Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1OperateInvest inDifferentialWarehouseBondsEffects(Alternative 1) (Alternative 2) (Alternative 2)RevenuesCosts:Costs to operate warehouseCost of equipment less residual valueProfit (Loss) Differential Analysis Involving Opportunity CostsOn July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse.Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bondscould be purchased at face value. The following data have been assembled:Cost of store equipment$149,800Life of store equipment16 yearsEstimated residual value of store equipment$17,600Yearly costs to operate the warehouse, excludingdepreciation of equipment$56,100Yearly expected revenues-years 1-876,000Yearly expected revenues-years 9-1670,400Required:1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) ascompared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicatea loss.

Differential analysis is made by the company when the company is having two or more than two…

1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 1PB

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Concept explainers

Characteristics of Bonds

Question

Differential Analysis
Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)
July 1
Operate
Invest in
Differential
Warehouse
Bonds
Effects
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues
Costs:
Costs to operate warehouse
Cost of equipment less residual value
Profit (Loss)

Differential Analysis Involving Opportunity Costs
On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse.
Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bonds
could be purchased at face value. The following data have been assembled:
Cost of store equipment
$149,800
Life of store equipment
16 years
Estimated residual value of store equipment
$17,600
Yearly costs to operate the warehouse, excluding
depreciation of equipment
$56,100
Yearly expected revenues-years 1-8
76,000
Yearly expected revenues-years 9-16
70,400
Required:
1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as
compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate
a loss.

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