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2010 07-28 202232-shansisman
 

2010 07-28 202232-shansisman

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    2010 07-28 202232-shansisman 2010 07-28 202232-shansisman Document Transcript

    • Consider the following costs: Direct materials......................................... $33,000 Depreciation on factory equipment........... $12,000 Factory janitor’s salary.............................. $23,000 Direct labor................................................ $28,000 Utilities for factory.................................... $9,000 Selling expenses........................................ $16,000 Production supervisor’s salary................... $34,000 Administrative expenses........................... $21,000 What is the total amount of manufacturing overhead included above? $78,000 $139,000 $44,000 $37,000 Depreciation on factory equipment........... $12,000 Factory janitor’s salary.............................. 23,000 Utilities for factory.................................... 9,000 Production supervisor’s salary................... 34,000 Total........................................................... $78,000Consider the following costs incurred in a recent period: Direct materials......................................... $33,000 Depreciation on factory equipment........... $12,000 Factory janitor’s salary.............................. $23,000 Direct labor................................................ $28,000 Utilities for factory.................................... $9,000 Selling expenses........................................ $16,000 Production supervisor’s salary................... $34,000 Administrative expenses........................... $21,000 What was the total amount of the period costs listed above for the period? $78,000 $71,000 $46,000
    • $37,000 Selling expenses........................................ $16,000 Administrative expenses............................ 21,000 Total........................................................... $37,000 Forbes Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. At the beginning of the period, the company estimated manufacturing overhead would be $18,000 and direct labor-hours would be 15,000. The actual figures were $19,500 for manufacturing overhead and 16,000 direct labor- hours. The cost records for the period will show: overapplied overhead of $300 overapplied overhead of $1,500 underapplied overhead of $1,500 underapplied overhead of $300Predetermined overhead rate = $18,000 ÷ 15,000 direct labor-hours = $1.20 per direct labor-hour Actual manufacturing overhead................................... $19,500 Applied manufacturing overhead (16,000 × $1.20).... 19,200 Manufacturing overhead underapplied....................... $ 300 Wayne Companys beginning and ending inventories for the month of June were as follows: June 1 June 30 Direct Materials................. $67,000 $62,000 Work in Process................. $145,000 $171,000 Finished Goods.................. $85,000 $78,000 Production data for the month follow: Direct labor cost incurred................................................ $200,000 Direct labor-hours............................................................ 25,000 Actual manufacturing overhead cost incurred................ $132,000 Direct materials purchases............................................... $165,000 Wayne applies manufacturing overhead cost to jobs based on direct labor-hours, and the predetermined rate is $5.75 per direct labor-hour. The company does not close
    • underapplied or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year. What is the amount of cost of goods manufactured? $508,750 $502,000 $585,000 $487,750 Schedule of Cost of Goods Manufactured Direct materials: Direct materials inventory, beginning... $ 67,000 Add purchases of raw materials............. 165,000 Total raw materials available................. 232,000 Deduct direct materials inventory, ending................................................. 62,000 Raw materials used in production............. $170,000 Direct labor................................................ 200,000 Manufacturing overhead applied ($ 5.75 × 25,000)................................................ 143,750 Total manufacturing costs......................... 513,750 Add: Work in process, beginning.............. 145,000 658,750 Deduct: Work in process, ending.............. 171,000 Cost of goods manufactured...................... $487,750Cavalerio Corporation uses the weighted-average method in its process costing system. Thismonth, the beginning inventory in the first processing department consisted of 700 units. Thecosts and percentage completion of these units in beginning inventory were: Cost Percent Complete Materials costs................... $9,100 80% Conversion costs............... $5,400 25% A total of 7,200 units were started and 6,400 units were transferred to the second processingdepartment during the month. The following costs were incurred in the first processingdepartment during the month: Materials costs................... $96,700 Conversion costs............... $180,700
