1. Your company plans to acquire one of two assets. Asset A costs $162,500, and has expected annual cash savings of $37,500. Asset B costs $225,000 and has expected annual cash savings of $77,500. You'll use straight-line depreciation for both assets over their estimated useful lives of 5 years, after which both will have a salvage value of zero. Your minimum desired rate of return is 14%, and the present value factor is 3.4331.
Ignoring income taxes, calculate the net present value for both assets. Which asset would you advise buying? Why?
2. Explain the difference between a traditional income statement and a contribution margin income statement by providing the following three items:
- Present a sample format for each statement.
- Describe the focus of each statement.
- Discuss how and by whom each statement is used.
3. Answer question 3 based on the following information:
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January
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February
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March
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Quarterly Totals
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Projected sales
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450,000
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425,000
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550,000
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?
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Price per unit
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?
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?
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?
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?
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|
Total projected sales
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$463,500
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?
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?
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?
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Calculate the total projected sales for the quarter. (Round your answer to the nearest dollar.)
Part B: Answer each of the following 10 questions according to the information provided. Show and label all calculations. Each answer is worth 4 points.
1. At the local ice cream shop, there's a sign posted that reads, "If you don't receive a receipt, your next ice cream is free!" Is this an internal control procedure? If so, how does it work?
2. Now do job costing, operations costing, and process costing differ? Provide two typical examples of products or organizations for each system.
3. GL, Inc. has two product divisions. Division G sells a product with a selling price per unit of $100, variable expenses per unit of $54, and traceable fixed expenses of $142,000. Division G produced and sold 45,000 units of the product. Common fixed expenses for a, Inc. were $250,000. Prepare a segmented income statement for Division G showing the profit if common costs are allocated equally between the company's divisions.
4. Your company acquires production equipment by trading an older machine and giving the seller 100 shares of company stock. How should this transaction be reported on the statement of cash flows?
5. A manufacturer is developing a new type of vacuum cleaner that will have a target price of $450. To maintain a target profit equal to 35 percent of the new product's cost, what will the target cost be?
6. You overhear the manager of a sign shop say, "I'd never accept a special order! How could you ever make money selling products below full cost?" Do you agree? Why or why not?
7. The accounts receivable turnover ratio for a physician is 5.75, and sales are in receivables an average of 63.48 days. Are these ratios positive? Why or why not?
8. Gantt Textiles Inc. incurred actual variable overhead expenses of $50,000 in the current year for the production of 6,000 units. Variable overhead was applied at a rate of $3.25 per direct labor hour, and 2 direct labor hours were budgeted for each unit. The company used 16,000 direct labor hours for production. Compute the variable-overhead spending variance and the variable-overhead efficiency variance. Indicate whether each variance is favorable (F) or unfavorable (U).
9. Briefly describe and draw a diagram of the cost accumulation process for a traditional manufacturing company.