Problem 10-29 Break-Even Cost [LO2]Light emitting diode (LEDs) light bulbs have become required in recent years, but dothey make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.54and lasts for 1,000 hours. A 15-watt LED, which provides the same light, costs $3.85 andlasts for 12,000 hours. A kilowatt hour of electricity costs $.130. A kilowatt-hour is 1,000watts for 1 hour. However, electricity costs actually vary quite a bit depending on locationand user type. An industrial user in West Virginia might pay $.04 per kilowatt-hourwhereas a residential user in Hawaii might pay $.25. You require a return of 10percent and use a light fixture 500 hours per year. What is the break-even cost perkilowatt-hour? (Do not round intermediate calculations and round your answer to 6decimal places, e.g., 32.161616.)Break-even cost0.060600

Businesses use break-even analysis as a financial technique to identify the point at which total…

Answered: Light emitting diode (LEDs) light bulbs…

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter27: Lean Principles, Lean Accounting, And Activity Analysis

Section: Chapter Questions

Problem 27.1APR

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Problem 8-32 Equivalent Annual Cost (LO4) A precision lathe costs $10,000 and will cost $20,000 a year to operate and maintain. If the discount rate is 12% and the lathe will last for 5 years, what is the equivalent annual cost of the tool?
Exercise 14-3 (Algo) Internal Rate of Return [LO14-3] Wendell’s Donut Shoppe is investigating the purchase of a new $34,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,500 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.60 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine’s internal rate of return? (Round your final answer…
Exercise 14-3 (Algo) Internal Rate of Return [LO14-3] Wendell’s Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,700 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.50 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine’s internal rate of return? (Round your final answer…
Make or Buy Analysis [LO 7–3]“In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $18 per drum, we would be paying $5 less than it costs us to manufacture the drums in our own plant. Since we use 60,000 drums a year, that would be an annual cost savings of $300,000.” Antilles Refining’s current cost to manufacture one drum is given below (based on 60,000 drums per year): Direct materials............................................$10.35 Direct labor ...............................................6.00 Variable overhead .........................................1.50 Fixed overhead ($2.80 general company overhead, $1.60 depreciation and, $0.75 supervision) ....... 5.15 Total cost per drum ........................................$23.00 A decision about whether to make or buy the drums is especially important at this time because the equipment being used to…
EXERCISE 6–13 Target Profi t and Break-Even Analysis [ LO3 , LO4 , LO5 , LO6 ]Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unitand has a CM ratio of 30%. The company’s fi xed expenses are $180,000 per year. The companyplans to sell 16,000 units this year.Required:1. What are the variable expenses per unit?2. Using the equation method:a. What is the break-even point in units and sales dollars?b. What sales level in units and in sales dollars is required to earn an annual profi t of$60,000?c. Assume that by using a more effi cient shipper, the company is able to reduce its variableexpenses by $4 per unit. What is the company’s new break-even point in units and salesdollars?3. Repeat (2) above using the formula method
Break-even analysis Somerset Inc. has finished a new video game, Snowboard Challenge. Management is now considering its marketing strategies. The following information is available: Anticipated vales price per unit................ 80 Variable cost per unit......................... 35 Anticipated volume........................... 1,000,000 units Production costs.............................. 20,000,000 Anticipated advertising........................ 15,000,000 Two managers, James Hamilton and Thomas Seymour, had the following discussion of ways to increase the profitability of this new offering: James: I think we need to think of some way to increase our profitability. Do you have any ideas? Thomas: Well. I think the best strategy would be to become aggressive on price. James: How aggressive? James: lf we drop the price to 60 per unit and maintain our advertising budget at 15,000,000. I think we will generate total sales of 2,000,000 units. James: I think that's the wrong way to go. You're giving up too much on price. Instead, I think we need to follow an aggressive advertising strategy. Thomas: How aggressive? James: If we increase our advertising to a total of 25,000,000, we should be able to increase sales volume to 1,400,000 units without any change in price. Thomas: l dont think that's reasonable. We'll never cover the increased advertising costs. Which strategy is best: Do nothing, follow the advice of Thomas Seymour, orb follow James Hamilton's strategy?
CH5 #10 A company is considering two alternative marketing strategies for a new product. Introducing the product will require an outlay of $15,000. With a low price, the product will generate cash proceeds of $10,000 per year and will have a life of two years. With a high price, the product will generate cash proceeds of $18,000 but will have a life of only one year. The hurdle rate for this project is 0.05. Which marketing strategy should be accepted?
Time remaining: 00:09:48 Economics Mark is working to create the "metaverse". He has already spent $2 billion on fixed costs. With 30% probability, the metaverse will be a big success, in which case he can choose whether to spend $5 billion on engineering to earn revenues of $20 billion. (If he chooses not to spend all of that amount of engineering, then his revenue from the metaverse will be $0.) With 70% probability, the metaverse will not be popular, in which case Mark will choose whether to spend $5 billion on engineering in order to receive $3 billion in revenue. Assuming that Mark maximizes profit, what is the expected value of his metaverse project? Choose the nearest answer. a. $2.5 billion b. $3.1 billion c. -$2 billion d. $4.5 billion e. $1.1 billion
Solve for LO3 21. (LO3 20 for data / Do not solve) LO3 20. Sensitivity Analysis We are evaluating a project that costs $1.68 million, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year. Price per unit is $37.95, variable cost per unit is $23.20, and fixed costs are $815,000 per year. The tax rate is 21 percent, and we require a return of 11 percent on this project. a. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales. b. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs. LO3 21. Scenario Analysis In the previous problem, suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within…

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