    • The ending inventory was 80% complete with respect to materials and 70% complete withrespect to conversion costs. The cost per equivalent unit for materials for the month in the firstprocessing department is closest to: $12.72 $13.92 $13.39 $12.24 To solve for ending work in process: + Work in process, beginning............................................... 700 + Units started into production during the month................. 7,200 − Units completed and transferred out during the month..... 6,400 = Work in process, ending.................................................... 1,500 Equivalent units of production Materials Transferred to next department.............................................. 6,400 Ending work in process (1,500 units × 80% complete)......... 1,200 Equivalent units of production............................................... 7,600 Cost per Equivalent Unit Materials Cost of beginning work in process......................................... $ 9,100 Cost added during the period................................................. 96,700 Total cost (a).......................................................................... $105,800 Equivalent units of production (b)......................................... 7,600 Cost per equivalent unit, (a) ÷ (b).......................................... $13.92 The following production and average cost data for a months operations have been supplied by a company that produces a single product. Production volume........................ 1,000 units 2,000 units Direct materials............................. $4.00 per unit $4.00 per unit Direct labor.................................... $3.50 per unit $3.50 per unit Manufacturing overhead............... $10.00 per unit $6.20 per unit
    • The total fixed manufacturing cost and variable manufacturing cost per unit are as follows: $3,600; $7.50 $3,600; $9.90 $7,600; $7.50 $7,600; $9.90First, calculate the variable manufacturing cost per unit: Total Manufacturing Production Average Overhead Cost (units Volume Cost per × average cost per (Units) Unit unit) High activity level. . 2,000 $6.20 $12,400 Low activity level... 1,000 $10.00 $10,000 Variable manufacturing overhead cost = Change in cost ÷ Change in activity = ($12,400 − $10,000) ÷ (2,000 – 1,000) = $2.40 Fixed cost element of manufacturing overhead = Total cost − Variable cost element = $12,400 − ($2.40 × 2,000) = $7,600 Total variable cost per unit = Direct material + Direct labor + Variable manufacturing overhead = $4.00 + $3.50 + $2.40 = $9.90 There are no fixed direct materials or direct labor, so the total fixed costs would be equal to the fixed cost portion of manufacturing overhead, or $7,600. Escareno Corporation has provided its contribution format income statement for June. The company produces and sells a single product. Sales (8,400 units)......................... $764,400 Variable expenses.......................... 445,200 Contribution margin...................... 319,200 Fixed expenses.............................. 250,900 Net operating income.................... $ 68,300 If the company sells 8,200 units, its total contribution margin should be closest to: $301,000 $311,600 $319,200
    • $66,674Current contribution margin ÷ Current sales in units = Contribution margin per unit $319,200 ÷ 8,400 = $38 contribution margin per unit If 8,200 units are sold, the total contribution margin will be 8,200 × $38, or $311,600.Creswell Corporations fixed monthly expenses are $29,000 and its contribution margin ratio is56%. Assuming that the fixed monthly expenses do not change, what is the best estimate of thecompanys net operating income in a month when sales are $95,000? $12,800 $24,200 $53,200 $66,000 Sales........................................................... $95,000 Variable expenses ($95,000 × 44%).......... 41,800 Contribution margin ($95,000 × 56%)....... 53,200 Fixed expenses........................................... 29,000 Net operating income................................. $24,200 Feldpausch Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Total Cost Total Activity Assembly..................... $1,137,360 84,000 machine-hours Processing orders......... $28,479 1,100 orders Inspection.................... $97,155 1,270 inspection-hours The company makes 470 units of product W26B a year, requiring a total of 660 machine-hours, 50 orders, and 40 inspection-hours per year. The products direct materials cost is $40.30 per unit and its direct labor cost is $42.22 per unit. The product sells for $118.00 per unit. According to the activity-based costing system, the product margin for product W26B is: $6,444.70 $4,679.20 $3,384.70 $16,675.60
