Chattanooga Development Company wants to evaluate replacing an older machine requiring significant maintenance which delays production. The older machine can be used for 2 more years of production. The Company could buy a replacement machine at a cost of $55,000 and the new machine would have a 2-year life. The units produced by the machine have a sales price of $8.50. The older machine produces an average of 50 units per day at a cost of $6.50 per unit. The new machine would produce twice as many units at the same cost. Sales units and production units are the same volume, and the machines are operated for 260 days each year. INSTRUCTIONS: Prepare the analysis to evaluate whether the Company should retain or replace the machine. Indicate what the Company should do.
Q: Lessor enters into a four-year lease of equipment with Lessee. Lessor sells and leases the…
A: Commercial organizations used journal entries to record their financial transactions in their…
Q: Cancico Communications has supplied the following data for use in its ABC system: Overhead Costs…
A: Resource Total ($) Activity Cost Pool Direct Labour Order Processing Customer Support…
Q: Which is most likely when the assessed level of control risk increases? Use larger sample sizes for…
A: Control risk refers to the risk that a company's internal controls may not prevent or detect errors…
Q: Finished goods. Other... Total inventories. 791 369 $3,266 851 348 $3,379 Required a. Identify the…
A: On a company's financial records, inventories are valued using the LCNRV technique, which uses the…
Q: You read that there is no generally accepted definition of ‘earnings management’. Using your…
A: Earnings management refers to the practice of manipulating a company's financial statements to meet…
Q: A company’s current cost information relating to its production is shown in the table below: Per…
A: INTRODUCTION:- This question is related to the calculation of the minimum per unit sales price that…
Q: Cash Accounts receivable Assets Raw materials inventory Finished goods inventory Equipment Less:…
A: Budgeting - Budgeting is the process of creating a plan for how to allocate resources, such as money…
Q: Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly…
A: Budgeting - Budgeting helps individuals and organizations to make informed financial decisions,…
Q: s Assets Cash Accounts receivable Raw materials inventory Finished goods inventory Equipment Less:…
A: Honor Code- Since you have posted a question with multiple sub-parts, we will provide the solution…
Q: the amount applied to principle for the third month of a 4-year loan of $22,300 which charges 3.3…
A: Loans are paid by monthly payment and these monthly payment carry the payment of interest and…
Q: Jack and Mary have a little son, Jeff. Jack works fulltime with an annual salary of $50,000. Mary…
A: In general, the parent who pays for the day care expenses can claim them on their taxes. However,…
Q: The SkipperCorporation had net operating income of $380,000 and average operating assets of…
A: INTRODUCTION:- This question is related to the financial performance evaluation of a company using…
Q: Midlands Inc. had a bad year in 2019. For the first time in its history, it operated at a loss. The…
A: The break even sales are the sales where business earns no profit no loss during the period. The…
Q: Required: Prepare income statements for each of these two years under variable costing. (Loss…
A: The income statement records the revenues and expenses of the current period. It tells about the…
Q: Exercise 13A-3 (Static) Value-Based Pricing [LO13-10] McDermott Company has developed a new…
A: Hi student Since there are multiple subparts, we will answer only first three subparts. Value based…
Q: A company's bank statement balance is $3,500 and shows a service charge of $24, interest earned of…
A: Answer:- Bank reconciliation:- An entity's bank account balance in its books of accounts is…
Q: A continuous or perpetual budget is a 12-month budget that rolls forward one month (or quarter) as…
A: Perpetual budget can also be referred to as continuous budget. This budget is continuous in the…
Q: At the end of 2022, Carpenter Co. has accounts receivable of $700,000 and an allowance for doubtful…
A: The accounts are written off by debit allowance for doubtful accounts and credit accounts…
Q: Required: Infer from the statements the events and transactions that affected Locke Intertechnology…
A: Earning per share is the income available to common shareholders form the company's net income.…
Q: The balance sheet for Munoz Corporation follows: Current assets Long-term assets (net) Total assets…
A: Financial ratios are very important in determining the liquidity and profitability and financial…
Q: Real World Analysis British Petroleum Company (BP) is the parent company of one of the world's…
A: A more descriptive title for the amount reported as "Total" would be "Replacement Cost Operating…
Q: Stellar Lumber Company handles three principal lines of merchandise with these varying rates of…
A: The method chosen for inventory valuation can have a significant impact on the financial statements…
Q: ! /transcript Skip to question Required information Alamo Power historically allocates IDC for its…
A: Note : Activity based costing (ABC) is a method of allocating or assigning overhead to product and…
Q: Halifax Manufacturing allows its customers to return merchandise for any reason up to 90 days after…
A: Answer:- Refund liability:- The amount of consideration that will be reimbursed to consumers that…
Q: Required: 1. Compute the rate of return for each division using the return on investment (ROI)…
A: Introduction:- The following formula used as follows under:- 1)Margin =(Net operating margin/Sales)…
Q: Gallardo Co. is involved in a lawsuit as a result of an accident that took place September 5, 2022.…
A: A contingent liability is a potential liability that may or may not occur, depending on the outcome…
Q: Divisional Income Statements with Service Department Charges Yozamba Technology has two divisions,…
