Acct Mid-Term Solutions

1161 Words Nov 23rd, 2012 5 Pages
MBA 607

Examination I

I will select five of the following questions for the mid-term exam. You should be able to answer all of them. You may work together in study groups and analyze and answer the questions. Obviously, the exam will be an individual effort.

1 Accounting and Control

The controller of a small private college is complaining about the amount of work she is required to do at the beginning of each month. The president of the university requires the controller to submit a monthly report by the fifth day of the following month. The monthly report contains pages of financial data from operations. The controller was heard saying, "Why does the president need all this information? He probably doesn 't read half
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The minimum price of the bag should cover Leslies VC just to break even, VC=10(1000)+1000=\$11,000/1000bags = \$11.00.
3 Asset Replacement

The Baltic Company is considering the purchase of a new machine tool to replace an obsolete one. The machine being used for the operation has a tax-basis book value of \$80,000, with an annual depreciation expense of \$8,000. It has a resale value today of \$40,000, is in good working order, and will last, physically, for at least 10 more years. The proposed machine will perform the operation so much more efficiently and Baltic engineers estimate that labor, material, and other direct costs of the operation will be reduced \$60,000 a year if it is installed. The proposed machine costs \$240,000 delivered and installed, and its economic life is estimated at 10 years, with zero salvage value. The company expects to earn 14 percent on its investment after taxes (14 percent is the firm 's cost of capital). The tax rate is 40 percent, and the firm uses straight-line depreciation. Any gain or loss on the sale of the machine at retirement is subject to tax at 40 percent. Should Baltic buy the new machine?

4 Transfer Prices

The Alpha Division of the Carlson Company manufactures product X at a variable cost of \$40 per unit. Alpha Division 's fixed costs, which are sunk, are \$20 per unit. The market price of X is \$70 per unit. Beta Division of Carlson Company uses product X to make Y. The