The replacement of old machine will result the following changes:Old machineMachine TKCMachine RMRAnnual salesRM500,000Increase by 20%Decrease by 5%Increase by 2.5%Decrease by 1.5%Increase by 35%Decrease by 3%Annual cost of defectsRM80,000Annual operating costQuarterly maintenanceRM50,000Increase by 4%RM10,000Increase by 2%costInitial investment inNet working capitalNARM30,000RM20,000Assume that the company's cost of capital and tax rate is 10% and 40% respectively. From thereplacement plan, calculate:i) Internal rate of return (IRR) Currently, this company is considering replacing an existing machine used in production that waspurchased 5 years ago for RM125, 000 with a new computer system that could improve thecompany's operations. The old machine is being depreciated under straight line method over itsuseful life of 10 years with no salvage value. Its current market value is RM5, 000.Chief Financial Officer for this company, Mr Abraham Teo has reviewing two (2) options:Machine TKC imported from China and Machine RMR imported from Japan. Below is theinformation provided for the new machine.Machine TKCMachine RMRCost of AssetRM200,000RM150,000RM12,000Freight and transportationRM10,000costInstallation costRM5,000RM3,000RM8,000Renovation cost (beforeinstallation of the machine)RM5,000Training cost (to operate theNARM5,000machine)Depreciation methodSalvage valueStraight lineRM10,000Straight lineRM8,0005 yearsUseful life5 years

For a tangible fixed asset, all costs that are necessary to bring the asset to its present location…

The replacement of old machine will result the following changes: Old machine Machine TKC Machine RMR Annual sales Increase by 20% Decrease by 5% Increase by 2.5% Decrease by 1.5% Increase by 35% Decrease by 3% RM500,000 Annual cost of defects RM80,000 Annual operating cost Quarterly maintenance RM50,000 RM10,000 Increase by 4% Increase by 2% cost Initial investment in Net working capital NA RM30,000 RM20,000 Assume that the company's cost of capital and tax rate is 10% and 40% respectively. From the replacement plan, calculate: i) Internal rate of return (IRR)

The replacement of old machine will result the following changes: Old machine Machine TKC Machine RMR Annual sales Increase by 20% Decrease by 5% Increase by 2.5% Decrease by 1.5% Increase by 35% Decrease by 3% RM500,000 Annual cost of defects RM80,000 Annual operating cost Quarterly maintenance RM50,000 RM10,000 Increase by 4% Increase by 2% cost Initial investment in Net working capital NA RM30,000 RM20,000 Assume that the company's cost of capital and tax rate is 10% and 40% respectively. From the replacement plan, calculate: i) Internal rate of return (IRR)

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter12: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 1SEQ: Mario Company is considering discontinuing a product. The costs of the product consist of $20,000...

