Accountancy 503—Fall 2016 Tax Return 3a—15 points; Due December 7 Joon, age 51, is an unmarried, cash basis, calendar year taxpayer. Joon has one 9-year-old qualifying child who lives with him full-time and is claimed on Form 1040. Joon has the following income and deductions for 2016: RECEIPTS FOR YEAR/Deductions Salaries and wages from local school district$78,000 Interest from Friendly Bank 1,235 Dividends from Tandem Diabetic Corporation (a publicly traded U.S. corporation) 36 Allowable itemized deductions6,970 RENTAL OPERATIONS Rental income14,400 Interest expense7,800 Property taxes1,450 Insurance1,260 Depreciation--Building2,895 Depreciation—Appliances941 Sale of RENTal Residence Sales price (October 26, 2016)210,600 Cost (October 18, 2010)--$40,000 assigned to land 119,600 Depreciation allowed (Straight line MACRS)17,367 Selling commission7,440 Purchase costs (recording, other legal)2,760 Sale of APPLIANCES WITH REsidence Sales price (October 26, 2016)6,600 Cost (September 25, 2014)9,800 Depreciation allowed (Straight line MACRS)6,037 Prepare the following forms for Joon for 2016: Form 1040 Schedule D (Required)—Worksheet Not Required—You may calculate the tax without completing the worksheet. See October 26 Solution s for an example. Schedule E Form 4562 Form 4797 Provide any information that is not stated. All materials are copyright © Pratt-Kulsrud, LLC Strategy Matrix Year by Year Decisions: Pricing & R&D Allocations 2012 2013 2014 2015 X5 Price Price Price Price R&D % R&D % R&D % R&D % Discontinue? Discontinue? Discontinue? Discontinue? X6 Price Price Price Price R&D % R&D % R&D % R&D % Discontinue? Discontinue? Discontinue? Discontinue? X7 Price Price Price Price R&D % R&D % R&D % R&D % Discontinue? Discontinue? Discontinue? Discontinue? CVP Calculator, BUS599R&D Total Budget$ 24,000,000R&D% Allocation33%R&D Costs$ 7,920,000Fixed Costs$ 70,000,000Total Fixed Costs$ 77,920,000Target Profit$0Variable Cost/Unit$ 140.00Price$ 250.00Volume700,000Volume708,364Price$ 251.31Sales Revenue$ 177,090,909.09Sales Revenue$ 175,920,000.00ROS0.00%ROS0.00% Enter Price Calculate Volume Enter Volume Calculate Price This CVP Calculator has been developed specifically for BUS599 SLP. -Enter the R&D allocation %. -Enter the Fixed Costs. -Enter the Target Profit (use 0 for Breakeven Calculation.) -Enter the Variable Cost per Unit. The Calculator will calculate two different formulas. Enter Price and it will calculate the Volume. Enter the Volume and it will calculate Price. CLEAR ALL Example Calculation: Take X5 R&D% = 33% Fixed Costs = $70,000,000 Variable Cost/unit = $140.00 For Breakeven, Target Profit = 0 Enter Price = $250.00 Calculate Volume (Breakeven) = 696,364 Enter Volume = 700,000 Calculate Price (Breakeven) = $249.43 What does this mean? It means: To Breakeven (profit = 0), with a price of $250.00, you need to sell 696,364 units. OR, if you sell 700,000, the price needs to be $.

