A company is considering the following alternatives: Alternative Alternative 2 Revenues $120,000 $120,000 Variable Costs S 60,000 $60,000 Fixed costs $35,000 $35,000 Which of the following are relevant in choosing between the alternatives? 2. ) Adler Company manufactures a product with the following costs: unit Variable Cost $50 Unit Fixed Cost $24 Total Cost per unit $74 The company normally sells 10,000 units at a price of $88 each. Adler has a one-time opportunity to sell an additional 3,000 units at $70 each in a foreign market, which would not affect its present sales.
If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: 3. ) If a company must expand capacity to accept a special order, it is likely that there will be 4. ) May company produces 1,000 units of a necessary component with the following costs: Direct Materials $48,000 Direct Labor $32,000 Variable overhead $8,000 axed overhead $14,000 May Company could avoid $6,000 in fixed overhead costs if it acquires the components externally.
If cost minimization is the major consideration and he company would prefer to buy the components, what is the maximum external purchase price that May Company would accept to acquire at 1 ,OOH units externally? 5. ) A company has a process that results in 500 drums of Chemical L that can be sold for $300 per drum. An alternative would be to process Chemical L further at a cost of $25,000 and then sell it for $380 per drum. Should management sell Chemical L now or should Chemical L be processed further and then sold? What is the effect of the action? 6. The focus of a sell or process further decision 7. A company is considering replacing old equipment with new equipment. Which of the following is a relevant cost for incremental analysis? 8. ) A company has several product lines, one of which reflect the following results: Sales $400,000 variable costs $275,000 Contribution Margin $1 25,000 axed expenses$200,ooh Net loss -$75,000 If this product line is eliminated, 80% of the fixed expenses can be eliminated and the other 20% will be allocated to other product lines. If management decides to eliminate this product line, the company’s net income will 9.
Using compound interest, if you deposit $1 ,OOH each year in an account paying 7% interest, approximately how much will have in that account in five years? 10. ) A company is considering an investment, which will return lump savings of $150,000 four years from now. If they require a 10% return, what is the most they should pay for in the investment? 1 1 The internal rate of return is the interest rate that causes 12. ) A company is considering investing in a project, which will cost $1 75,000, and last for 5 years. Annual net income will be $45,000 and annual cash flow ill be $50,000.
What is the payback period from…? 13. ) If a project has equal annual cash flows, its cash payback period is computed by dividing the cost of the capital investment by the 14. ) Paschal Company is considering the acquisition of new equipment at a cost of $1 , 700,000. The company’s accountants have provided the following additional information about the project for your analysis: Annual net income $360, 000 Net annual cash flow $390,000 Estimated useful life 7 years If the company has established a required rate f return of 1 1 what is the approximate net present value of the equipment acquisition? 5. ) Your analysis of a
Project A Project B Net present value $50,000 exclusive projects which have the following $75,000 Initial investment $200,000 $400,000 project life 4 years 4 years Which project will be accepted? 18. ) Hinges Hardware is evaluating a new retail location and its accountants have prepared some information for your review. Their analysis has established that the new location will costs S 1 , 500,000 and generate net present value of $100,000 using a discount rate of 10%. What is the profitability index for this project? 19. ) Roan, Inc. S analyzing the acquisition of new equipment, which will cost 50,000. Accountants have determined that this equipment will have a five- year useful lifer and in each year generate net income of $1 2,800 and operating cash flow of $14,200. The company requires a 10% return on invested capital. What is the approximate AIR of this equipment acquisition? 20. ) In most cases, prices are set by the 21 Which of the following is not considered a limitation of cost-plus pricing? 22. ) Downing company produces a high-resolution computer monitor.
The following information is available for this product: Fixed cost per unit $50 Variable cost per unit $150 Total cost per unit $200 Downing expects to sell 10,000 units per year. The company has decided to price its monitors to earn a 14% return on its investment of $8,000,000 What is the target-selling price per monitor? 23. ) Assuming the selling division has available capacity, a negotiated transfer price should be a maximum of 24. ) The Burnett Company’s Crystal Division normally sells its product for $24 per unit.