COST ACCOUNTING
16th Edition
ISBN: 9781323694008
Author: Horngren
Publisher: PEARSON C
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Sentax Corporation is an international manufacturer of fragrances for women. Management at Sentax is considering expanding the product line to men’s fragrances. From the best estimates of the marketing and production managers, annual sales (all for cash) for this new line are 2,000,000 units at $100 per unit; cash variable cost is $50 per unit; and cash fixed costs are $18,000,000 per year. The investment project requires $100,000,000 of cash outflow and has a project life of 4 years. At the end of the 4-year useful life, there will be no terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. Men’s fragrance is a new market for Sentax, and management is concerned about the reliability of the estimates. The controller has proposed applying sensitivity analysis to selected factors. Ignore income taxes in your computations. Sentax’s required rate of return on this project is 16%.
Q. Calculate the net present value of this investment…
Johnson and Gomez, Incorporated, is a small firm involved in the production and sale of electronic
business products. The company is well known for its attention to quality and innovation.
During the past 15 months, a new product has been under development that allows users
improved access to e-mail and video images. Johnson and Gomez code named the product the
Wireless Wizard and has been quietly designing two models: Basic and Enhanced. Development
costs have amounted to $189,000 and $270,000, respectively. The total market demand for each
model is expected to be 45,000 units, and management anticipates being able to obtain the
following market shares: Basic, 20 percent; Enhanced, 15 percent. Forecasted data follow.
Projected selling price
Per-unit production costs:
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Direct labor
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$ 370.00
47.00
25.00
41.00
200,000
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2CVP analysis, sensitivity analysis. Perfect Fit Jeans Co. sells blue jeans wholesale to major retailers
across the country. Each pair of jeans has a selling price of $50 with $35 in variable costs of goods sold. The
company has fixed manufacturing costs of $2,250,000 and fixed marketing costs of $250,000. Sales commis-
sions are paid to the wholesale sales reps at 10% of revenues. The company has an income tax rate of 20%
1.
How many jeans must Perfect Fit sell in order to break even?
How many jeans must the company sell in order to reach:
a target operating income of $420,000?
b. a net income of $420,000?
2.
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a.
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3. How many jeans would Perfect Fit have to sell to earn the net income in requirement 2b if: (Consider
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21
each requirement independently.)
the contribution margin per unit increases by 10%
b. the selling price is increased to $51.50.
c. the company outsources manufacturing to an overseas company increasing variable costs per…
Chapter 21 Solutions
COST ACCOUNTING
Ch. 21 - Capital budgeting has the same focus as accrual...Ch. 21 - List and briefly describe each of the five stages...Ch. 21 - Prob. 21.3QCh. 21 - Only quantitative outcomes are relevant in capital...Ch. 21 - How can sensitivity analysis be incorporated in...Ch. 21 - Prob. 21.6QCh. 21 - Describe the accrual accounting rate-of-return...Ch. 21 - Prob. 21.8QCh. 21 - Lets be more practical. DCF is not the gospel....Ch. 21 - All overhead costs are relevant in NPV analysis....
Ch. 21 - Prob. 21.11QCh. 21 - Distinguish different categories of cash flows to...Ch. 21 - Prob. 21.13QCh. 21 - How can capital budgeting tools assist in...Ch. 21 - Distinguish the nominal rate of return from the...Ch. 21 - A company should accept for investment all...Ch. 21 - Prob. 21.17MCQCh. 21 - Which of the following statements is true if the...Ch. 21 - Prob. 21.19MCQCh. 21 - Nicks Enterprises has purchased a new machine tool...Ch. 21 - Prob. 21.21ECh. 21 - Capital budgeting methods, no income taxes. Yummy...Ch. 21 - Capital budgeting methods, no income taxes. City...Ch. 21 - Prob. 21.24ECh. 21 - Capital budgeting with uneven cash flows, no...Ch. 21 - Comparison of projects, no income taxes. (CMA,...Ch. 21 - Payback and NPV methods, no income taxes. (CMA,...Ch. 21 - DCF, accrual accounting rate of return, working...Ch. 21 - Prob. 21.29ECh. 21 - Prob. 21.30ECh. 21 - Project choice, taxes. Klein Dermatology is...Ch. 21 - Prob. 21.32ECh. 21 - Selling a plant, income taxes. (CMA, adapted) The...Ch. 21 - Prob. 21.36PCh. 21 - NPV and AARR, goal-congruence issues. Liam...Ch. 21 - Payback methods, even and uneven cash flows. Sage...Ch. 21 - Replacement of a machine, income taxes,...Ch. 21 - Recognizing cash flows for capital investment...Ch. 21 - NPV, inflation and taxes. Fancy Foods is...Ch. 21 - NPV of information system, income taxes. Saina...
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- Sentax Corporation is an international manufacturer of fragrances for women. Management at Sentax is considering expanding the product line to men’s fragrances. From the best estimates of the marketing and production managers, annual sales (all for cash) for this new line are 2,000,000 units at $100 per unit; cash variable cost is $50 per unit; and cash fixed costs are $18,000,000 per year. The investment project requires $100,000,000 of cash outflow and has a project life of 4 years. At the end of the 4-year useful life, there will be no terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. Men’s fragrance is a new market for Sentax, and management is concerned about the reliability of the estimates. The controller has proposed applying sensitivity analysis to selected factors. Ignore income taxes in your computations. Sentax’s required rate of return on this project is 16%. Q. Calculate the effect on the net present value of the…arrow_forwardROI, RI, decision making. The following data refer to the successful Munger division of Buffett, Inc. Munger makes and sells high-end cordless drills. The drills sell for $80 each, and Munger expects sales of 300,000 units in 2014. Munger’s annual fixed costs are $4 million. The variable cost per drill is $48. Buffett evaluates Munger based on residual income. The total investment attributed to Munger is $16 million, and Buffett has a required rate of return on investment of 20%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated.1. What is the expected residual income in 2014?2. Munger receives an external special order for 100,000 units at $60 each. If the order is accepted,Munger will have to incur incremental fixed costs of $850,000 and invest an additional $2 million in various assets.What is the effect on Munger’s residual income of accepting the order?3. One of the components Munger manufactures for its drill has a…arrow_forwardBrahma Industries sells vinyl replacement windows to home improvement retailers nationwide. The national sales manager believes that if they invest an additional $25,000 in advertising, they would increase sales volume by 10,000 units. Prepare a forecasted contribution margin income statement for Brahma if they incur the additional advertising costs, using this information:arrow_forward
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