1. Accountancy 503—Fall 2016 Tax Return 3a—15 points; Due
December 7
Joon, age 51, is an unmarried, cash basis, calendar year
taxpayer. Joon has one 9-year-old qualifying child who lives
with him full-time and is claimed on Form 1040. Joon has the
following income and deductions for 2016:
RECEIPTS FOR YEAR/Deductions
Salaries and wages from local school district$78,000
Interest from Friendly Bank 1,235
Dividends from Tandem Diabetic Corporation (a publicly traded
U.S. corporation) 36
Allowable itemized deductions6,970
RENTAL OPERATIONS
Rental income14,400
Interest expense7,800
Property taxes1,450
Insurance1,260
Depreciation--Building2,895
Depreciation—Appliances941
Sale of RENTal Residence
Sales price (October 26, 2016)210,600
Cost (October 18, 2010)--$40,000 assigned to land 119,600
Depreciation allowed (Straight line MACRS)17,367
Selling commission7,440
Purchase costs (recording, other legal)2,760
Sale of APPLIANCES WITH REsidence
Sales price (October 26, 2016)6,600
Cost (September 25, 2014)9,800
Depreciation allowed (Straight line MACRS)6,037

2. Prepare the following forms for Joon for 2016:
Form 1040
Schedule D (Required)—Worksheet Not Required—You may
calculate the
tax without completing the worksheet. See October 26
Solution
s for an
example.
Schedule E
Form 4562
Form 4797
Provide any information that is not stated.
All materials are copyright © Pratt-Kulsrud, LLC
Strategy Matrix
Year by Year Decisions: Pricing & R&D Allocations

3. 2012
2013
2014
2015
X5
Price
Price
Price
Price
R&D %
R&D %
R&D %
R&D %
Discontinue?
Discontinue?
Discontinue?
Discontinue?
X6
Price
Price
Price
Price

4. R&D %
R&D %
R&D %
R&D %
Discontinue?
Discontinue?
Discontinue?
Discontinue?
X7
Price
Price
Price
Price
R&D %
R&D %
R&D %
R&D %
Discontinue?
Discontinue?
Discontinue?
Discontinue?

5. CVP Calculator, BUS599R&D Total Budget$
24,000,000R&D% Allocation33%R&D Costs$ 7,920,000Fixed
Costs$ 70,000,000Total Fixed Costs$ 77,920,000Target
Profit$0Variable Cost/Unit$ 140.00Price$
250.00Volume700,000Volume708,364Price$ 251.31Sales
Revenue$ 177,090,909.09Sales Revenue$
175,920,000.00ROS0.00%ROS0.00%
Enter Price
Calculate Volume
Enter Volume
Calculate Price
This CVP Calculator has been developed specifically for
BUS599 SLP.
-Enter the R&D allocation %.
-Enter the Fixed Costs.
-Enter the Target Profit (use 0 for Breakeven Calculation.)
-Enter the Variable Cost per Unit.
The Calculator will calculate two different formulas. Enter
Price and it will calculate the Volume. Enter the Volume and it
will calculate Price.
CLEAR ALL
Example Calculation: Take X5

6. R&D% = 33%
Fixed Costs = $70,000,000
Variable Cost/unit = $140.00
For Breakeven, Target Profit = 0
Enter Price = $250.00
Calculate Volume (Breakeven) = 696,364
Enter Volume = 700,000
Calculate Price (Breakeven) = $249.43
What does this mean? It means:
To Breakeven (profit = 0), with a price of $250.00, you need to
sell 696,364 units.
OR, if you sell 700,000, the price needs to be $249.43 to
breakeven.
Another Example:
Suppose you want to obtain a profit of $20,000,000. Enter that
in the Target Profit.
At a price of $250.00, you need to sell 878,182 units. OR if
you sell 700,000 units, you need to sell them at $278.00.
Enter the data in the Green Cells.
Calculations are automatic.

