75 + 200
ATC = 162.5
Thus, P = 162.5
A store uses the newsvendor model to manage its inventory. Demand for its product is normally distributed with a mean of 500 and a standard deviation of 300. Store A purchases the product for $10 each unit and sells each for $25. Inventory is salvaged for $5. What is the optimal quantity the store should order of its product
Answer:
702.20
Explanation:
Optimal order quantity Q = D+ z σ
Where D is the average demand = 500 units
And σ is the standard deviation of demand = 300
Cu = Cost of stock-out (underestimation) = Selling price – unit cost = $25 -$10 = $15
Co = Cost of excess inventory (overestimation) = Unit cost – Salvage Value = $10 – $5 = $5
Therefore Service level = Cu / (Cu + Co)
= $15/ ($15 + $5)
= 0.75 or 75%
For service level 75% the Z value = 0.674
Therefore, Q = 500+0.674*300 = 702.20