    • (a) (b) (a) ÷ (b) Activity Cost Pool Total Cost Total Activity Activity Rate Assembly $1,137,360 84,000 machine- $13.54 per hours machine-hour Processing Orders 28,479 1,100 orders $25.89 per order Inspection 97,155 1,270 inspection- $76.50 per hours inspection-hour Calculation of Overhead Costs: (a) (b) (a) × (b) Activity Cost Pool Activity Rate Total Activity ABC Cost Assembly $13.54 per MH 660 MHs $8,936.40 Processing Orders $25.89 per order 50 orders $1,294.50 Inspection $76.50 per IH 40 IHs $3,060.00 Sales................................................ $55,460.00 Costs: Direct materials (470 × $40.30)... $18,941.00 Direct labor (470 × $42.22)......... 19,843.40 Assembly..................................... 8,936.40 Processing.................................... 1,294.50 Inspection.................................... 3,060.00 52,075.30 Product margin................................ $ 3,384.70Pitkins Company collects 20% of a months sales in the month of sale, 70% in themonth following sale, and 6% in the second month following sale. The remainder isuncollectible. Budgeted sales for the next four months are: January February March April Budgeted sales....... $200,000 $300,000 $350,000 $250,000Cash collections in April are budgeted to be: $313,000 $320,000 $292,000 April sales ($250,000 × 20%).............. $ 50,000
    • March sales ($350,000 × 70%)........... 245,000 February sales ($300,000 × 6%)......... 18,000 Total.................................................... $313,000Depasquale Corporation is working on its direct labor budget for the next two months. Each unitof output requires 0.41 direct labor-hours. The direct labor rate is $8.10 per direct labor-hour.The production budget calls for producing 5,000 units in May and 5,400 units in June. If thedirect labor work force is fully adjusted to the total direct labor-hours needed each month, whatwould be the total combined direct labor cost for the two months? $17,933.40 $17,269.20 $34,538.40Total direct labor-hours = 0.41 × (5,000 + 5,400) = 4,264 Direct labor cost = 4,264 × $8.10 = $34,538.40Information on the actual sales and inventory purchases of the Law Company for the first quarterfollow: Sales Inventory Purchases January.................. $120,000 $60,000 February................ $100,000 $78,000 March.................... $130,000 $90,000Collections from Law Companys customers are normally 60% in the month of sale, 30% in themonth following sale, and 8% in the second month following sale. The balance is uncollectible.Law Company takes full advantage of the 3% discount allowed on purchases paid for by the endof the following month.The company expects sales in April of $150,000 and inventory purchases of $100,000. Sellingand administrative expenses for the month of April are expected to be $38,000, of which $15,000is salaries and $8,000 is depreciation. The remaining selling and administrative expenses arevariable with respect to the amount of sales in dollars. Those selling and administrative expensesrequiring a cash outlay are paid for during the month incurred. Law Companys cash balance onMarch 1 was $43,000, and on April 1 was $35,000. The expected cash collections from customers during April would be: $150,000 $137,000 $139,000
    • $117,600 April sales ($150,000 × 60%)............. $ 90,000 March sales ($130,000 × 30%)........... 39,000 February sales ($100,000 × 8%)......... 8,000 Expected cash collections.................... $137,000Information on the actual sales and inventory purchases of the Law Company for the first quarterfollow: Sales Inventory Purchases January.................. $120,000 $60,000 February................ $100,000 $78,000 March.................... $130,000 $90,000Collections from Law Companys customers are normally 60% in the month of sale, 30% in themonth following sale, and 8% in the second month following sale. The balance is uncollectible.Law Company takes full advantage of the 3% discount allowed on purchases paid for by the endof the following month.The company expects sales in April of $150,000 and inventory purchases of $100,000. Sellingand administrative expenses for the month of April are expected to be $38,000, of which $15,000is salaries and $8,000 is depreciation. The remaining selling and administrative expenses arevariable with respect to the amount of sales in dollars. Those selling and administrative expensesrequiring a cash outlay are paid for during the month incurred. Law Companys cash balance onMarch 1 was $43,000, and on April 1 was $35,000.The expected cash disbursements during April for inventory purchases would be: $100,000 $90,000 $87,300 Expected cash disbursements for April for inventory purchases = March inventory purchases × (100% − discount percentage for paying by end of month) = $90,000 × (100% − 3%) = $90,000 × 97% = $87,300 Buckler Company manufactures desks with vinyl tops. The standard material cost for the vinyl used per Model S desk is $27.00 based on 12 square feet of vinyl at a cost of $2.25 per square foot. A production run of 1,000 desks in March resulted in usage of 12,600
    • square feet of vinyl at a cost of $2.00 per square foot, a total cost of $25,200. The materials quantity variance resulting from the above production run was: $1,200 unfavorable $1,350 unfavorable $1,800 favorable $3,150 favorableStandard quantity = Standard quantity per unit × Actual output = 12 × 1,000 = 12,000 Materials quantity variance = Standard price × (Actual quantity − Standard quantity) = $2.25 × (12,600 − 12,000) = $1,350 unfavorableMagno Cereal Corporation uses a standard cost system to collect costs related to the productionof its “crunchy pickle” cereal. The pickle (materials) standards for each batch of cereal producedare 1.4 pounds of pickles at a standard cost of $3.00 per pound. During the month of August,Magno purchased 78,000 pounds of pounds at a total cost of $253,500. Magno used all of thesepickles to produce 60,000 batches of cereal. What is Magnos materials quantity variance for themonth of August? $1,500 unfavorable $18,000 favorable $19,500 unfavorable $54,000 unfavorableStandard quantity = Standard quantity per unit × Actual output = 1.4 × 60,000 = 84,000 Materials quantity variance = Standard price × (Actual quantity − Standard quantity) = $3 × (78,000 − 84,000) = $18,000 favorableBeakins Company produces a single product. The standard cost card for the product follows: Direct materials (4 yards @ $5 per yard)................................... $20 Direct labor (1.5 hours @ $10 per hour).................................... $15 Variable manufacturing overhead (1.5 hrs @ $4 per /hour)....... $6During a recent period the company produced 1,200 units of product. Various costs associatedwith the production of these units are given below: Direct materials purchased (6,000 yards).............. $28,500 Direct materials used in production...................... 5,000yards
    • Direct labor cost incurred (2,100 hours)................ $17,850 Variable manufacturing overhead cost incurred... $10,080The company records all variances at the earliest possible point in time. Variable manufacturingoverhead costs are applied to products on the basis of direct labor hours. The materials price variance for the period is: $1,250 F $1,500 F $1,250 U $1,500 U Materials price variance = (Actual quantity purchased × Actual price) − (Actual quantity purchased × Standard price) = $28,500 − (6,000 × $5) = $1,500 favorableBeakins Company produces a single product. The standard cost card for the product follows: Direct materials (4 yards @ $5 per yard)................................... $20 Direct labor (1.5 hours @ $10 per hour).................................... $15 Variable manufacturing overhead (1.5 hrs @ $4 per /hour)....... $6During a recent period the company produced 1,200 units of product. Various costs associatedwith the production of these units are given below: Direct materials purchased (6,000 yards).............. $28,500 Direct materials used in production...................... 5,000yards Direct labor cost incurred (2,100 hours)................ $17,850 Variable manufacturing overhead cost incurred... $10,080The company records all variances at the earliest possible point in time. Variable manufacturingoverhead costs are applied to products on the basis of direct labor hours. The materials quantity variance for the period is: $5,000 F $1,000 U $6,000 FStandard quantity = Standard quantity per unit × Actual output = 4 × 1,200 = 4,800
