Sue is considering replacing her current truck with a new one.

The current truck is used in her business and cost $35,000 two
years ago. It should last three more years. It can be sold for $13,000 now or in three years for $6,000. the new truck will cost
$38,000 and Sue expects to use it for three years after which time it can be sold for $16,500. The new truck is more efficient an
will use $450 per year less gasoline. Sue's business requires a 10% return on all investments of this type.

0 1 2 3 4 5
----------|-------------------|---------- ----------|--------------------|-----------------|------------------|----------
13,000
(4,508) (6,000)
(38,000)
12,397 16,500
2.487 1,119.15 450 450 450
(15,992)

If Mountain Goat accepts the special order, it will be

 If Royal drops the product line, it will be better or worse of

0 1 2 3 4 5
-9965 -14000
45000
2.402 -40834 25500 25500 25500
-41000
1.69 43095 -17000 -17000 -17000
-3704

PROBLEM SIX

Eastern Machinery is considering an investment in equipment that will cost $950,000. The equipment will produce a
new product that is not currently being sold by Eastern. Projected cash revenues and cash expenses over the three-
year life of the equipment are as follows:

Revenues Expenses
Year 1 1,400,000 700,000
Year 2 1,300,000 700,000
Year 3 1,000,000 700,000

At the end of year three, Eastern will have to pay a salvage company to dispose of the machine in an environmentally
friendly way at a cost of $10,000, That amount in not included in the above Expenses.

Eastern uses a discount rate of 6.5%. Compute the net present value of investing in the machinery,
 -0- 1 2 3
1,314,554 1,400,000
1,146,157 1,300,000
827,849 1,000,000
(657,277) (700,000)
(617,161) (700,000)
(579,494) (700,000)
-8278 -10000
(950,000)
476,349

Michigan Chemical Company has received a special order for 10,000 units of floam at a price of $23,900.
Management is considering accepting the order and has determined that production would have the following cost:

Materials $ 9,000
Direct labor 14,000
Variable overhead 6,000
Depreciation of machinery 1,500
Total $ 30,500
All of the $9,000 of materials are currently in materials inventory. $4,000 of those
materials are not scheduled to be used in any other production, but can be sold for
$2,350. The remaining $5,000 of the materials are scheduled for use in other products
and the current replacement price is $5,120. A special machine must be purchased to
complete this order. The special machine has a cost of $12,000 and will be sold for
$8,600 after the order is complete. The depreciation on this machine will be $3,400.

23900
-2350
-5120
-12000
8600
-14000
-6000
0
 -6970

Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period.
New buildings and equipment costing $130,000 would be needed to produce the new product.
The equipment would need repairs costing $6,000 in two years.
Annual sales of the new product would be $250,000 and variable cost would be $120,000
per year with annual fixed cost of the new facilities being $70,000. The buildings could be sold for
$45,000 at the end of four years. The equipment would have to be disposed of in an environmentally
sound manner at a cost of $11,000 after four years.
Oakmont requires a 10% return on all investments.

Compute net present value of this investment opportunity $_____________________

0 1 2 3 4
----------|----------
----------|---------- ----------|---------- ----------|--------------------|----------
-130000
-4958.68 -6000
30735.61 45000
-7513.15 -11000
792500 250000 250000 250000 250000
-380400 -120000 -120000 -120000 -120000
-221900 -70000 -70000 -70000 -70000
78463.78
Reliable Laundromat must either make extensive repairs to its current dry-cleaning system or
replace it with a new system. The following information compares the alternatives:

Current New
System System
Purchase cost $ 40,000 $ 60,000
Repair cost $ 17,000
Annual cash operating cost $ 35,000 $ 20,000
Can be sold for today $ 8,000 $ 40,000
Can be sold for in 1 year $ 2,500 $ 10,000

If Reliable keeps the current system, the repairs have to be make immediately. The repairs
Will cause the company to be shut down for 4 days. If the new system is purchased, Reliable
will be shut down for 2 days for the changeover. Average daily profit for Reliable is $1,200.

The owner of Reliable plans to sell the business at the end of one year for $84,000.

