ACCT 505 Entire Course (New)
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ACCT 505 Week 1-7 All Discussion Questions
ACCT 505 Week 1 Case Study
ACCT 505 Week 2 Quiz Job Order and Process Costing Systems
ACCT 505 Week 2 Quiz Set 2
ACCT 505 Week 3 Case Study II
ACCT 505 Week 4 Midterm Exam
ACCT 505 Week 5 Course Project 1 LBJ Company (New)
ACCT 505 Week 5 Measuring Performance - Course Project A
ACCT 505 Week 6 Quiz Segment Reporting and Relevant Costs for Decisions
ACCT 505 Week 6 Quiz Set 2
ACCT 505 Week 7 Capital Budgeting Course Project
ACCT 505 Week 7 Course Project 2 Capital Budgeting Decision (New)
ACCT 505 Final Exam Guide (New) Set 1
ACCT 505 Final Exam Guide (New) Set 2
ACCT 505 Final Exam Guide (New) Set 3
ACCT 505 Midterm Exam (New) Set 1
ACCT 505 Midterm Exam (New) Set 2
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ACCT 505 Final Exam (Devry)
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ACCT 505 Final Exam (Devry)
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ACCT 505 Final Exam (New) All 3 Set
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Score 248/250
Multiple Choice 2
Short 2
Essay 7
Question 1 : (TCO E) Designing a new product is a(n)
2. Question : (TCO G) Given the following data, what would ROI be?
Sales $70,000
Net operating income $10,000
Contribution margin $20,000
Average operating assets $50,000
Stockholder's equity $25,000
1. Question : (TCO C) Longiotti Corporation produces and sells a single product. Data
concerning that product appear below.
Selling price per unit $375.00
Variable expense per unit $144.00
Fixed expense per month $1,686,300
Required:
Determine the monthly breakeven in units or dollar sales. Show your work!
.Units in beginning work in process inventory 400
Materials costs $6,900
Conversion costs $2,500
Percent complete for materials 80%
Percent complete for conversion 15%
Units started into production during the month 6,000
Units transferred to the next department during the month 5,600
Materials costs added during the month $112,500
Conversion costs added during the month $210,300
1. Question : (TCO D) Topple Company produces a single product. Operating data for
the
company and its absorption costing income statement for the last year are
presented below.
Units in beginning inventory 2,000
Units produced 9,000
Units sold 10,000
Sales $100,000
Less cost of goods sold:
Beginning inventory 12,000
Add cost of goods manufactured 54,000
Goods available for sale 66,000
Less ending inventory 6,000
Cost of goods sold 60,000
Gross margin 40,000
Less selling and admin. expenses 28,000
Net operating income $12,000
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ACCT 505 Final Exam Guide (New) Set 1
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Score 248/250 Multiple Choice 2 Short 2 Essay 7
Question 1 : (TCO E) Designing a new product is a(n)
2. Question : (TCO G) Given the following data, what would ROI be?
Sales $70,000
Net operating income $10,000
Contribution margin $20,000
Average operating assets $50,000
Stockholder's equity $25,000
1. Question : (TCO C) Longiotti Corporation produces and sells a single product. Data
concerning that product appear below.
Selling price per unit $375.00
Variable expense per unit $144.00
Fixed expense per month $1,686,300
Required:
Determine the monthly breakeven in units or dollar sales. Show your work!
2. Question : (TCO B) Maverick Corporation uses the weighted-average method in its
process costing system. Data concerning the first processing department for
the most recent month are listed below.
Work in process, beginning:
Units in beginning work in process inventory 400
Materials costs $6,900
Conversion costs $2,500
Percent complete for materials 80%
Percent complete for conversion 15%
Units started into production during the month 6,000
Units transferred to the next department during the month 5,600
Materials costs added during the month $112,500
Conversion costs added during the month $210,300
1. Question : (TCO D) Topple Company produces a single product. Operating data for
the
company and its absorption costing income statement for the last year are
presented below.
Units in beginning inventory 2,000
Units produced 9,000
Units sold 10,000
Sales $100,000
Less cost of goods sold:
Beginning inventory 12,000
Add cost of goods manufactured 54,000
Goods available for sale 66,000
Less ending inventory 6,000
Cost of goods sold 60,000
Gross margin 40,000
Less selling and admin. expenses 28,000
Net operating income $12,000
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ACCT 505 Final Exam Guide (New) Set 2
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Set 2
1. (TCO C) Madlem, Inc., produces and sells a single product whose selling price is
$120.00 per unit and whose variable expense is $46.20 per unit. The company's fixed
expense is $405,900 per month.
