1. An employee of Meagan Corporation found some partially completed units of Model X in a dusty corner of the warehouse. A job ticket attached to the units indicates that a total of P750 in manufacturing costs have been used to bring the materials to this point in the manufacturing process. The units can be sold in their current condition for P275 to a scrap metal dealer. If Meagan spends P250 to complete the units, they could be sold for P600. a. What should Meagan do? Why? b. Identify the sunk cost, if any.
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1. An employee of Meagan Corporation found some partially completed units of Model X in a dusty corner of the warehouse. A job ticket attached to the units indicates that a total of P750 in
a. What should Meagan do? Why?
b. Identify the sunk cost, if any.
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- Lloyd Industries manufactures electrical equipment from specifications received from customers. Job X10 was for 1,000 motors to be used in a specially designed electrical complex. The followingcosts were determined for each motor: At final inspection, Lloyd discovered that 33 motors did not meet the exacting specifications established by the customer. Anexamination indicated that 18 motors were beyond repair andshould be sold as spoiled goods for 75 each. The remaining15 motors, though defective, could be reconditioned as first-qualityunits by the addition of 1,650 for materials, 1,500 for labor, and1,200 for factory overhead. Required: Prepare the journal entries to record the following: 1. The scrapping of the 18 motors, with the income from spoiledgoods treated as a reduction in the manufacturing cost of thespecific job. 2. The correction of the 15 defective motors, with the additionalcost charged to the specific job. 3. The additional cost of replacing the 18 spoiled motors with newmotors. 4. The sale of the spoiled motors for 75 each. 5. If the reconditioned motors sell for 400 each, is Lloyd betteroff reconditioning the defective motors or selling them as isfor 75 as spoiled goods?Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)ZZOOM, Inc., has decided to discontinue manufacturing its Z Best model. Currently, the company has 4,600 partially completed Z Best models on hand. The government has put a recall on a particular part in the Z Best model, so each base model must now be reworked to accommodate the style of the new part. The company has spent $110 per unit to manufacture these Z Best models to their current state. Reworking each Z Best model will cost $22 for materials and $25 for direct labor. In addition, $9 of variable overhead and $34 of allocated fixed overhead (relating primarily to depreciation of plant and equipment) will be allocated per unit. If ZZOOM completes the Z Best models, it can sell them for $180 per unit. On the other hand, another manufacturer is interested in purchasing the partially completed units for $105 each and converting them into Z Plus models. Prepare a differential analysis per unit to determine if ZZOOM should complete the Z Best models or sell them in their current state.
- Trifecta Distributors has decided to discontinue manufacturing its X Plus model. Currently, the company has 4,600 partially completed X Plus models on hand. The government has put a recall on a particular part in the X Plus model, so each base model must now be reworked to accommodate the style of the new part. The company has spent $110 per unit to manufacture these X Plus models to their current state. Reworking each X Plus model will cost $20 for materials and $20 for direct labor. In addition, $7 of variable overhead and $32 of allocated fixed overhead (relating primarily to depreciation of plant and equipment) will be allocated per unit. Il Trifecta completes the X Plus models, it can sell them for $160 per unit. On the other hand, another manufacturer is interested in purchasing the partially completed units for $104 each and converting them into Z Plus models. Prepare a differential analysis per unit to determine if Trifecta should complete the X Plus models or sell them in their current state.Hicks Contracting collects and analyzes cost data in order to track the cost of installing decks on new home construction jobs. The following are some of the costs that they incur. Classify these costs as fixed or variable costs and as product or period costs. Lumber used to construct decks ($12.00 per square foot) Carpenter labor used to construct decks ($10 per hour) Construction supervisor salary ($45,000 per year) Depreciation on tools and equipment ($6,000 per year) Selling and administrative expenses ($35,000 per year) Rent on corporate office space ($34,000 per year) Nails, glue, and other materials required to construct deck (varies per job)Selma Corporation uses Part PB7 in one of its products. The company's Accounting Department reports the following costs to produce 7,000 units of the PB7 that are needed every year. An outside supplier has offered to make the part and sell it to the company for RM28.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only RM9,000 of these allocated general overhead costs would be avoided. Should Selma Corporation buy PB7 from the supplier or continue producing the part internally? Shows the effect on the company's total net operating income by comparing both alternatives.
- Assume a (hypothetical) company, Troff erini S. A., incurred the following expendituresto purchase a towel and tissue roll machine: €10,900 purchase price including taxes,€200 for delivery of the machine, €300 for installation and testing of the machine,and €100 to train staff on maintaining the machine. In addition, the company paid aconstruction team €350 to reinforce the factory floor and ceiling joists to accommodatethe machine’s weight. Th e company also paid €1,500 to repair the factory roof (a repairexpected to extend the useful life of the factory by five years) and €1,000 to have theexterior of the factory and adjoining offices repainted for maintenance reasons. Th erepainting neither extends the life of factory and offices nor improves their usability.1. Which of these expenditures will be capitalized and which will be expensed?2. How will the treatment of these expenditures aff ect the company’s financialstatements?Mcfarlain Corporation is presently making part U98 that is used in one of its products. A total of 8,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $ 2.50 Direct labor $ 4.90 Variable overhead $ 1.90 Supervisor's salary $ 5.40 Depreciation of special equipment $ 5.30 Allocated general overhead $ 5.60 An outside supplier has offered to produce and sell the part to the company for $23.40 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. In addition to the facts…Garcia Company has 11,500 units of its product that were produced at a cost of $172,500. The units were damaged in a rainstorm. Garcia can sell the units as scrap for $34,500, or it can rework the units at a cost of $54,000 and then sell them for $71,100.
- Penagos Corporation is presently making part Z43 that is used in one of its products. A total of 5,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $ 1.10 Direct labor $ 3.10 Variable overhead $ 6.90 Supervisor's salary $ 5.80 Depreciation of special equipment $ 5.20 Allocated general overhead $ 5.60 An outside supplier has offered to produce and sell the part to the company for $20.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In…A manufacturer has been offered a contract to manufacture a certain product that will utilize the waste materials from his present product. The new product will use 0.3kg of waste materials per unit which is presently sold by the company for P2.00 per kg. Other materials to be used will cost P0.80 per unit. Direct labor per unit will cost P2.30. The present overhead costs of the company amount to P380,000 plus 40% of the total for direct materials and direct labor costs per year. The buyer will pay the manufacturer per unit an amount equal to the increment costs plus P1.20 profit. Determine the selling price of the manufacturer per unit.Wilson Machine Tools, Inc., a manufacturer of fabricated metal products, is considering the purchase of a high-tech computer-controlled milling machine at a cost of $95,000. The cost of installing the machine, preparing the site, wiring, and rearranging other equipment is expected to be $15,000. This installation cost will be added to the cost of the machine in order to determine the total cost basis for depreciation. Special jigs and tool die for a particular product will also be required at a cost of $10,000. The milling machine is expected to last 10 years, but the jigs and dies for only five years. Therefore, another set of jigs and dies has to be purchased at the end of five years. The milling machine will have a $10,000 salvage value at the end of its life, and the special jigs and dies are worth only$300 as scrap metal at any time in their lives. The machine is classified as a seven-year MACRS property, and the special jigs and dies are classified as a three-year MACRS property.…
