Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 20, Problem 11QP
Summary Introduction
To determine: The economic order quantity (EOQ).
Introduction:
Economic order quantity refers to a model or tool designed for reducing the total costs (carrying costs and ordering costs) of the inventory.
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H2.
A clothing manufacturer is considering whether to add hoodies to its range of products. The hoodies would sell for $45 each and the company expects to sell 10,000 units per year. Selling hoodies, however, would cause sales of conventional jumpers to decrease by 1,000 units per year. The jumpers sell for $43 per unit. The variable costs of production are $25 per unit for hoodies and $20 per unit for jumpers. If the company adds hoodies to its range of products, fixed costs will increase by $56,000 per year and annual depreciation will increase by $21,000. What is the incremental operating cash flow from selling hoodies, if the corporate tax rate is 30%?
Please show proper step by step calculation
E9.4 (LO 2), AP Turney Company produces and sells automobile batteries, the heavy-duty HD-240. The 2022 sales forecast is as follows.
Quarter HD-240
1 5,000
2 7,000
3 8,000
4 10,000
The January 1, 2022, inventory of HD-240 is 2,000 units. Management desires an ending inventory each quarter equal to 40% of the next quarter’s sales. Sales in the first quarter of 2023 are expected to be 25% higher than sales in the same quarter in 2022.
Instructions
Prepare quarterly production budgets for each quarter and in total for 2022.
Prepare a direct materials purchases budget.
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…
Chapter 20 Solutions
Fundamentals of Corporate Finance
Ch. 20.1 - Prob. 20.1ACQCh. 20.1 - Prob. 20.1BCQCh. 20.2 - What considerations enter into the determination...Ch. 20.2 - Explain what terms of 3/45, net 90 mean. What is...Ch. 20.3 - Prob. 20.3ACQCh. 20.3 - Explain how to estimate the NPV of a credit policy...Ch. 20.4 - What are the carrying costs of granting credit?Ch. 20.4 - What are the opportunity costs of not granting...Ch. 20.4 - Prob. 20.4CCQCh. 20.5 - Prob. 20.5ACQ
Ch. 20.5 - Prob. 20.5BCQCh. 20.6 - Prob. 20.6ACQCh. 20.6 - What is an aging schedule?Ch. 20.7 - What are the different types of inventory?Ch. 20.7 - What are three things to remember when examining...Ch. 20.7 - Prob. 20.7CCQCh. 20.8 - Prob. 20.8ACQCh. 20.8 - Which cost component of the EOQ model does JIT...Ch. 20.A - Prob. 1ACQCh. 20.A - Prob. 1BCQCh. 20.A - Evaluating Credit Policy [LO2] Bismark Co. is in...Ch. 20.A - Credit Policy Evaluation [LO2] The Johnson Company...Ch. 20.A - Prob. 3QPCh. 20.A - Prob. 4QPCh. 20.A - Prob. 5QPCh. 20 - What is the difference between the accounts...Ch. 20 - Prob. 20.2CTFCh. 20 - Prob. 20.7CTFCh. 20 - Prob. 1CRCTCh. 20 - Prob. 2CRCTCh. 20 - Prob. 3CRCTCh. 20 - Five Cs of Credit [LO1] What are the five Cs of...Ch. 20 - Prob. 5CRCTCh. 20 - Prob. 6CRCTCh. 20 - Prob. 7CRCTCh. 20 - Prob. 8CRCTCh. 20 - Prob. 9CRCTCh. 20 - Prob. 10CRCTCh. 20 - Prob. 1QPCh. 20 - Size of Accounts Receivable [LO1] The Red Zeppelin...Ch. 20 - Prob. 3QPCh. 20 - Prob. 4QPCh. 20 - Terms of Sale [LO1] A firm offers terms of 1/10,...Ch. 20 - Prob. 6QPCh. 20 - Prob. 7QPCh. 20 - Prob. 8QPCh. 20 - Evaluating Credit Policy [LO2] Air Spares is a...Ch. 20 - Prob. 10QPCh. 20 - Prob. 11QPCh. 20 - Prob. 12QPCh. 20 - Prob. 13QPCh. 20 - Prob. 14QPCh. 20 - Prob. 15QPCh. 20 - Prob. 16QPCh. 20 - Prob. 17QPCh. 20 - Prob. 18QPCh. 20 - Prob. 19QPCh. 20 - Prob. 20QPCh. 20 - Prob. 21QPCh. 20 - Prob. 22QPCh. 20 - Credit Policy at Howlett Industries Sterling...Ch. 20 - Prob. 2M
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- 5. What is the maximum price that Silven should be willing to pay the outside supplier for a box of 24 tubes? 6. Instead of sales of 110,000 boxes of tubes, revised estimates show a sales volume of 150,000 boxes of tubes. At this higher sales volume, Silven would need to rent extra equipment at a cost of $60,000 per year to make the additional 40,000 boxes of tubes. Assuming that the outside supplier will not accept an order for less than 150,000 boxes of tubes, what is the financial advantage (disadvantage) in total (not per box) if Silven buys 150,000 boxes of tubes from the outside supplier? Given this new information, should Silven Industries make or buy the tubes? 7. Refer to the data in Required 6. Assume that the outside supplier will accept an order of any size for the tubes at a price of $1.70 per box. How many boxes of tubes should Silven make? How many boxes of tubes should it buy from the outside supplier?arrow_forward10. The Canon Corp. plans to market a new product. Based on its market studies, Canon Corp. estimates that it can sell 70,000 units in 2021. The selling price per unit is P2.00. Variable cost ratio is 40% of sales. Fixed Costs are estimated to be P150,000. What is the breakeven point in pesos? 11. The Gomex Corp. sells product A for P90 each. Variable costs are P40 per unit. Fixed Costs are P585,000. Its current sales is P963,000. How much sales (in units) must be reached to realize a net income of P120,000 after income taxes, if tax rate is 25%?arrow_forwardCompute the Break-Even Point [LO5–5] Mauro Products distributes a single product, a woven basket whose selling price is $15 and whose variable expense is $12 per unit. The company’s monthly fixed expense is $4,200. Required: 1. Solve for the company’s break-even point in unit sales using the equation method. 2 . Solve for the company’s break-even point in dollar sales using the equation method and the CM ratio. 3. Solve for the company’s break-even point in unit sales using the formula method. 4 . Solve for the company’s break-even point in dollar sales using the formula method and the CM ratio.arrow_forward
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