A company purchases a 7,920-square-foot building for $410,000. The building has two separate rental units. Unit A, which has the desirable location on the corner and contains 1,620 square feet, will be rented for $2.00 per square foot. Unit B contains 6,300 square feet and will be rented for $1.20 per square foot. How much of the joint cost should be allocated to Unit A and to Unit B using the value basis of allocation?
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- Markson and Sons leases a copy machine with terms that include a fixed fee each month of $500 plus a charge for each copy made. The company uses the high-low method to analyze costs. If Markson paid $360 for 5,000 copies and $280 for 3,000 copies, how much would Markson pay if it made 7,500 copies?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)A company purchases a 10,020-square-foot commercial building for $325,000 and spends an additional $50,000 to divide the space into two separate rental units and prepare it for rent. Unit A, which has the desirable location on the corner and contains 3,340 square feet, will be rented for $1.00 per square foot. Unit B contains 6,680 square feet and will be rented for $0.75 per square foot. How much of the joint cost should be assigned to Unit B using the value basis of allocation?
- Alfred Home Construction is considering the purchase of five dumpsters and the transport truck to store and transfer construction debris from building sites. The entire rig is estimated to have an initial cost of $125,000, a life of 8 years, a $5000 salvage value, an operating cost of $40 per day, and an annual maintenance cost of $2000. Alternatively, Alfred can obtain the same services from the city as needed at each construction site for an initial delivery cost of $125 per dumpster per site and a daily charge of $20 per day per dumpster. An estimated 45 construction sites will need debris storage throughout the average year. If the minimum attractive rate of return is 12% per year, how many days per year must the equipment be required to justify its purchase?Caramel Spa Company sells prefabricated pools that cost $80,000 to customers for $144,000. The sales price includes an installation fee, which is valued at $20,000. The fair value of the pool is $128,000. The installation is considered a seperate performance obligation and is expected to take 3 months to complete. The transaction price allocated to the pool and the installation isIn a cost center, the manager has responsibility and authority for making decisions that affect a. costs b. investments in assets c. both costs and revenues d. revenues Keating Co. is considering disposing of equipment with a cost of $68,000 and accumulated depreciation of $47,600. Keating Co. can sell the equipment through a broker for $27,000 less 8% commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $46,000. Keating will incur repair, insurance, and property tax expenses estimated at $10,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is a. $11,160 b. $7,812 c. $16,740 d. $13,392 If sales are $828,000, variable costs are 68% of sales, and operating income is $278,000, what is the contribution margin ratio? a. 64% b. 36% c. 68% d. 32%
- Alfred Home Construction is considering the purchase of five dumpsters and the transport truck to store and transfer construction debris from building sites. The entire rig is estimated to have an initial cost of $142,500, a life of 8 years, a $8500 salvage value, an operating cost of $40 per day, and an annual maintenance cost of $8000. Alternatively, Alfred can obtain the same services from the city as needed at each construction site for an initial delivery cost of $125 per dumpster per site and a daily charge of $34 per day per dumpster. An estimated 19 construction sites will need debris storage throughout the average year. If the minimum attractive rate of return is 11% per year, how many days per year must the equipment be required to justify its purchase? The number of days per year the equipment must be required is determined to beThere are two alternatives for the place where a factory will be constructed. For the 1st alternative, the initial cost is $2,830,000. The rent of the area where the plates produced in the factory will be stored is $117,000 per year. It is estimated that the annual operating and maintenance cost of the factory will be $26,500 and the annual energy cost will be $42,500. The economic life of the factory is 8 years. For the 2nd alternative, the initial cost is $3,434,000. The produced plates will be stored inside the factory. It is estimated that the annual operating and maintenance cost of the factory will be $44,500 and the annual energy cost will be $63,000. The economic life of the factory is 6 years. The interest rate of 12% per year compounded quarterly will be used for the payments to be made to the bank. Determine the most economically suitable option using the Net Present Value (NPV) analysis with the least common multiple (LCM) approach. !!Net cash flow diagrams must be…Sammie’s Club wants to buy a 320,000-square-foot distribution facility on the northern edge of a large midwestern city. The subject facility is presently renting for $4 per square foot. Based on recent market activity, two properties have sold within a two-mile distance from the subject facility and are very comparable in size, design, and age. One facility is 350,000 square feet and is presently being leased for $3.90 per square foot annually. The second facility contains 300,000 square feet and is being leased for $4.10 per square foot. Market data indicate that current vacancies and operating expenses should run approximately 50 percent of gross income for these facilities. The first facility sold for $9.4 million, and the second sold for $7.9 million. a. Using a “going-in” or direct capitalization rate approach to value, how would you estimate value for the subject distribution facility?b. What additional information would be desirable before the final direct rate (R) is selected?
- A car company has decided to spend $140M on a museum for exhibiting its classic cars. Land can be purchased for $650,000. The museum building will require 50,000 square feet of general space, while each car displayed will require an additional 1000 square feet. The design and planning process will cost $80,000, which should be paid immediately. The construction of the building will cost $550 per square foot, and the building will be 9-76 completed within the next 2 years, while the cost of construction A will be distributed evenly between the 2 years of construction. All 9-77 G cars will be purchased during the second year of construction at an average cost of $95,000 per car. The annual operation of the museum will cost $1,750,000 plus $25,000 per car. If the funds are invested at 8% per year and the museum is to exist forever, how many cars can the trustees purchase? Contributed by Hamed Kashani, Saeid Sadri, and Baabak Ashuri, Georgia Institute of TechnologyNorton Auto Parts, Inc., is considering two different forklift trucks for use in its assembly plant:A. Truck A costs $15,000 and requires $3,000 in annual operating expenses. It will have a $5,000 salvage value at the end of its three-year service life.B. Truck B costs $20,000 but requires only $2,000 in annual operating expenses; its service life is four years after which its expected salvage value is $8,000. The firm's MARR is 12%. Assuming that the truck is needed for 12 years and that no significant changes are expected in the future price and functional capacity of both trucks, select the most economical truck based on AE analysis.Norton Auto Parts, Inc., is considering two different forklift trucks for use in its assembly plant:1. Truck A costs $15,000 and requires $3,000 in annual operating expenses. It will have a $5,000 salvage value at the end of its three-year service life.2. Truck B costs $20,000 but requires only $2,000 in annual operating expenses; its service life is four years after which its expected salvage value is $8,000. The firm's MARR is 12%. Assuming that the truck is needed for 12 years and that no significant changes are expected in the future price and functional capacity of both trucks, select the most economical truck based on AE analysis.
