Chapter 23
2. Supports use of expert knowledge;
3. Improves customer relations;
4. Provides training;
5. Improves motivation and retention
Define relevant information
A company is planning to replace an old machine with a new one. Define one sunk cost.
The original cost of the old equipment
The income statement for Sweet Dreams Company is divided by its two product lines, blankets and pillows, as follows:
Blankets Pillows Total
Sales revenue $620,000 $320,000 $940,000
Variable costs 465,000 260,000 725,000
Contribution margin 155,000 60,000 215,000
Fixed costs 66,000 106,000 172,000
Operating income (loss) $89,000 $(46,000) $43,000
If Sweet Dreams can eliminate total fixed costs of $32,000 by dropping the pillows line, operating income will
Profits with pillows $43,000
Profits without pillows $15,000
Zoey Company is considering purchasing new equipment that costs $726,000. Its management estimates that the equipment will generate cash inflows as follows:
Year 1 $202,000
2 202,000
3 264,000
4 264,000
5 160,000
The company's required rate of return is 10%. Using the factors in the table below, calculate the present value of the cash inflows. (Round all calculations to the nearest whole dollar.)
Present value of $1:
6% 7% 8% 9% 10%
1 0.943 0.935 0.926 0.917 0.909
2 0.890 0.873 0.857 0.842 0.826
3 0.840 0.816 0.794 0.772 0.751
4 0.792 0.763 0.735 0.708 0.683
5 0.747 0.713 0.681 0.650 0.621
$828,406
Swimming
Kayaking
Sailing
Canoeing
Effie Corporation produces two products, P and Q. P sells for $8.00 per unit; Q sells for $6.00 per unit. Variable costs for P and Q are $2.00 and $5.00, respectively. Fixed costs are $1.00 and $2.00 per unit, respectively. There are a maximum of 7300 direct labor hours per month available for producing the two products. Product P requires 2.00 direct labor hours per unit, and product Q requires 4.00 direct labor hours per unit. The company can sell as many of either product as it can produce. The product that Effie should produce is
Internal rate of return
PWc
Deloitte
E&Y
Allen's produced 3,000 deck chairs this month. It used 6,500 pounds of materials and paid $99,300 for such.
Allen's direct material efficiency variance is
Operating income for year $100,000
Sales for year $500,000
Assets Jan 1 $580,000
Assets Dec 31 $610,000
The return on investment for the year is
Income $100,000
/ Avg assets $595,000
Voltaic Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 36,000 parts is $110,000, which includes fixed costs of $50,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $1 per unit and avoid 30% of the fixed costs. Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $16,000. If Voltaic outsources, the effect on operating income will be _______
Nubela Manufacturing is considering an investment proposal with the following data:
Proposal X
Investment $10,700,000
Useful life 5 years
Estimated annual net cash inflows for 5 years $2,140,000
Residual value $50,000
Depreciation method Straight-line
Required rate of return 12%
The payback period for Proposal X is
Home Decor Company manufactures special metallic materials for luxury homes that require highly skilled labor. Home Decor uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows:
Direct materials: 3 pounds per unit; $3 per pound
Direct labor: 4 hours per unit; $16 per hour
Home Decor produced 4000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 25,000 direct labor hours and actual total direct labor costs were $372,000. The direct labor cost variance is: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
Operating income $125,000
Sales $500,000
Average assets $300,000
Debt $100,000
RRR 15%
The residual income for Target is
Operating income $125,000
less:
RRR 15%
* Assets $300,000
= Required return $45,000
Equals residual income $80,000
Fowler Company is a price-taker and uses target pricing. Refer to the following information:
Production volume 601,000 units per year
Market price $30 per unit
Desired operating income 17% of total assets
Total assets $13,800,000
Variable cost per unit $18 per unit
Fixed cost per year $5,500,000 per year
With the current cost structure, Fowler cannot achieve its profit goals. It will have to reduce either the fixed costs or the variable costs. Assuming that variable costs cannot be reduced, what do fixed costs need to be to achieve Fowler's profit goals?
Mosaic Tile Company is considering an investment in new equipment costing $858,000. The equipment will be depreciated on a straight-line basis over a five-year life and is expected to have a residual value of $62,000. The equipment is expected to generate net cash inflows of $1,002,000 in total during the five-year life. What is the accounting rate of return associated with the equipment investment?
8.96%
Describe what happened during the Oscar awards that proved embarrassing to a certain large accounting firm. Name the firm and event in detail.