ACT514 Week 7 Assignments PDF

Preview

Summary

Business Operations...

Description

WEEK 7 ASSIGNMENTS ACT514 MANAGERIAL ACCOUNTING

Student Name: UDIT MULTANI

Exercise 12-3 Make or Buy Decision Special instructions: Complete this exercise on this document. There is space after the requirements list. Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Per Unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost

$14 10 3 6* 9 $42

15,000 Units per year $210,000 150,000 45,000 90,000 135,000 $630,000

*

One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value)

Required: 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Incremental Analysis Description Make Direct materials $210,000 Direct labor 150,000 Variable manufacturing overhead 45,000 Fixed manufacturing overhead, traceable 60,000

Buy

Fixed manufacturing overhead, avoidable Total Relevant Costs

0 $465,000

$525,000 $525,000

Financial Disadvantage of ($60,000) for outside supplier. 2. Should be outside supplier’s offer be accepted? No. 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Incremental Analysis Description Make Direct materials $210,000 Direct labor 150,000 Variable manufacturing overhead 45,000 Fixed manufacturing overhead, traceable 60,000 Fixed manufacturing overhead, allocated 0 Alternate Segment Margin Total Relevant Costs $465,000

Buy

$525,000 -150,000 $375,000

Financial Advantage of $90,000 for outside supplier 4. Given the new assumption 3, should the outside supplier’s offer be accepted? Yes, the outside supplier’s offer should be accepted

Exercise 12-4 Special Order Decision Special instructions: Complete the requirement for Exercise 12-4 on this document, below the requirements. Imperial Jewelers manufactures and sells a gold bracelet for $189.95. The company’s accounting system says that the unit product cost for this bracelet is $149.00 as shown below: Direct materials Direct labor Manufacturing overhead Unit product cost

$84.00 45.00 20.00 $149.00

The members of a wedding party have approached Imperial Jewelers about buying 20 of these gold bracelets for the discounted price of $169.95 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $250 and that would increase the direct materials cost per bracelet by $2.00. The special tool would have no other use once the special order is completed. To analyze this special-order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $4.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell jewelry to other customers. Furthermore, the company could fulfill the wedding party’s order using its existing manufacturing capacity. Required: 1. What is the financial advantage (disadvantage) of accepting the special order from the wedding party? Description Variable Cost: Direct Materials Direct labor Variable manufacturing overhead Additional modifation material Total Variable Cost

Cost per unit

Total 20 Bracelets

$84 $45 $4 $2 $135

$1,680 $900 $80 $40 $2,700

Variable Cost: Special Tool Cost Total Variable Cost

$250 $250

Total Incremental Costs Description Incremental Revenue Incremental Costs Incremental Net Operating Income

$2,950 Total 20 Bracelets $3,399 ($2,950) $449

Financial Advantage of $449 because of the special order. 2. Should the company accept the special order? Yes, the company should accept the order.

Exercise 13-2 Net Present Value Analysis Special instructions: The calculations for this exercise are more easily done using an Excel spreadsheet, but that isn’t required. You may also use a financial calculator with an NPV function. How ever you arrive at your answer, please post it on this document after the requirement section below. Include the method (equation) you used to compute your answer. The management of Kunkel Company is considering the purchase of a $27,000 machine that would reduce operating costs by $7,000 per year. At the end of the machine’s five-year useful life, it will have zero salvage value. The company’s required rate of return is 12%. Required: 1. Determine the net present value of the investment in the machine. NET PRESENT VALUE: -$1,766.56 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Particulars Annual cost savings Initial investment Net cash flow

Cash Flow Years $7,000 ($27,000)

5 1

Total Cash Flows $35,000 ($27,000) $8,000

Exercise 13-7 Net Present Value Analysis of Two Alternatives Special instructions: The calculations for this exercise are more easily done using an Excel spreadsheet, but that isn’t required. You may also use a financial calculator with an NPV function. How ever you arrive at your answer, please post it on this document, with the method you used to compute the answers, after the requirement section below. Perit Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:

Project A Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six

$100,000 $0 $21,000 $8,000

Project B $0 $100,000 $16,000 $0

years Life of the project

6 years

6 years

The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries discount rate is 14%. Required:

YEAR PROJECT A PROJECT B

INITIAL EQUIPMENT / INVESTMENT $ (100,000) $ (100,000)

$ $

1 18,421 14,035

$ $

2 16,159 12,311

$ $

3 14,174 10,800

$ $

4 12,434 9,473

$ $

5 10,907 8,310

$ $

6 9,567 7,289

SALVAGE VALUE $ 3,645 $ -

1. Compute the net present value of Project A. NET PRESENT VALUE OF PROJECT A: ($14,693) 2. Compute the net present value of Project B. NET PRESENT VALUE OF PROJECT B: $7,777 3. Which investment alternative (if either) would you recommend that the company accept? INVESTMENT ALTERNATIVE B.

NET PRESENT VALUE $ (14,693) $ (37,781)...