Required: Determine the monthly breakeven in either unit or total dollar sales. Show
your work! (Points : 25)
Question 2.2. (TCO B) Industrial Supply Corporation uses the weighted-average
method in its process costing system. Data concerning the first processing department
for the most recent month are listed below.
Work in process, beginning:
Units in beginning work in process inventory
400
Materials costs
$6,900
Conversion costs
$2,500
Percent complete for materials
80%
Percent complete for conversion
15%
Units started into production during the month
6,000
Units transferred to the next department during the month 5,200
Materials costs added during the month
$112,500
Conversion costs added during the month $210,300
Ending work in process:
Units in ending work-in-process inventory 1,200
Percentage complete for materials 75%
Percentage complete for conversion 30%
Required: Calculate the equivalent units for conversion for the month in the first
processing department. (Points : 25)
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ACCT 505 Final Exam Guide (New) Set 3
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(TCO E) Preparing purchase orders is a(n) (Points : 5)
batch-level activity.
product-level activity.
unit-level activity.
organization sustaining activity.
2. (TCO G) Given the following data, what would ROI be?
Sales $70,000
Net operating income $10,000
Contribution margin $20,000
Average operating assets
$50,000
Stockholder's equity $25,000
(Points : 5)
28.6%
20.0%
40.0%
50.0%
3. (TCO C) Heckaman Corporation produces and sells a single product. Data
concerning that product appear below.
Selling price per unit $115.00
Variable expense per unit
$56.35
Fixed expense per month
$299,115
4. TCO B) Industrial Supply Corporation uses the weighted-average method in its
process costing system. Data concerning the first processing department for the most
recent month are listed below.
Work in process, beginning:
Units in beginning work in process inventory
Materials costs
$6,900
Conversion costs
$2,500
Percent complete for materials
80%
Percent complete for conversion
15%
400
5. (TCO D) Topple Company produces a single product. Operating data for the
company and its absorption costing income statement for the last year are presented
below.
Units in beginning inventory 0
Units produced
9,000
Units sold
7,000
Sales $100,000
Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals
$18,000 for the year. The fixed manufacturing overhead was applied at a rate of $2 per
unit. Variable selling and administrative expenses were $1 per unit sold.
Required: Prepare a new income statement for the year using variable costing.
Comment on the differences between the absorption costing and the variable costing
income statements. (Points : 30)
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ACCT 505 Midterm Exam (New) Set 1
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Score 144/150 Multiple Choice 10Essay 4
1. (TCO A) Direct material cost is a part of (Points : 6)
Conversion Cost NO.... Prime Cost NO.
Conversion Cost YES.... Prime Cost NO.
Conversion Cost YES.... Prime Cost YES.
Conversion Cost NO.... Prime Cost YES.
Question 2.2. (TCO A) Total fixed costs (Points : 6)
will increase with increases in activity.
will decrease with increases in activity.
are not affected by activity.
should be ignored in making decisions because they can never change.
Question 3.3. (TCO A) Property taxes on a company's factory building would be
classified as a(n) (Points : 6)
variable cost.
opportunity cost.
period cost.
product cost.
Question 4.4. (TCO C) When the activity level is expected to increase within the
relevant range, what effects would be anticipated with respect to each of the following?
(Points : 6)
Fixed costs per unit decrease and variable costs per unit do not change.
Fixed costs per unit increase and variable costs per unit do not change.
Fixed costs per unit do not change and variable costs per unit do not change.
Fixed costs per unit do not change and variable costs per unit increase.
Question 5.5. (TCO B) Which of the following statements is true?
I. Overhead application may be made slowly as a job is worked on.
II. Overhead application may be made in a single application at the time of completion
of the job.
III. Overhead application should be made to any job not completed at year end in order
to properly value the work in process inventory. (Points : 6)
Only statement I is true.
Only statement II is true.
Both statements I and II are true.
Statements I, II, and III are true.
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ACCT 505 Midterm Exam (New) Set 2
Multiple Choice
Essay 4
Question 1.
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10
9
Question :
(TCO A) The variable portion of advertising costs is a
Student Answer:
Conversion YES... Period NO.
Conversion YES .... Period YES.
Conversion NO.... Period NO.