    • Materials quantity variance = Standard price × (Actual quantity − Standard quantity) = $5 × (5,000 − 4,800) = $1,000 unfavorableBeakins Company produces a single product. The standard cost card for the product follows: Direct materials (4 yards @ $5 per yard)................................... $20 Direct labor (1.5 hours @ $10 per hour).................................... $15 Variable manufacturing overhead (1.5 hrs @ $4 per /hour)....... $6During a recent period the company produced 1,200 units of product. Various costs associatedwith the production of these units are given below: Direct materials purchased (6,000 yards).............. $28,500 Direct materials used in production...................... 5,000yards Direct labor cost incurred (2,100 hours)................ $17,850 Variable manufacturing overhead cost incurred... $10,080The company records all variances at the earliest possible point in time. Variable manufacturingoverhead costs are applied to products on the basis of direct labor hours.The labor rate variance for the period is: $3,150 U $2,700 F $2,700 U $3,150 FLabor rate variance = (Actual hours × Actual rate) − (Actual hours × Standard rate) = $17,850 − (2,100 × $10) = $3,150 favorableBeakins Company produces a single product. The standard cost card for the product follows: Direct materials (4 yards @ $5 per yard)................................... $20 Direct labor (1.5 hours @ $10 per hour).................................... $15 Variable manufacturing overhead (1.5 hrs @ $4 per /hour)....... $6During a recent period the company produced 1,200 units of product. Various costs associatedwith the production of these units are given below: Direct materials purchased (6,000 yards).............. $28,500 Direct materials used in production...................... 5,000yards Direct labor cost incurred (2,100 hours)................ $17,850
    • Variable manufacturing overhead cost incurred... $10,080The company records all variances at the earliest possible point in time. Variable manufacturingoverhead costs are applied to products on the basis of direct labor hours. The labor efficiency variance for the period is: $3,000 U $2,550 U $2,550 F $3,000 FStandard hours = Standard hours per unit × Actual output = 1.5 × 1,200 = 1,800 Labor efficiency variance = Standard rate × (Actual hours − Standard hours) = $10 × (2,100 − 1,800) = $3,000 unfavorable Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inns guests appreciate its gourmet breakfasts and individually decorated rooms. The Inns overhead budget for the most recent month appears below: Activity level................................. 90 guests Variable overhead costs: Supplies...................................... $ 234 Laundry...................................... 315 Fixed overhead costs: Utilities....................................... 220 Salaries and wages..................... 4,290 Depreciation............................... 2,680 Total overhead cost....................... $7,739 The Inns variable overhead costs are driven by the number of guests. What would be the total budgeted overhead cost for a month if the activity levelis 99 guests? Assume that the activity levels of 90 guests and 99 guests are within the samerelevant range $7,793.90 $61,541.00 $8,512.90 $7,739.00Budgeted number of guests: 90
    • Activity Cost Formula (in guests): (per guest) 99 Overhead Costs Variable overhead costs: Supplies ($234 ÷ 90 guests)................... $2.60 $ 257.40 Laundry ($315 ÷ 90 guests).................... 3.50 346.50 Total variable overhead cost...................... $6.10 603.90 Fixed overhead costs: Utilities................................................... 220.00 Salaries and wages.................................. 4,290.00 Depreciation........................................... 2,680.00 Total fixed overhead cost.......................... 7,190.00 Total budgeted overhead cost.................... $7,793.90 Chmielewski Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,560 patient-visits and the actual level of activity was 1,530 patient-visits. The clinics director budgets for variable overhead costs of $1.10 per patient-visit and fixed overhead costs of $19,900 per month. The actual variable overhead cost last month was $1,400 and the actual fixed overhead cost was $21,720. In the clinics flexible budget performance report for last month, what would have been the variance for the total overhead cost? $33 F $1,504 U $1,537 U $283 FBudgeted number of patient-visits: 1,560 Actual number of patient-visits: 1,530 Actual Cost Costs Budget Formula Incurred Based on (per for 1,530 1,530 patient- patient- patient- visit) visits visits Variance Variable overhead costs....... $1.10 $1,400 $1,683 $ 283 F Fixed overhead costs........... $21,720 $19,900 1,820 U $1,537 UGandy Company has 5,000 obsolete desk lamps that are carried in inventory at a manufacturingcost of $50,000. If the lamps are reworked for $20,000, they could be sold for $35,000.
