acounting assignment#2

Required Answer the following independent questions. Support your answers with clearly identified formulas and computation. a. A company is considering purchasing factory equipment that costs $400,000 and is estimated to have no salvage value at the end of its 5-year useful life. If the equipment is purchased, annual revenues are expected to be $150,000 and annual operating expenses exclusive of depreciation expense are expected to be $25,000. The straight-line method of depreciation would be used. Calculate the cash payback period on the equipment. Show your work b. Consider the following data (and ignore the impact of income taxes): Initial cost of equipment $ 962,000 Annual cash inflows $ 191,720 Salvage value $ 0 Estimated life 10 years Calculate the internal rate of return on this investment. Show your work c. A company is considering purchasing factory equipment that costs $400,000 and is estimated to have no salvage value at the end of its 5-year useful life. If the equipment is purchased, annual revenues are expected to be $150,000 and annual operating expenses exclusive of depreciation expense are expected to be $25,000. The straight-line method of depreciation would be used. If the equipment is purchased, calculate the annual rate of return that expected on this equipment. Show your work d. Calculate the net present value of a project with the following cash flows if the required rate of return is 14 percent Year Cash flows 0 $(33,680) 1 10,796 2 22,308 3 4,170. e. You are considering the following two mutually exclusive projects. The required rate of return is 13 percent for the project A and 10.5 percent for the project B. Prove with computation which the project to accept. Support your answer using NPV, IRR, cash payback period, and profitability index methods. Year Project A Project B 0 $ (54,000) $ (78,000) 1 $ 36,300 $ 35,700 2 $ 24,600 $ 62,800 3 $ 9,500 $ 0

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ACCT-621

UCW Assignment_#2

Instructions

 The title page is a requirement

 Answer the questions on your own. Any reference to any kind of open

sources will trigger academic consequences

 Submit only the solution to the question. Do not copy-paste the questions

in your submission

 For all questions show all your calculation, starting with the formula, then
– calculation, then – solution

 The numbers should be shown in a standard currency format: i.e. 1,000,000

 The sign as $, %, etc. should accompany the figures, i.e. $40, 15%, 3.5

times

 Neither, Excel skills, nor writing style will be awarded any marks

 The title of the tables have to be explanatory, and the tables fit into the pages

 The accounts` abbreviation should not be used and extraneous information
should not be provided

 Start answering each question from new page. Place ONE ANSWER for ONE

PAGE

 Do NOT use multiple colour or highlighting

 Design your submission using the APA or CHICAGO style and submit in the

DOC (DOCX) or PDF format

 No bonus marks for the early submission

READ THE QUESTION CAREFULLY AND

ANSWER WHAT IS ASKED

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Q.I {10 marks}

Selected account balances of Manufacturing Company appear below for 20XX:

Beginning of year End of year

Finished goods inventory $20,000 $ 26,000

Work in process inventory 30,000 35,000

Raw materials inventory 46,000 26,000

Sales 340,000

Direct labour 55,000

Factory supervisory salaries 18,000

Income tax expense 25,000

Factory insurance 12,000

Raw material purchases 90,000

Administrative expenses 27,000

Sales returns and allowances 15,000

Factory depreciation expense 22,000

Indirect labour 11,000

Selling expenses 35,000

Required

Using the above information for Manufacturing Company, answer the following questions.

Support your answers with clearly identified formula and computations or a schedule in a
required format.

1. Calculate the amount of direct materials used in production

2. Calculate the total manufacturing costs incurred

3. Prepare a schedule for the cost of goods manufactured

4. Calculate the cost of goods sold

5. Prepare an income statement

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Q. II {10 marks}

Company makes 40,000 units per year of a part that it uses in the products it
manufactures. The unit product cost of this part is computed as follows:

Direct materials $ 11.30

Direct labour $ 22.70

Variable manufacturing overhead $ 1.20

Fixed manufacturing overhead $ 24.70

Unit product cost $ 59.90

An outside supplier has offered to sell the company all the parts that Company needs for
$46.20 a unit. If the company accepts this offer, the facilities now being used to make the
part could be used to make more units of a product that is in high demand. The additional
contribution margin on this other product would be $264,000 per year.

If the part were purchased from the outside supplier, all direct labour cost of the part would
be avoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the
part would continue, even if the part were purchased from the outside supplier. This fixed
manufacturing overhead cost would be applied to the company’s remaining products.

Required

a. Calculate how much of the unit product cost of $59.90 is relevant in the decision of
whether to make or buy the part

b. Calculate the net total dollar advantage (disadvantage) of purchasing the part rather than
making it

c. Calculate the maximum amount the company should be willing to pay an outside supplier

per unit for the part if the supplier commits to supplying all 40,000 units required each year

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Q. III {8 marks}

Shoes Inc. has three product lines in its retail stores: Boots, Runners, and Luxury. The
allocated fixed costs are based on revenue and are unavoidable.