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Break-even sales under present and proposed conditions Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows: The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,631,000 (35.000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs. Instructions Determine for 20Y5 the total fixed costs and the total variable costs.
Break-even sales under present and proposed conditions Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows: The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,631,000 (35.000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs. Instructions Determine the maximum operating income possible with the expanded plant.
Mario Company is considering discontinuing a product. The costs of the product consist of $20,000 fixed costs and $15,000 variable costs. The variable operating expenses related to the product total $4,000. What is the differential cost? A. $19,000 B. $15,000 C. $35,000 D. $39,000
Garrett Company provided the following information: Common fixed cost totaled 46,000. Garrett allocates common fixed cost to Product 1 and Product 2 on the basis of sales. If Product 2 is dropped, which of the following is true? a. Sales will increase by 300,000. b. Overall operating income will increase by 2,600. c. Overall operating income will decrease by 25,000. d. Overall operating income will not change. e. Common fixed cost will decrease by 27,600.
Muskogee Company had sales of 60,000,000 in 20x1. In 20x5, sales had increased to 75,000,000. A quality improvement program was implemented at the beginning of 20x1. Overall conformance quality was targeted for improvement. The quality costs for 20x1 and 20x5 follow. Assume any changes in quality costs are attributable to improvements in quality. Required: 1. Compute the quality cost-to-sales ratio for each year. Is this type of improvement possible? 2. Calculate the relative distribution of costs by category for 20x1. What do you think of the way costs are distributed? (A pie chart or bar graph may be of some help.) How do you think they will be distributed as the company approaches a zero-defects state? 3. Calculate the relative distribution of costs by category for 20x5. What do you think of the level and distribution of quality costs? (A pie chart or bar graph may be of some help.) Do you think further reductions are possible? 4. The quality manager for Muskogee indicated that the external failure costs reported are only the measured costs. He argued that the 20x5 external costs were much higher than those reported and that additional investment ought to be made in control costs. Discuss the validity of his viewpoint. 5. Suppose that the manager of Muskogee received a bonus equal to 10 percent of the quality cost savings each year. Do you think that gainsharing is a good or a bad idea? Discuss the risks of gainsharing.
Financial and Nonfinancial Aspects of Changing to JIT IntelliTalk manufactures smart phones. It is considering the implementation of a JIT system. Costs to reconfigure the production line will amount to 200,000 annually. Estimated benefits from the change to JIT are as follows: The quality advantages of JIT should reduce current rework cost of 300,000 by 25%. Materials storage, handling, and insurance costs of 250,000 would be reduced by an estimated 40%. Average inventory is expected to decline by 300,000 units, and the carrying cost per unit is .35. Required: 1. What is the estimated financial advantage or disadvantage of changing to a JIT system? 2. Are there any nonfinancial advantages or disadvantages of changing to a JIT system?
The production of a new product required Zion Manufacturing Co. to lease additional plant facilities. Based on studies, the following data have been made available: Estimated annual sales24,000 units Selling expenses are expected to be 5% of sales, and net income is to amount to 2.00 per unit. Required: 1. Calculate the selling price per unit. (Hint: Let X equal the selling price and express selling expense as a percentage of X.) 2. Prepare an absorption costing income statement for the year ended December 31, 2016. 3. Calculate the break-even point expressed in dollars and in units, assuming that administrative expense and factory overhead are all fixed but other costs are fully variable.
Suppose that a company is spending 60,000 per year for inspecting, 30,000 for purchasing, and 40,000 for reworking products. A good estimate of nonvalue-added costs would be a. 70,000. b. 130,000. c. 40,000. d. 90,000. e. 100,000.
Break-even sales under present and proposed conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of 188 per unit during the current year. Its income statement is as follows: The division of costs between variable and fixed is as follows: Management is considering a plant expansion program for the following year that will permit an increase of 11,280,000 in yearly sales. The expansion will increase fixed costs by 5,000,000 but will not affect the relationship between sales and variable costs. Instructions 1. Determine the total variable costs and the total fixed costs for the current year. 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. 3. Compute the break-even sales (units) for the current year. 4. Compute the break-even sales (units) under the proposed program for the following year. 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the 60,000,000 of operating income that was earned in the current year. 6. Determine the maximum operating income possible with the expanded plant. 7. If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year? 8. Based on the data given, would you recommend accepting the proposal? Explain.
Bolger and Co. manufactures large gaskets for the turbine industry. Bolgers per-unit sales price and variable costs for the current year are as follows: Bolgers total fixed costs aggregate to 360,000. Bolgers labor agreement is expiring at the end of the year, and management is concerned about the effects of a new labor agreement on its break-even point in units. The controller performed a sensitivity analysis to ascertain the estimated effect of a 10-per-unit direct labor increase and a 10,000 reduction in fixed costs. Based on these data, the break-even point would: a. decrease by 1,000 units. b. decrease by 125 units. c. increase by 375 units. d. increase by 500 units.
Bethany Company has just completed the first month of producing a new product but has not yet shipped any of this product. The product incurred variable manufacturing costs of 5,000,000, fixed manufacturing costs of 2,000,000, variable marketing costs of 1,000,000, and fixed marketing costs of 3,000,000. Under the variable costing concept, the inventory value of the new product would be: a. 5,000,000. b. 6,000,000. c. 8,000,000. d. 11,000,000.