    • Alternatively, the lamps could be sold for $8,000 for scrap. In a decision model analyzing thesealternatives, the sunk cost would be: $8,000 $15,000 $50,000 Rice Corporation currently operates two divisions which had operating results last year as follows: West Troy Division Division Sales.......................................................... $600,000 $300,000 Variable costs............................................ 310,000 200,000 Contribution margin.................................. 290,000 100,000 Traceable fixed costs................................. 110,000 70,000 Allocated common corporate costs........... 90,000 45,000 Net operating income (loss)....................... $ 90,000 ($ 15,000) Since the Troy Division also sustained an operating loss in the prior year, Rices president is considering the elimination of this division. Troy Divisions traceable fixed costs could be avoided if the division were eliminated. The total common corporate costs would be unaffected by the decision. If the Troy Division had been eliminated at the beginning of last year, Rice Corporations operating income for last year would have been: $15,000 higher $30,000 lower $45,000 lower $60,000 higher Troy Division: Contribution margin.......................................................... $100,000 Less: traceable fixed costs................................................. 70,000 Segment margin of Troy Division..................................... $ 30,000 Rice Corporation’s operating income would have been $30,000 less without the segment margin contributed by the Troy Division.
    • The following information relates to next years projected operating results of the Childrens Division of Grunge Clothing Corporation: Contribution margin........... $200,000 Fixed expenses................... 500,000 Net operating loss.............. ($300,000) If Childrens Division is dropped, half of the fixed costs above can be eliminated. What will be the effect on Grunges profit next year if Childrens Division is dropped instead of being kept? $50,000 increase $250,000 increase $250,000 decrease $550,000 increase Keep the Drop the Division Division Difference Contribution margin...................... $200,000 $ 0 ($200,000) Fixed expenses............................... 500,000 250,000 250,000 Net operating income (loss)........... ($300,000) ($250,000) ($ 50,000) Net operating income would increase by $50,000 if the Children’s Division were dropped. Therefore, the division should be dropped.Supler Company produces a part used in the manufacture of one of its products. Theunit product cost is $18, computed asfollows:Direct materials……………………………….. $8Direct labor……………………………………. 4Variable manufacturing overhead…………. 1Fixed manufacturing overhead……………… 5Unit product cost……………………………… $18An outside supplier has offered to provide the annual requirement of 4,000 of the partsfor only $14 each. It is estimated that 60 percent of the fixed overhead cost above could
    • be eliminated if the parts are purchased from the outside supplier. Based on these data,the per-unit dollar advantage or disadvantage of purchasing from the outside supplierwould be: $1 disadvantage $1 advantage $2 advantage $4 disadvantageRelevant cost per unit: Direct materials................................................ $ 8 Direct labor...................................................... 4 Variable manufacturing overhead................... 1 Fixed manufacturing overhead ($5 × 0.60)..... 3 Relevant manufacturing cost........................... $16 Net advantage (disadvantage): Relevant manufacturing cost savings......... $16 Less: cost from outside supplier................ 14 Net advantage............................................. $ 2 Landor Appliance Company makes and sells electric fans. Each fan regularly sells for $42. The following cost data per fan is based on a full capacity of 150,000 fans produced each period. Direct materials............................................................... $8 Direct labor..................................................................... $9 Manufacturing overhead (70% variable and 30% unavoidable fixed)................ $10 A special order has been received by Landor for a sale of 25,000 fans to an overseas customer. The only selling costs that would be incurred on this order would be $4 per fan for shipping. Landor is now selling 120,000 fans through regular channels each period. What should Landor use as a minimum selling price per fan in negotiating a price for this special order? $28 $27 $31 $24