Results of the fourth quarter are presented below:

Boots Runners Luxury Total

Units sold 750 1,000 1,200 2,950

Revenue $22,500 $15,000 $9,600 $47,100

Variable departmental costs 12,000 8,000 5,000 25,000

Direct fixed costs 4,000 3,000 4,500 11,500

Allocated fixed costs 4,777 3,185 2,038 10,000

Net income (loss) $ 1,723 $815 $(1,938) $600

Demand of individual products is not affected by changes in other product lines.

Required

In a table format prepare an incremental analysis of the effect of dropping the Luxury
product line.

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Q. IV {8 marks}

Required

Answer the following questions with supporting formulas and calculation

Determine the missing amounts

Unit Selling Price Unit Variable Costs

Contribution Margin

per Unit

Contribution Margin

Ratio

1. $ 300 $ 200 a. b.

2. $ 600 c. $ 100 d.

3. e. f. $ 400 40%

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Q. V {18 marks}

Required

Answer the following independent questions. Support your answers with clearly identified formulas

and computation.

a. A company is considering purchasing factory equipment that costs $400,000 and is
estimated to have no salvage value at the end of its 5-year useful life. If the equipment is
purchased, annual revenues are expected to be $150,000 and annual operating expenses
exclusive of depreciation expense are expected to be $25,000. The straight-line method of
depreciation would be used.

Calculate the cash payback period on the equipment. Show your work

b. Consider the following data (and ignore the impact of income taxes):

Initial cost of equipment $ 962,000
Annual cash inflows $ 191,720
Salvage value $ 0
Estimated life 10 years

Calculate the internal rate of return on this investment. Show your work

c. A company is considering purchasing factory equipment that costs $400,000 and is
estimated to have no salvage value at the end of its 5-year useful life. If the equipment is
purchased, annual revenues are expected to be $150,000 and annual operating expenses
exclusive of depreciation expense are expected to be $25,000. The straight-line method of
depreciation would be used.

If the equipment is purchased, calculate the annual rate of return that expected on this
equipment. Show your work

d. Calculate the net present value of a project with the following cash flows if the required
rate of return is 14 percent

Year Cash flows

0 $(33,680)

1 10,796

2 22,308

3 4,170.

e. You are considering the following two mutually exclusive projects. The required rate of
return is 13 percent for the project A and 10.5 percent for the project B.

Prove with computation which the project to accept. Support your answer using NPV, IRR,
cash payback period, and profitability index methods.

Year Project A Project B

0 $ (54,000) $ (78,000)

1 $ 36,300 $ 35,700

2 $ 24,600 $ 62,800

3 $ 9,500 $ 0

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Q. VI {13 marks}

Required

Answer the following independent questions. Support your answers with clearly identified

formulas and computation.

a. A company`s available data:

Sales $2,500,000

Net operating income 1,500,000

Return on investment 25%

Cost of capital 15%

Calculate the company`s total assets. Show your work

b. Using the data from question VI (a), calculate the residual income.

c. An automobile parts `company has three divisions:

Engines Brakes Windshields

Sales $ 8,000,000 $ 9,000,000 $ 10,000,000

Contribution margin 2,000,000 2,500,000 3,500,000

Operating income 1,500,000 1,500,000 2,750,000

Investment base 12,000,000 14,000,000 16,000,000

The company`s desired rate of return is 15%.

a. Compute each divisions` ROI

b. Compute each divisions` residual income

c. Rank each division by both ROI and residual income

d. Explain which division has the best performance in the year and why

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Q. VII {12 marks}

A Company has budgeted the following unit sales:

2020 Units

January 10,000

February 8,000

March 9,000

April 11,000

May 15,000

On December 31, 2019 the finished goods units on hand were 2,000 units. Each unit
requires 3 pounds of raw materials that are estimated to cost an average of $4 per pound.
It is the company’s policy to maintain a finished goods inventory at the end of each month
equal to 20% of next month’s anticipated sales.

They also have a policy of maintaining a raw materials inventory at the end of each month

equal to 30% of the pounds needed for the following month’s production. There were 8,640
pounds of raw materials on hand at December 31, 2019.

Required

For the first quarter of 2020, prepare

1) a production budget and

2) a direct materials budget.

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Q. VIII {15 marks}

A Company has budgeted sales revenues as follows:

Budgeted Sales Revenues

January $55,000

February 75,000

March 90,000

April 80,000

May 60,000

June 35,000

Past experience has indicated that 80% of sales each month are on credit and that
collection of credit sales occurs as follows:

• 60% in the month of sale,

• 30% in the month following the sale,

• 5% in the second month following the sale, and

• the other 5% is uncollectible.

Required

Prepare a schedule which shows expected cash receipts from sales for the months of April,
May, and June.

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Q. IX {6 marks}

A Company has a materials price standard of $2.50 per kilogram. Four thousand kilograms
of materials were purchased at $2.40 a kilogram.

The actual quantity of materials used was 3,500 kilograms, although the standard quantity
allowed for the output was 3,400 kilograms.

Required

a. Calculate the Company’s materials price variance

b. Calculate the Company’s materials quantity variance

c. Calculate the Company’s total materials variance

The end of the assignment