7. CVP Analysis
Cost, Volume, Profit
*
What is CVP?Uses a specific cost-profit-volume formula to
study the relationship of the costs, price, sales volume and
profit.
Profit = (price – vcost/unit)*Volume – Total Fixed Costs.Price
and vcost are per unit.
*

8. Developing the formulaProfit = (price – vcost/unit)*Volume –
Total Fixed Costs.price and vcost are per unit.P = (p – c)V – F
(Basic Formula)P = profitp = price (per unit)c = Variable
cost/unitF = total Fixed CostsV = Sales Volume (units sold)
*
Example Using Basic FormulaP = (p – c)V – Fprice (p) =
$300/unitvcost (c) = $100/unitTotal Fixed Costs = $50,000If
you sell 1,500 units, what is the profit?P = (300 – 100)1500 –
50000 = (200)1500 – 50000 = 300000 – 50000 = $250,000
*
Using CVPBreakeven analysis
Profit, price, Volume analysis

9. *
Using CVP for Breakeven
Breakeven is the situation where no profit or loss is
generated.Income = CostsIn the Basic Formula, Profit = 0
Two ways to use:Breakeven Volume: VBEBreakeven price: pBE
*
Calculating Breakeven VolumeBreakeven Volume is the
quantity that will generate Profit = 0 for given costs and
price.Using the formula, we need to determine what V is when P
= 0.P = (p – c)V – F0 = (p – c) VBE – FF = (p – c) VBEF/(p –
c) = VBEVBE is being use to denote specifically the Breakeven
Volume.

10. *
Contribution MarginVBE = F/(p – c) The breakeven volume is
calculated by Total Fixed costs divided by price minus variable
costs.(p – c) is often called the Contribution Margin (per unit)
or Unit Contribution Margin.Another way of looking at
breakeven is it is the sales volume where Income = Costs.
*
Breakeven: Income = CostsIncome = CostsP = (p – c)V – F0 =
(p – c) VBE – F0 = p VBE – c VBE – Fp VBE = c VBE + F p
VBE is the income and c VBE + F are the total costs, Variable
Costs + Fixed Costs.

11. *
Example of Breakeven CalculationsVBE = F/(p – c) price (p) =
$300/unitvcost (c) = $100/unitTotal Fixed Costs = $50,000What
the Breakeven volume?VBE = 50000/(300 – 100) VBE =
50000/200VBE = 250 units
*
Check & Validate…Check: Income = Total Costsp VBE = c
VBE + F ??300(250) = 100(250) + 5000075000 = 25000 +
5000075000 = 75000
*

12. Breakeven Graph
INCOME = pV
FIXED COSTS + VARIABLE COSTS
FIXED COSTS
Breakeven:
Income = Total Costs
VBE
*
Breakeven PriceLet’s say you know the volume and you want to
know the price that will generate a breakeven situation: i.e. P =
00 = pBE V – c V – FpBE V = c V + FpBE = (c V +

13. F)/VBreakeven price is calculated by dividing the Total Costs
by the Volume.
*
Example Breakeven pricepBE = (c V + F)/V or c + F/Vc =
100 (per unit)F = 50000V = 1500 unitspBE = [100(1500) +
50000]/1500 = [150000 + 50000]/1500 = [200000]/1500
= $133.33/unitIf you price the item at $133.33 then if you sell,
1500 units, you will Breakeven.
*
Example Breakeven pricepBE = (c V + F)/V or c + F/Vc =
100 (per unit)F = 50000V = 1500 unitspBE = $133.33If you
price it higher than $133.33, and you sell 1500 units, you will
make a profit.

14. *
Using X5 from PDA SimDefault Values:p = $250 (you can
change this after SLP1)c = $140 (does not change in the
simulation)Unit Contr. Margin = $110From Default Run Year
2006:R&D costs = 6,666,667 (33% of 20,000,000 budget, you
decide allocation %)Other Fixed Costs = 70,000,000 (does not
change)Total Fixed Costs = 76,666,667 (R&D + Other
Fixed)2006 unit sales volume: 1,766,216
*
Using X5 from PDA SimLet’s validate the results in the Sim
and calculate ProfitP = (p – c)V – FP = (250 – 140) 1,766,216 –
76,666,667 = (110) 1,766,216 – 76,666,667 = 194,283,760 -
76,666,667 = 117,617,093Profit from Default Sim for X5 in

