Q.2. Cost-volume-profit analysis can also be used in making personal financial decisions. For example, the purchase of a new car is one ofyour biggest personal expenditures. It is important that you carefully analyze your options.Suppose that you are considering the purchase of a hybrid vehicle. Let's assume the following facts. The hybrid will initially cost anadditional $5,500 above the cost of a traditional vehicle. On average, the hybrid will get 45 miles per gallon of gas, and the traditionalcar will get 27 miles per gallon. Also, assume that the cost of gas is $2.70 per gallon.Using the facts above, answer the following questions.(a)For gasoline, what is the unit variable cost of going one mile in the hybrid car? What is the unit variable cost of going one mile inthe traditional car? (Round answers to 2 decimal places, e.g. 0.25.)Variable gasoline costSave for Later$Hybrid carTraditional carAttempts: 0 of 2 used Submit Answer

Unit variable cost can be calculated using following formula: Cost of gas per gallon / miles…

Answered: are considering the purchase of a…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 6PB: Karens Quilts is considering the purchase of a new Long-arm Quilt Machine that will cost $17,500 and...

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You are trying to decide which of the two automobiles to buy. The first is American-made costs $14288. And has a rated gasoline mileage of 27 miles/gal. The second car is European manufacture , costs $20324. And has a rated mileage of 19km/L. If the cost of gasoline is $1.22 gal/L and if the cars actually deliver their rated mileage, estimate how many miles would you have to drive for the lower fuel consumption of the second car to compensate for the higher cost of this car?
Karens Quilts is considering the purchase of a new Long-arm Quilt Machine that will cost $17,500 and will increase her fixed costs by $119. What would happen if she purchased the new quilt machine to realize the variable cost savings of $5.00 per quilt, and what would happen if she raised her price by just $5.00? She feels confident that such a small price increase will not decrease the sales in units that will help her offset the increase in fixed costs. Given the following current prices how would the break-even in units and dollars change? Complete the monthly contribution margin income statement for each of these cases.
Your business is considering the selection of hybrid trucks as an alternative to conventional gasoline powered trucks. Based on the following data, should the hybrid trucks be selected over conventional? Use incremental rate of return analysis.
Consider the following situation, which involves two options. Determine which option is less expensive. Are there unstated factors that might affect your decision? You currently drive 275 miles per week in a car that gets 16 miles per gallon of gas. You are considering buying a new fuel-efficient car for $15,000 (after trade-in on your current car) that gets 54 miles per gallon. Insurance premiums for the new and old car are $1000 and $700 per year, respectively. You anticipate spending $1400 per year on repairs for the old car and having no repairs on the new car. Assume gas costs $4.00 per gallon. Over a five-year period, is it less expensive to keep your old car or buy the new car? Question content area bottom Part 1 Over a five-year period, the cost of the old car is $enter your response here and the cost of the new car is $enter your response here . Thus, over a five-year period, it is less expensive to ▼ buy the new car. keep your old…
Tesla’s decision to produce a new line of compact and full sized cars resulted in the need to construct either a small plant or a large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars: Long Run Demand Plant size Low Medium High Small 80 200 350 Large 120 180 190 Construct an influence diagram. Construct a decision tree. Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches.
Mary Zimmerman decided to purchase a new automobile. Being concerned about environmental issues, she is leaning toward the hybrid rather than the completely gasoline four-cylinder model. Nevertheless, as a new business school graduate, she wants to determine if there is an economic justification for purchasing the hybrid, which costs $1,200 more than the regular VUE. She has determined that city/highway combined gas mileage of the Green VUE and regular VUE models are 27 and 23 miles per gallon respectively. Mary anticipates she will travel an average of 12,000 miles per year for the next several years. 1.Determine the payback period of the incremental investment if gasoline costs $3.50 per gallon. 2. Assuming that Mary plans to keep the car five years and does not believe there will be a trade-in premium associated withthe hybrid model, determine the net present value of the incremental investment at an eight percent time value of money. 3.Determine the cost of gasoline required for…
You are considering two types of motorcars. Model A costs $182,250 and model B costs$195,000. Although the two models are essentiallythe same, after four years of use, model A can be soldfor $78,400, while model B can be sold for $95,500.Model B commands a better resale value because itsstyling is popular among young executives. Determine the rate of return on the incremental investment of $12,750. For what range of values of yourMARR is model B preferable?
You are trying to pick the least expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $13,000 to purchase and which will
Southland Corporation’s decision to produce a new line of recreational products resulted in the need to construct either a small plant or a large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars: What is the decision to be made, and what is the chance event for Southland’s problem? Construct a decision tree. Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches.
Kylies Cookies is considering the purchase of a larger oven that will cost $2,200 and will increase her fixed costs by $59. What would happen if she purchased the new oven to realize the variable cost savings of $0.10 per cookie, and what would happen if she raised her price by just $0.20? She feels confident that such a small price increase will decrease the sales by only 25 units and may help her offset the increase in fixed costs. Given the following current prices how would the break-even in units and dollars change if she doesnt increase the selling price and if she does increase the selling price? Complete the monthly contribution margin income statement for each of these cases.
You are the project manager for Becker Enterprises, LTD. and have been asked to analyze two alternatives for the company’s newest plastics The two alternatives, A and B, will perform the same task, but Alternative A will cost $80,000 to purchase while Alternative B will cost only $55,000. Moreover, the two alternatives will have very different cash flows and useful lives. The after-tax costs for the two projects are as follows: Year A B 0 $(80,000) $(55,000) 1 (20,000) (6,000) 2 (20,000) (6,000) 3 (20,000) (6,000) 4 (20,000) 5 (20,000) 6 (20,000) 7 (20,000) Calculate each project’s EAC, given a 10% discount Which of the alternatives do you think the company should select and why?
A carsharing organization is considering adding a new line of luxury cars to their offering. Thecarsharing rate structure is based on cost per hour and miles driven. Assume $4/gallon forgas. The chosen vehicle is a McMaster EP-1 sedan, which costs $52,400 new. Fueleconomy according to the Canadian government is 20 mpg city and 29 mpg highway, for acombined fuel economy of 24 mpg; you can use the 24 mpg value for purposes of calculatingfuel costs in the problem.Since the vehicle is valuable, collision insurance is expensive, so the insurance cost is $4,800per year. The organization buys the vehicle from a dealer with an auto loan at 3.9% interest,with one annual payment per year. After 5 years of useful life, they sell the vehicle for$25,000, which can also be annualized at a 3.9% discount rate. Maintenance is expected tocost $800 per year. The car is expected to be driven by members 15,000 miles per year, andeach hour of reservation is expected to generate 6 miles of driving.The…

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