Conversion NO.... Period YES.
Question 2.
Question :
(TCO A) A cost incurred in the past that is not relevant
to any current decision is classified as a(n)
Student Answer:
period cost.
incremental cost.
opportunity cost.
None of the above
Question 3.
Question :
(TCO A) Property taxes on a company's factory
building would be classified as a(n)
Student Answer:
variable cost.
opportunity cost.
period cost.
product cost.
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ACCT 505 Week 1 Case Study (Devry)
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Top Switch Inc. designs and manufactures switches used in telecommunications.
Serious flooding throughout the state of Tennessee affected Top Switch’s facilities.
Inventory was completely ruined, and the company’s computer system, including all
accounting records, was destroyed.
Before the unfortunate incident, recovery specialists cleaned the buildings. The
company controller is very nervous and anxious to recover whatever records he can to
support the insurance claim for the destroyed inventory. After consulting with the cost
accountant, they decide to retrieve the previous year’s annual report for the beginning
inventory numbers. In addition, they also agreed that they need first quarter cost data.
The cost accountant was working on the first quarter results before the storm hit, and to
his surprise, the report was still in his desk drawer. After reviewing the data , the
information shows the following information: Material purchases were $ 325,000;
Direct Labor was $ 220,000. Further discussions between the controller and the cost
accountant revealed that sales were $ 1,350,000 and the gross margin was 30% of
sales. The cost accountant also discovered, while sifting through the information, that
cost of goods available for sale was $ 1,020,000 at cost. While assessing the damage,
the controller determined that the prime costs were $ 545,000 up to the time of the
damage and that manufacturing overhead is 65% of conversion cost. The cost
accountant is not sure about all of this, but he decides to see what he can do with the
information.
The beginning inventory numbers are as follows:
Raw Materials, $ 41,000
Work in Process, $ 56,000
Finished Goods, $ 35,000
Required:
Determine the amount of cost in the Raw Materials, Work in Process, and Finished
Goods Inventory as of the date of the storm. ( Hint: You may wish to reconstruct the
various schedules and statements that would have been affected by the company’s
accounts during the period.)
Grading Rubric for Case Study I:
Category
Points
%
Description
Documentation &
Formatting
10
22%
Worksheet will be done in Excel and will contain formulas to receive maximum credit
Organization and Cohesiveness
15
33%
Calculations for all parts should be organized and correctly labeled.
Content
20
45%
A quality case study will have all required work completed and will be correct.
Total
45
100%
A quality project will meet or exceed all of the above requirements.
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ACCT 505 Week 1-7 All Discussion Questions (Devry)
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Week 1DQ 1 Cost Terms, Classifications, and Behavior
Week 1DQ 2 Research and Application
Week 2DQ 1 Job Order and Process Costing Systems
Week 2DQ 2 Research and Application
Week 3DQ 1 Variable Costing and CVP Concepts
Week 3DQ 2 Research and Application
Week 4DQ 1 Budgeting Case Study
Week 4DQ 2 Exam Review
Week 5DQ 1 Standards, Variances, Flexible Budgets
Week 5DQ 2 Research and Application
Week 6DQ 1 Segment Reporting and Relevant Costs
Week 6DQ 2 Research and Application
Week 7DQ 1 Capital Budgeting
Week 7DQ 2 Exam Review
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ACCT 505 Week 2 Quiz Job Order and Process Costing Systems (Devry)
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1.
Question :
(TCO F) For which situation(s) below would an organization be more likely to use a
job-order costing system of accumulating product costs rather than a process costing
system?
2.
Question :
(TCO F) Process costing would be appropriate for each of the following except:
3.
Question :
(TCO F) Lucas Company uses the weighted-average method in its process costing
system. The company adds materials at the beginning of the process in the Forming
Department, which is the first of two stages in its production process. Information
concerning operations in the Forming Department in October follows:
Units
Material Cost
Work in process on October 1
6,000
$3,000
Units started in October
50,000
$25,560
Units completed and transferred to next Department during October
44,000
What was the materials cost of work in process at on October 31?
4.
Question :
(TCO F) In a job-order costing system, the use of direct materials that have been
previously purchased is recorded as a debit to:
5.
Question :
(TCO F) During December at Ingrim Corporation, $74,000 of raw materials were
requisitioned from the storeroom for use in production. These raw materials included
both direct and indirect materials. The indirect materials totaled $6,000. The journal
entry to record the requisition from the storeroom would include a:
6.