A: The gross margin is calculated as difference between sales and cost of goods sold. The operating…
Q: Pabon Corporation makes one product. Budgeted unit sales for August and September are 11,100 and…
A: Introduction: Direct labor cost is calculated for the actual hours deployed by the labor in the…
Q: Suppose Mr. Mitchell wants to set aside $3,000 at the end of each year for the next 18 years to…
A: FUTURE VALUE OF ANNUITY Future Value of Annuity is the value of a group of regular payments at any…
Q: O is concerned with whether a project clears the minimum required rate of return F comes before the…
A: Capital budgeting is very important for companies in selecting the best and vaible projects and…
Q: When using process costing, a separate work in process account is kept for each: Multiple Choice…
A: Answer In processing costing each the Raw material is transferred to the various process until…
Q: Tipton Corporation has gathered the following data on a proposed investment project (Ignore income…
A: Payback period is period required to recover initial amount of investment. This is quite simple…
Q: Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis Road Gripper Tire Co.…
A: Total direct material cost variance :— It is the difference between standard cost of direct material…
Q: Adger Corporation is a service company that measures its output based on the number of customers…
A: Revenue variance is the difference between the actual result and the flexible budget. If the actual…
Q: Available-for-Sale Securities On December 31, 2015, Marsh Company held 1,000 shares of Xenon Company…
A: Investment in available-for-sale securities is the type of investment that can be traded within a…
Q: Adger Corporation is a service company that measures its output based on the number of customers…
A: Amount of revenue in planning budget = Budgeted customers*Budgeted revenue per customer
Q: Cash Accounts receivable Raw materials inventory Finished goods inventory Equipment Less:…
A: A cash budget is a projection of a company's cash flows over a given time frame. The budget can be…
Q: Sh16 Please help me Solution
A: Accounting norms are regulations that offer a structure for the generation and distribution of…
Q: You have the option of buying a property or just leasing it, in the first case you must pay 20% of…
A: Lease refers to the contract which state the terms under which lessor party who is owner of property…
Q: Wyatt Company acquired 35% interest in the voting stock of Staples Inc. for $550,000. During the…
A: Retained Earnings = Net income - Dividend
Q: Thomas Company buys and sells a product that has a variable cost per unit of $14. Thomas' fixed…
A: The variable costs directly change with sales if the entity increases sales the variable costs…
Q: о Generally speaking, net operating income under variable and absorption costing will: Multiple…
A: Absorption Costing: Under Absorption Costing, all manufacturing costs whether fixed or Variable…
Q: Kayak Company budgeted the following cash receipts (excluding cash receipts from loans received) and…
A: The cash budget records the receipts and payments for the period. It helps to estimate the financing…
Q: A company produces a single product. Variable production costs are $13.40 per unit and variable…
A: Under the variable costing, product cost includes the variable production costs unlike absorption…
Q: Sandra would like to organize LAB (a legal corporation) as either an S corporation or a C…
A: Before-tax return on investment = 8% x $1,075,000 = $86,000 LAB is not subject to entity-level taxes…
Q: Q1. Real estate appraisers generally distinguish among the concepts of market value, investment…
A: 1. Market value is an estimate of the most probable price a property would sell for in a…
Q: 8.4 Harris Company manufactures a single product. Costs for the year 2015 for output levels of 1,000…
A: Notes : Total manufacturing costs = Direct materials + Direct labor + Manufacturing…
Q: Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In…
A: Question 1 Bill =$20000 Tax rate =24% Tax payable =Income x tax rate =20000 × 0.24=$4800 Present…
Q: A firm attempts to gain market share from its competitors by improving its manufacturing efficiency…
A: An offensive differentiation strategy involves creating a unique product or service that stands out…
Q: Rashad, an unmarried individual with four dependent children (ages 5 to 15) had the following income…
A: Income tax refers to an amount that is being charged by the government on the income earned by an…
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- 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)Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
- At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?Talbot Industries is considering launching a new product. The new manufacturing equipment will cost 17 million, and production and sales will require an initial 5 million investment in net operating working capital. The companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for 1.5 million after taxes and real estate commissions. How would this affect your answer?
- Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbell’s marginal tax rate is 35%. What is the Year-0 cash flow? What are the net operating cash flows in Years 1, 2, and 3? What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? If the project’s cost of capital is 12%, should the machine be purchased?
- Artisan Metalworks has a bottleneck in their production that occurs within the engraving department. Jamal Moore, the COO, is considering hiring an extra worker, whose salary will be $55,000 per year, to solve the problem. With this extra worker, the company could produce and sell 3,000 more units per year. Currently, the selling price per unit is $25 and the cost per unit is $7.85. Using the information provided, calculate the annual financial impact of hiring the extra worker.Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.