    • Direct materials................................................. $ 8 Direct labor........................................................ 9 Variable manufacturing overhead ($10 × 0.70) 7 Variable selling cost.......................................... 4 Minimum selling price...................................... $28If the net present value of a project is zero based on a discount rate of 16%, then the internal rateof return is: equal to 16%. less than 16%. greater than 16%. cannot be determined from this data. Ignore income taxes in this problem.) Given the following data: Cost of equipment............. $55,750 Annual cash inflows.......... $10,000 Internal rate of return......... 16%The life of the equipment must be it is impossible to determine from the data given 15 years 12.5 years 5.75 yearsThe internal rate of return factor is 5.575, or $55,750 ÷ $10,000. In the table for the Present Value of an Annuity of $1 in Arrears, the factor of 5.575 can be found in the 16% column in the 15th row; 15 then represents the life of the equipment.(Ignore income taxes in this problem.) Nevus Tattoo Parlor is considering a capital budgetingproject. This project will initially require a $25,000 investment in equipment and a $3,000working capital investment. The useful life of this project is 5 years with an expected salvagevalue of zero on the equipment. The working capital will be released at the end of the 5 years.The new system is expected to generate net cash inflows of $9,000 per year in each of the 5years. Nevus discount rate is 14%. The net present value of this project is closest to: $(3,088)
    • $4,454 Year(s) Amount 14% Factor PV Initial investment............... Now ($25,000) 1.000 ($25,000) Working capital needed..... Now ($3,000) 1.000 ( 3,000) Annual cost savings........... 1-5 $9,000 3.433 30,897 Working capital released.... 5 $3,000 0.519 1,557 Net present value................ $ 4,454(Ignore income taxes in this problem.) Dowlen, Inc., is considering the purchase of a machinethat would cost $150,000 and would last for 6 years. At the end of 6 years, the machine wouldhave a salvage value of $23,000. The machine would reduce labor and other costs by $36,000per year. Additional working capital of $6,000 would be needed immediately. All of thisworking capital would be recovered at the end of the life of the machine. The company requires aminimum pretax return of 12% on all investment projects. The net present value of the proposedproject is closest to: $9,657 -$2,004 $6,699 $13,223 Year(s) Amount 12% Factor PV ($150,000 Initial investment............... Now ) 1.000 ($150,000) Working capital needed..... Now ($6,000) 1.000 (6,000) Annual cost savings........... 1-6 $36,000 4.111 147,996 Working capital released.... 6 $6,000 0.507 3,042 Salvage value..................... 6 $23,000 0.507 11,661 Net present value................ $ 6,699 (Ignore income taxes in this problem.) Golab Roofing is considering the purchase of a crane that would cost $69,846, would have a useful life of 6 years, and would have no salvage value. The use of the crane would result in labor savings of $21,000 per year. The internal rate of return on the investment in the crane is closest to: 18% 20% 19%
    • 17%Factor of the internal rate of return = Investment required ÷ Net annual cash inflow = $69,846 ÷ $21,000 = 3.326 The factor of 3.326 for 6 years represents an internal rate of return of 20%.(Ignore income taxes in this problem.) Slomkowski Corporation is contemplating purchasingequipment that would increase sales revenues by $298,000 per year and cash operating expensesby $143,000 per year. The equipment would cost $712,000 and have a 8 year life with no salvagevalue. The annual depreciation would be $89,000. The simple rate of return on the investment isclosest to: 9.3% 21.8% 22.1% 12.5%The simple rate of return is computed as follows: Cost of machine, net of salvage value (a)........... $712,000 Useful life (b)...................................................... 8 years Annual depreciation (a) ÷ (b).............................. $89,000 Annual incremental revenue ($298,000 − $143,000)......................................................... $155,000 Less annual depreciation..................................... 89,000 Annual incremental net operating income.......... $ 66,000 Simple rate of return = Annual incremental net operating income ÷ Initial investment = $66,000 ÷ $712,000 = 9.3%