Question :
(TCO F) Valles Corporation had $22,000 of raw materials on hand on February 1.
During the month, the company purchased an additional $75,000 of raw materials. The
journal entry to record the purchase of raw materials would include a:
1.
Question :
(TCO F) Whether a company uses process costing or job-order costing depends on its
industry. A number of companies in different industries are listed below:
i. Brick manufacturer
ii. Contract printer that produces posters, books, and pamphlets to order
iii. Natural gas production company
iv. Dairy farm
v. Coal mining company
vi. Specialty coffee roaster (roasts small batches of specialty coffee beans)
For each company, indicate whether the company is most likely to use job-order
costing or process costing.
i. Brick manufacturer Process Costing ii. Contract printer that produces posters,
books, and pamphlets to order Job Order Costing iii. Natural gas production company
Process Costing iv. Dairy farm Process Costing v. Coal mining company Process
Costing vi. Specialty coffee roaster (roasts small batches of specialty coffee beans) Job
Order Costing
2.
Question :
(TCO F) Job 484 was recently completed. The following data have been recorded on its
job cost sheet:
Direct materials
$57,240
Direct labor hours
1,692 DLHs
Direct labor wage rate
$12 per DLHS
Number of units completed
3,600 units
The company applies manufacturing overhead on the basis of direct labor-hours. The
predetermined overhead rate is $24 per direct labor-hour.
Compute the unit product cost that would appear on the job cost sheet for this job.
3.
Question :
(TCO F) Miller Company manufactures a product for which materials are added at the
beginning of the manufacturing process. A review of the company's inventory and cost
records for the most recently completed year revealed the following information:
Units
Materials
Conversion
Work in process. Jan. 1 (80% complete with respect to conversion costs)
100,000
$100,000
$157,500
Units started into production
500,000
Costs added during the year:
Materials
$650,000
Conversion
$997,500
Units completed during the year
450,000
The company uses the weighted-average cost method in its process costing system. The
ending inventory is 50% complete with respect to conversion costs.
Required:
i. Compute the equivalent units of production and the cost per equivalent units for
materials and for conversion costs.
ii. Determine the cost transferred to finished goods.
iii. Determine the amount of cost that should be assigned to the ending work in process
inventory.
4.
Question :
(TCO F) Weisinger Corporation has provided the following data for the month of
January:
Inventories
Beginning
Ending
Raw materials
$28,000
$29,000
Work In process
$16,000
$14,000
Finished goods
$42,000
$54,000
Additional Information
Raw material purchases
$56,000
Direct labor costs
$87,000
Manufacturing overhead cost incurred
$51,000
Indirect materials included in manufacturing overhead costs incurred
$3,000
Manufacturing overhead cost applied to work in process
$55,000
Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods
Sold in good form.
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ACCT 505 Week 2 Quiz Set 2
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Essay 4 Multiple Choice 6
Question 1.
Question :
(TCO B) Assume there is no beginning work in process
inventory and the ending work in process inventory is 100% complete with respect to
materials costs. The number of equivalent units with respect to materials costs under
the weighted average method is
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ACCT 505 Week 3 Case Study II (Devry)
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Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and
the following data are available:
Number of seats per passenger train car
90
Average load factor (percentage of seats filled)
70%
Average full passenger fare
$160
Average variable cost per passenger
$70
Fixed operating cost per month
$3,150,000
What is the break-even point in passengers and revenues per month? What is the
break-even point in number of passenger train cars per month? If Springfield Express
raises its average passenger fare to $ 190, it is estimated that the average load factor
will decrease to 60 percent. What will be the monthly break-even point in number of
passenger cars? (Refer to original data.) Fuel cost is a significant variable cost to any
railway. If crude oil increases by $ 20 per barrel, it is estimated that variable cost per
passenger will rise to $ 90. What will be the new break-even point in passengers and in
number of passenger train cars? Springfield Express has experienced an increase in
variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000.
The company has decided to raise the average fare to $ 205. If the tax rate is 30
percent, how many passengers per month are needed to generate an after-tax profit of $
750,000? (Use original data). Springfield Express is considering offering a discounted
fare of $ 120, which the company believes would increase the load factor to 80 percent.