15. 2006 = 117,617,097
*
Using X5 from PDA SimLet’s estimate what will happen in
2007 if we lower R&D and we lower the price.R&D% = 10% (of
20,000,000)R&D = 2,000,000Price p = $225 (down from $250
by 10%)Sales Volume V = 1,439,609 (from 2007 default
run)Profit = (225 – 140) 1,439,609 – 72,000,000 = (85)
1,439,609 – 72,000,000 = 122,366,765 – 72,000,000
= 50,366,765 Profit = 81,690,327 from 2007, default run
*
Using X5 from PDA SimSo if you lower your price to $225 and
decrease R&D and the volume does not change from the default
volume, you will earn less profit in 2007 that you did in the

16. default run.BUT, if you lower the price will that help to
increase the volume?Maybe, but what does the volume need to
be to obtain the same profit that was earned in 2007, default run
(81,690,327)
*
Using X5 from PDA SimProfit, P = 81,690,327Volume = ?P =
(p – c)V – F(P + F)/(p – c) = V(81,690,327 + 72,000,000)/(85)
= V153,690,327 / 85 = 1,808,121.49V = 1,808,122 units to
achieve the same profitIf you lower the price to $225 and
reduce the R&D to 10%, does the reduce price cause an increase
in Volume so that the profit is the same?
*
Determining Strategy: X5 ExampleDefault run 2007p = 250c =

17. 140Unit Contr. Margin = 100R&D (33%) = 6,666,667Other
Fixed = 70,000,000Profit = 81,690,327 Volume =
1,439,609Possible strategy 2007p = 225c = 140ucm = 85R&D
(10%) = 2,000,000Other Fixed = 70,000,000Profit = 81,690,327
Volume = 1,808,122
If you lower price from $250 to $225 in 2007, will volume go
up to or higher than 81,690,327
*
Breakeven FormulasP = (p – c)V – FFor Breakeven, set P = 0
Breakeven VolumeVBE = F/(p – c)
Breakeven PricepBE = (c V + F)/V or pBE = c +
F/VREMEMBER: in the PDA Sim, you need to consider that
R&D is part of Fixed Costs, so here F = Fo + R
*

18. Other CVP Formulas
Use F = Fo + R (PDA sim fixed costs) Price, for a given Profit,
Volume and Costsp* = (P + Fo + R + cV) / V
Volume, for a given price, Profit and CostsV* = (P + Fo + R) /
(p – c)
*
Application of CVP in the PDA SimWhen should you use
Breakeven?How do you deal with multiple years?How do you
deal with multiple products?
Give these questions some thought. Experiment with CVP.
*

19. USING THE CVP CALCULATOR
An Example for X5 in the PDA SIM
*
Default X5 2006
Price: $250
R&D%: 33%
X5 Financials for 2006
*
Default X5 Market Report for the year 2006
*

20. USING CVP Calculator:
Variable cost/unit: $140
Note that the results from the CVP Calculator are nearly the
same as you get in the SIM. The only difference is because the
SIM must be using 33.3333% for the R&D Allocation and the
CVP Calculator is using 33%. So we will ignore the
difference.R&D Total Budget $ 20,000,000 R&D%
Allocation33%R&D Costs $ 6,600,000 Fixed Costs $
70,000,000 Total Fixed Costs $ 76,600,000 Target
Profit$117,617,097Variable Cost/Unit $ 140.00 Price $
250.00 Volume 1,765,610 Sales Revenue $
441,402,493.18 ROS26.65%

22. *
Now let’s develop a Revised Strategy
Now, let’s try to develop a different price and R&D allocation
for 2006 for our Revised Strategy using the CVP Calculator.
Should we lower R&D or increase it? Should we lower the price
or increase it? How much profit do we want? How much will we
sell?Let’s lower the R&D%, say down to 15% - why? I will
leave that up to you decide why we might want to do this.Let’s
leave the price the same for this first estimate: $250.And let’s
shoot for the same profit: $117,617,097If you put these into the

