Lotso Inc. is a toy design company that serves both commercial and independent brands. Lotso recorded the following information for last month's transactions:
Projects in Process at the beginning of the month: 45 projects, 30% complete, with $65,000 of fixed overhead costs applied.
Projects in Process at the end of the month: 70 projects, 25% complete
All projects in process at the beginning of the month are considered completed by the end of the month, and costs are tracked for each project individually. This month, fixed overhead was allocated at a rate of $5,000/project (applied evenly over the production process).
Management is concerned about their costs, and wants to get a short-term bank loan-just enough to cover their variable operating loss from this past month while projects are completed. The bank requires Lotso to submit GAAP-compliant financial statements, and will only grant a loan if they can show absorption operating income at least $10,000 greater than the loan requested.
Will Lotso be able to receive the loan needed?

Question

Lotso Inc. is a toy design company that serves both commercial and independent brands. Lotso recorded the following information for last month's transactions:
  Projects in Process at the beginning of the month: 45 projects, 30% complete, with $65,000 of fixed overhead costs applied.
Projects in Process at the end of the month: 70 projects, 25% complete
All projects in process at the beginning of the month are considered completed by the end of the month, and costs are tracked for each project individually. This month, fixed overhead was allocated at a rate of $5,000/project (applied evenly over the production process).
Management is concerned about their costs, and wants to get a short-term bank loan-just enough to cover their variable operating loss from this past month while projects are completed. The bank requires Lotso to submit GAAP-compliant financial statements, and will only grant a loan if they can show absorption operating income at least $10,000 greater than the loan requested.
Will Lotso be able to receive the loan needed?

Quizplus · Accepted Answer

The Answer of Lotso Inc. is a toy design company that serves both commercial and independent brands. Lotso recorded the following information for last month's transactions:
  Projects in Process at the beginning of the month: 45 projects, 30% complete, with $65,000 of fixed overhead costs applied.
Projects in Process at the end of the month: 70 projects, 25% complete
All projects in process at the beginning of the month are considered completed by the end of the month, and costs are tracked for each project individually. This month, fixed overhead was allocated at a rate of $5,000/project (applied evenly over the production process).
Management is concerned about their costs, and wants to get a short-term bank loan-just enough to cover their variable operating loss from this past month while projects are completed. The bank requires Lotso to submit GAAP-compliant financial statements, and will only grant a loan if they can show absorption operating income at least $10,000 greater than the loan requested.
Will Lotso be able to receive the loan needed?

Lotso Inc Is a Toy Design Company That Serves Both Commercial