Only the additional seats would be sold at the discounted fare. Additional monthly
advertising cost would be $ 180,000. How much pre-tax income would the discounted
fare provide Springfield Express if the company has 50 passenger train cars per day,
30 days per month? Springfield Express has an opportunity to obtain a new route that
would be traveled 20 times per month. The company believes it can sell seats at $ 175
on the route, but the load factor would be only 60 percent. Fixed cost would increase by
$ 250,000 per month for additional personnel, additional passenger train cars,
maintenance, and so on. Variable cost per passenger would remain at $ 70. Should the
company obtain the route? How many passenger train cars must Springfield Express
operate to earn pre-tax income of $ 120,000 per month on this route? If the load factor
could be increased to 75 percent, how many passenger train cars must be operated to
earn pre-tax income of $ 120,000 per month on this route? What qualitative factors
should be considered by Springfield Express in making its decision about acquiring this
route?
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ACCT 505 Week 4 Midterm Exam (Devry)
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1.
Question :
(TCO A) Wages paid to an assembly line worker in a factory are a
2.
Question :
(TCO A) A cost incurred in the past that is not relevant to any current decision is
classified as a(n)
3.
Question :
(TCO A) Depreciation of office buildings and office equipment is also known as
4.
Question :
(TCO A) When the activity level is expected to increase within the relevant range, what
effects would be anticipated with respect to each of the following?
5.
Question :
(TCO F) Which of the following statements is true?
I. Overhead application may be made slowly as a job is worked on.
II. Overhead application may be made in a single application at the time of completion
of the job.
III. Overhead application should be made to any job not completed at year end in order
to properly value the work in process inventory.
6.
Question :
(TCO F) A job-order cost system is employed in those situations where
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ACCT 505 Week 5 Course Project 1 LBJ Company (New)
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COURSE PROJECT 1 INSTRUCTIONS
You have just been contracted as a budget consultant by LBJ Company, a distributor of
bracelets to various retail outlets across the country. The company has done very little
in the way of budgeting and at certain times of the year has experienced a shortage of
cash.
You have decided to prepare a cash budget for the upcoming fourth quarter in order to
show management the benefits that can be gained from proper cash planning. You
have worked with accounting and other areas to gather the information assembled
below.
The company sells many styles of bracelets, but all are sold for the same $10
price. Actual sales of bracelets for the last three months and budgeted sales for the
next six months follow:
The concentration of sales in the fourth quarter is due to the Christmas holiday.
Sufficient inventory should be on hand at the end of each month to supply 40% of the
bracelets sold in the following month.
Suppliers are paid $4 for each bracelet. Fifty-percent of a month's purchases is paid
for in the month of purchase; the other 50% is paid for in the following month. All
sales are on credit with no discounts. The company has found, however, that only 20%
of a month's sales are collected in the month of sale. An additional 70% is collected in
the following month, and the remaining 10% is collected in the second month following
sale. Bad debts have been negligible.
Monthly operating expenses for the company are given below:
Variable expenses:
Sales commissions
4% of sales
Fixed expenses:
Advertising
$220,000
Rent
$20,000
Salaries
$110,000
Utilities
$10,000
Insurance
$5,000
Depreciation
$18,000
Insurance is paid on an annual basis, in January of each year.
The company plans to purchase $22,000 in new equipment during October and
$50,000 in new equipment during November; both purchases will be for cash. The
company declares dividends of $20,000 each quarter, payable in the first month of the
following quarter.
Other relevant data is given below:
Cash balance as of September 30
Inventory balance as of September 30
Merchandise purchases for September
$74,000
$112,000
$200,000
The company maintains a minimum cash balance of at least $50,000 at the end of each
month. All borrowing is done at the beginning of a month; any repayments are made
at the end of a month.
The company has an agreement with a bank that allows the company to borrow the
exact amount needed at the beginning of each month. The interest rate on these loans is
1% per month and for simplicity we will assume that interest is not compounded. At the
end of the quarter, the company will pay the bank all of the accrued interest on the loan
and as much of the loan as possible while still retaining at least $50,000 in cash.
Required:
Prepare a cash budget for the three-month period ending December 31. Include the
following detailed budgets:
1.
a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month
and in total.
d. A schedule of expected cash disbursements for merchandise purchases, by month
and in total.
2. A cash budget. Show the budget by month and in total. Determine any borrowing that
would be needed to maintain the minimum cash balance of $50,000.
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ACCT 505 Week 6 Quiz Segment Reporting and Relevant Costs for Decisions
(Devry)
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Question :
(TCO D) Return on investment (ROI) is equal to the margin multiplied by
2.
