24) Responsibility accounting performance reports: Become more detailed at highe
ID: 2489016 • Letter: 2
Question
24) Responsibility accounting performance reports:
Become more detailed at higher levels of management.
Are usually summarized at higher levels of management.
Are equally detailed at all levels of management.
Are useful in any format.
Are irrelevant at the highest level of management.
26) Minor Electric has received a special one-time order for 1,200 light fixtures (units) at $22 per unit. Minor currently produces and sells 6,000 units at $23.00 each. This level represents 75% of its capacity. Production costs for these units are $30.00 per unit, which includes $20.00 variable cost and $10.00 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of $900 with a zero salvage value. Management expects no other changes in costs as a result of the additional production. If Minor wishes to earn $1,900 on the special order, the size of the order would need to be:
5,600 units.
1,340 units.
1,400 units.
2,800 units.
55 units.
27) Wheeler Company can produce a product that incurs the following costs per unit: direct materials, $10.30; direct labor, $24.30, and overhead, $16.30. An outside supplier has offered to sell the product to Wheeler for $46.88. If Wheeler buys from the supplier, it will still incur 40% of its overhead cost. Compute the net incremental cost or savings of buying.
$5.15 savings per unit.
$5.15 cost per unit.
$2.50 cost per unit.
$5.76 cost per unit.
$2.50 savings per unit.
31) The following data concerns a proposed equipment purchase:
The annual average investment amount used to calculate the accounting rate of return is:
$70,100
$68,200
$35,050
$72,000
$47,150
33) The following present value factors are provided for use in this problem.
Xavier Co. wants to purchase a machine for $37,100 with a four year life and a $1,100 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,100 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)?
$3,785.
$2,976.
$40,885.
$(3,785).
$(2,976).
34) Poe Company is considering the purchase of new equipment costing $89,500. The projected net cash flows are $44,500 for the first two years and $39,500 for years three and four. The revenue is to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity for different periods is presented below. Compute the net present value of the machine.
$(36,345).
$(22,101).
$36,345.
$22,101.
$44,389.
Cost $140,200 Salvage value $3,800 Estimated useful life 4 years Annual net cash flows $45,900 Depreciation method Straight-lineExplanation / Answer
Answer:
24) Responsibility accounting performance reports: Become more detailed at higher levels of management.
Responsibility Accounting is a control device and Responsibility Accounting Performance reports measures the effectivenss and performance of each responsibility centre. It is generally become more detailed at higher level of managements because they are responsible person for the operations of their cost centre.
26)
Under existing condition from production and sell of 6000 Units, Minor Electric is in loss.
Present level of capacity (75%) = 6,000 Units
100% Capacity = 6,000 Units / 75% = 8,000 Units
Spare Capacity which can be utilised further = 8,000 Units - 6,000 Units = 2,000 Units
Calculation of Profit from special order:
Contribution from Special Order ($22 - $20) x 1,200 = $2,400
Less: New Equipment Cost (Relevent) = ($900)
Net Profit from Special Order = $2400 - $900 = $1,500
Here, Fixed Cost are irrelevant for decision making because Fixed Cost are treated as Sunk Cost which have already been incurred and have no relevance in decision making. Hence fixed cost is ignored.
If Minor Electric wishes to earn $1,900 on the special order, the size of the order would need to be = 1,400 Units
At 1200 Units = Earnings are $1,500
For $1,900 Earnings, Special order size = ($900 + $1,900) / 2 = 1,400 Units
At 1400 Units the Earnings will be $1,900
Check......Contribution Margin from Sale of 1,400 Units = 1,400 Units x $2 = $2,800 less New Equipment Cost $900 = $1,900
27) Net incremental cost of buying $2.50 cost per unit
Working and calculation:
31) Calculation of Annual Average Investment
Average Investment Amount = Salvage Value + (Initial Cost - Salvage value)/2 = $3,800 + ($140,200 - $3,800)/2 = $3,800 + $68,200 = $72,000
33) Net Present Value of Machine = Present Value of Cash flow - Present Value of Cash Outflow
Present Value of Cash Inflow = Annual Net Cash flow x PVIFA (8%, 4) + Salvange Value at end of 4th year x PVIF (8%, 4) = ($12,100 x 3.3121) + ($1,100 x 0.7350) = $40,076.41 + $808.50 = $40,884.91
Present Value of Cash Outflow = Cost of Machine at year 0 = $37,100
Net Present Value = Present Value of Cash flow - Present Value of Cash Outflow = $40,885 - $37,100 = $3,785
34) Net Present Value = Present Value of Cash Flows - Present Value of Cash Outflows
Present Value of Cash Flows
Present Value of Cash Outflows at Year 0 = Cost of New Equipment = $89,500
Net Present Value = Present Value of Cash Flows - Present Value of Cash Outflows = $133,884.60 - $89,500 = $44,384.60 or $44,385
In the option in this question $44,389 is written. $44,389 is the correct answer.
Total Cost per Unit for Producing ($10.30 + $24.30 + $16.30) = $50.90 Total Cost Per Unit for buying from Outside Supplier = $46.88 + ($16.30 x 40%) = $53.40 Net Incremental Cost of Buying = $53.40 - $50.90 = $2.50 per UnitRelated Questions
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