23. CVP Calculator, this says you need less volume: 1,732,883
units.
*
Price: $250
R&D: 15%
Allocation15%R&D Costs $ 3,000,000 Fixed Costs $
70,000,000 Total Fixed Costs $ 73,000,000 Target
Profit$117,617,097Variable Cost/Unit $ 140.00 Price $
250.00 Volume 1,732,883 Sales Revenue $
433,220,675.00 ROS27.15%

25. *
What price if Volume does not change?Price = ?Same volume as
default runSame profit as default runR&D%: 15%
Price = $247.96Volume 1,765,610 Price $
247.96 Sales Revenue $ 437,802,497.00 ROS26.87%

26. *

27. What happens in SIM?Let’s run the sim with our revised
strategy for X5 for 2006.Price: $248R&D%: 15%
X5 Financials for 2006This YearLast Year%
ChangeRevenueSales Volume1,835,3671,448,03127%Revenue
Volume455,170,904362,007,64926%CostVariable
Costs256,951,317202,724,28327%Fixed
Costs70,000,00070,000,0000%R & D Costs3,703,7046,666,667-
44%Total Costs330,655,021279,390,95018%ProfitTotal
Profit124,515,88482,616,69951%Total
Profitability27%23%20%
*

28. Results do not match!!Volume sold: 1,835,367Profit earned:
124,515,88We don’t get the same results that were predicted by
the CVP!!
In the CVP we used a Volume of: 1,765,610
But in the SIM, when we lowered the price just a bit down to
$248, we got a volume of: 1,835,367.
We will get this same result in the CVP calculator if we put in
the actual profit earned in the SIM
*
CVP Calculator with Revised Strategy ResultsR&D Total
Budget $ 20,000,000 R&D% Allocation15%R&D Costs $
3,000,000 Fixed Costs $ 70,000,000 Total Fixed Costs $
73,000,000 Target Profit$124,515,884Variable Cost/Unit $
140.00 Price $ 248.00 Volume 1,828,851
Sales Revenue $ 453,554,992.89 ROS27.45%

30. *

31. Why does the SIM not match your predictions with the CVP
Calculator?The SIM gives you the results based on your inputs
of price and R&D%It will determine how much you sell based
on the price – usually a lower price will generate a higher sales
volume and vice versa, depending on the price elasticity.The
CVP calculator does not know the price:demand curve – it is
simply telling you how much you need to sell for a given Price
and a Target Profit.
*
Some final thoughtsSo what is missing is the relationship
between price and demand.Demand is based on based price and
the performance (how much is being spent on R&D).You need
to use CVP to help you determine or predict a price in your
revised strategy.Then based on the results you get, you can
begin to understand the price:demand relationship.That is why
you get to run the SIM several times as you learn more about
price:demand.And of course demand is related to how much you
spend on R&D.And each product is more or less sensitive to

32. price and product development efforts.
*
Accountancy 503—Fall 2016 Tax Return 3b—5 points; Due
December 7
Brianna, age 29, is an unmarried, cash basis, calendar year
taxpayer. Aileen has no dependents. Aileen has the following
income and deductions for 2016:
RECEIPTS FOR YEAR/Deductions
Salaries and wages from local school district$48,000
Interest from Friendly Bank 1,235
Dividends from Tandem Diabetic Corporation (a publicly traded
U.S. corporation) 36
Allowable itemized deductions6,940
BUSINESS OPERATIONS—PROFESSIONAL SERVICES
Fee income collected34,400
Interest expense4,800
Office supplies1,450
Insurance1,260

33. Rental expense12,895
Transportation2,300
Continuing Education975
Purchase of computer and peripherals 1,880
Prepare the following forms for Aileen for 2016:
Schedule C
Schedule SE
Provide any information that is not stated.
All materials are copyright © Pratt-Kulsrud, LLC