Question :
(TCO D) For which of the following decisions are opportunity costs relevant?
The decision to make or buy a needed part
The desision to keep or drop a product line
(A)
Yes
Yes
(B)
Yes
No
(C)
No
Yes
(D)
No
No
3.
Question :
(TCO D) Last year, the House of Orange had sales of $826,650, net operating income
of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at
the end of the year. What was the company's turnover, rounded to the nearest tenth?
1.
Question :
(TCO D) Data for December concerning Dinnocenzo Corporation's two major
business segments-Fibers and Feedstocks-appear below:
Sales revenues, Fibers
$870,000
Sales revenues, Feedstocks
$820,000
Variable expenses, Fibers
$426,000
Variable expenses, Feedstocks
$344,000
Traceable fixed expenses, Fibers
$148,000
Traceable fixed expenses, Feedstocks
S156,000
Common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to
the Fibers business segment and $185,000 to the Feedstocks business segment.
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ACCT 505 Week 6 Quiz Set 2
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Multiple Choice
Short 5
3
Question 1.
Question :
margin multiplied by
(TCO D) Return on investment (ROI) is equal to the
Question 2.
Question :
(TCO D) For which of the following decisions are
opportunity costs relevant?
The decision to make or buy a needed part The decision to keep or drop a
product line
Question 3.
Question :
(TCO D) Last year, the House of Orange had sales of
$826,650, net operating income of $81,000, and operating assets of $84,000 at the
beginning of the year and $90,000 at the end of the year. What was the company's
turnover, rounded to the nearest tenth?
Question 1.
Question :
(TCO D) Data for December concerning Dinnocenzo
Corporation's two major business segments-Fibers and Feedstocks-appear below.
Sales revenues, Fibers $870,000
Sales revenues, Feedstocks $820,000
Variable expenses, Fibers
$426,000
Variable expenses, Feedstocks
$344,000
Traceable fixed expenses, Fibers
$148,000
Traceable fixed expenses, Feedstocks
$156,000
Common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to
the Fibers business segment and $185,000 to the Feedstocks business segment.
Required:
Prepare a segmented income statement in the contribution format for the company.
Omit percentages; show only dollar amounts.
Question 2.
Question :
(TCO D) Wryski Corporation had net operating income
of $150,000 and average operating assets of $500,000. The company requires a return
on investment of 19%.
Required:
i. Calculate the company's current return on investment and residual income.
ii. The company is investigating an investment of $400,000 in a project that will
generate annual net operating income of $78,000. What is the ROI of the project? What
is the residual income of the project? Should the company invest in this project?
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ACCT 505 Week 7 Course Project 2 Capital Budgeting Decision (New)
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ACCT 505 Course Project 2 Hampton Company
Capital Budgeting Decision
Hampton Company: The production department has been investigating possible ways
to trim total production costs. One possibility currently being examined is to make the
cans instead of purchasing them. The equipment needed would cost $1,000,000, with a
disposal value of $200,000, and would be able to produce 27,500,000 cans over the life
of the machinery. The production department estimates that approximately 5,500,000
cans would be needed for each of the next 5 years.
The company would hire six new employees. These six individuals would be full-time
employees working 2,000 hours per year and earning $15.00 per hour. They would also
receive the same benefits as other production employees, 15% of wages in addition to
$2,000 of health benefits.
It is estimated that the raw materials will cost 30¢ per can and that other variable costs
would be 10¢ per can. Because there is currently unused space in the factory, no
additional fixed costs would be incurred if this proposal is accepted.
It is expected that cans would cost 50¢ each if purchased from the current supplier. The
company’s minimum rate of return (hurdle rate) has been determined to be 11% for all
new projects, and the current tax rate of 35% is anticipated to remain unchanged. The
pricing for the company’s products as well as number of units sold will not be affected
by this decision. The unit-of-production depreciation method would be used if the new
equipment is purchased.
Required:
1.
Based on the above information and using Excel, calculate the following items
for this proposed equipment purchase.
o Annual cash flows over the expected life of the equipment
o Payback period
o Simple rate of return
o Net present value
o Internal rate of return
The check figure for the total annual after-tax cash flows is $271,150.
2.
Would you recommend the acceptance of this proposal? Why or why not?
Prepare a short, double-spaced paper in MS Word elaborating on and supporting your
answers.