Question 1 (1 point) Xenon Company manufactures 10,000 special gears for use in
ID: 2467799 • Letter: Q
Question
Question 1 (1 point)
Xenon Company manufactures 10,000 special gears for use in its annual production activities. The following costs are reported:
Direct materials, $3/gear
Direct labor, $4/gear
Variable Factory Overhead, $4.5/gear
Fixed Factory Overhead, $70,000
Parts Plus has offered to sell Xenon 10,000 of these gears for $17 per unit. If Xenon accepts the offer, $40,000 of the fixed factory overhead to special gears would be totally eliminated.
What would be the effect on Xenon's income of accepting Parts Plus's offer?
Question 2 (1 point)
Zurich Inc. has determined the following cost data:
Variable Manufacturing, $15/unit
Fixed Manufacturing,$36,000
Variable Selling, $ 1/unit
Fixed Selling & Administrative, $18,000
The normal selling price is $25 per unit. The company has an opportunity to bid on a one-time only sale of 1,000 units. The variable selling costs would be replaced by a bulk shipping charge of $500.
If excess capacity exists, and this order would not disturb regular sales, what would be the company's incremental cost per unit of accepting this special offer?
Question 3 (2 points)
Hardware Corp. is planning to buy production machinery. This machinery's expected useful life is 5 years, with a $10,000 residual value. They require a minimum rate of return of 12%, and have calculated the following data pertaining to the purchase and operation of this machinery:
Year
Estimated Annual Cash Inflow
Estimated Annual Cash Outflow
Depreciation
1
$60,000
$10,000
$30,000
2
$80,000
$20,000
$30,000
3
$95,000
$25,000
$30,000
4
$115,000
$35,000
$30,000
5
$140,000
$50,000
$30,000
Determine the payback period, the accounting rate of return, and the net present value for this investment. (Ignore taxes & indicate answers to 2 decimal places)
Question 4 (2 points)
Norwest is planning on purchasing a welding machine. The expected cost of this machine is $60,000, and it is expected to have a useful life of 7 years with an estimated salvage value of $4,000. The machine is expected to produce cash savings of $20,000 per year in reduced labor costs and the cash operating costs to run this machine are estimated to be $6,000 per year. Assuming Norwest is in the 34% tax bracket and has a minimum desired rate of return of 14% on this investment.
Determine the payback period, the accounting rate of return, and the net present value for this investment. (Indicate answers to 2 decimal places)
Year
Estimated Annual Cash Inflow
Estimated Annual Cash Outflow
Depreciation
1
$60,000
$10,000
$30,000
2
$80,000
$20,000
$30,000
3
$95,000
$25,000
$30,000
4
$115,000
$35,000
$30,000
5
$140,000
$50,000
$30,000
Explanation / Answer
Question 1 Profit will increase by $40,000 Question 2 variable manufactruing Cost 15 Shipping Charges (500/10000 0.5 Incremental Cost 15.5 Question 3 Annual cash inflow Cash Outflow Net cash Inflow Cummulative NPV year 0 -160,000 -160,000 -160,000 year 1 60,000 10,000 50,000 -110,000 44,643 year 2 80,000 20,000 60,000 -50,000 47,832 year 3 95,000 25,000 70,000 20,000 49,825 year 4 115,000 35,000 80,000 100,000 50,841 year 5* 150,000 50,000 100,000 200,000 56,743 Total NPV 89,883 * including residual value Payback period = 2+(50000/70000)*12 = 2 years 8.5 month Formula for NPV= Present cash inflow*(1+% of return)^-t Question 4 Annual cash inflow Cash Outflow Tax saving on deprciation Net cash Inflow Cummulative NPV year 0 -60,000 -60,000 -60,000 year 1 20,000 6,000 2720 16,720 -43,280 14,667 year 2 20,000 6,000 2720 16,720 -26,560 12,865 year 3 20,000 6,000 2720 16,720 -9,840 11,286 year 4 20,000 6,000 2720 16,720 6,880 9,900 year 5 20,000 6,000 2720 16,720 23,600 8,684 year 6 20,000 6,000 2720 16,720 40,320 7,617 year 7* 24,000 6,000 2720 20,720 61,040 7,789 Total NPV 12,808 * including residual value Payback period = 3+(9840/16720)*12 = 3 years 7 month Formula for NPV= Present cash inflow*(1+% of return)^-t tax saving on Dep (56000/7)*34%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.