If Reliable replaces the system, it will be $_____________________ better or worse off

(circle one)

Replace
purchase new syst -60000 AC
won't have to repai 17000 AI
no operation 35000
operation cost -20000
sold 8000 ai
sold in a year nr
shut down -2400
won't shut down 4800
-17600

Slow Shop, a small convenience store, has food and beverage sales, and also sales of books and newspapers.
An income statement for a recent month is shown below:

Food and Books and

Beverage Newspapers TOTAL
Sales $ 140,000 $ 22,000 $ 162,000
Variable cost 65.00% 91,000 16,500 $ 107,500
Fixed cost 34,000 10,000 $ 44,000
 Net income $ 15,000 $ (4,500) $ 10,500

Management is considering eliminating the books and newspapers sales to increase profits. The fixed cost is monthly
rent for the building which is allocated to the two departments based on square feet of floor space. If books and newspapers
are eliminated, the space could be used to add more food and beverage products. This is expected to increase sales of
food and beverage products by $25,000.

eliminate
sales 25000
book sales -22000
vc 16500
vc new -16250
3250

You want to be able to withdraw from your savings account $3,000 per year for three years starting on December 31
If your account pays 4% interest, what is the minimum amount that you need to have on deposit on December 31, 2

12/31/2006 12/31/2007 12-31-08 12-31-09 12-31-10 12-31-11

2773.67 3000
2666.99 3000
2564.41 3000
8005.07

12/31/2005 12/31/2006 12/31/2007 12-31-08 12-31-09 12-31-10

4000 7049.37
4000 6294.08
4000 5619.71
4000 5017.60
23980.76

Sue is considering replacing her current truck with a new one. The current truck is used in her business and cost $35
years ago. It should last three more years. It can be sold for $13,000 now or in three years for $6,000. the new truc
$38,000 and Sue expects to use it for three years after which time it can be sold for $16,500. The new truck is more
will use $450 per year less gasoline. Sue's business requires a 10% return on all investments of this type.
 0 1 2 3
13000
-4508 -6000
-38000
12397 16500
2.487 1119 450 450 450
-15992

Purchasing the new truck falls short of the 10% return on investment by $15,992

Weber Company produces and sells 10,000 gallons of carrot juice per month. The maximum
number of gallons that can be produced per month is 12,000 gallons. Kroger has offered to buy
3,000 gallons next month for $5 per gallon.
Production and sales data are given below:

Per Gallon
Regular selling price $6.50

Materials $2.60
Labor $0.40
Variable overhead $1.00
Fixed overhead $1.50
$5.50

If Weber accepts the offer from Kroger, it will be $___________________ better or worse
(circle one)

gallons price accepts

3000 5 15000
1000 -6.5 -6500
mat 2000 -2.6 -5200
DL 2000 -0.4 -800
var OH 2000 -1 -2000
500

X Company produces shoes for workers in heavy industries. Monthly fixed costs are $40,000 and variable costs
are $24 per pair. The selling price is $41 per pair. X Company has received an offer from Y Company for 16,000
pairs at a price of $31 per pair. Y will market the shoes overseas where they will not affect the current sales of
X Company. X currently has excess capacity to fill the order if accepted.

If X Company Accepts the offer, it will be $_____________________better or worse

(circle one)
 Accepts
496000
-384000
0
112000

Compute the total amount of overhead to be allocated to each product under activity based costing.

Single Bulb Dual Bulb

Enter your answers here

Activity level oh rates
production set 60000 30 2000
materials 13500 27 500
packing 30000 120000 0.25

oh rates activty oh allocated activty oh allicated

2000 12 24000 18 36000
500 9 4500 18 9000
0.25 40000 10000 80000 20000
38500 65000

PROBLEM THREE

Clone Company has the following production data for last month:
 UNITS
Beginning inventory.............. 80 COST Materials
Started in production........... 900 Beginning inventory $ 3,216
Ending inventory.................. 65 Costs added to production $ 8,076
Completed......................... 915 Total $ 11,292

Ending inventory was 40% complete with respect to materials and 20% complete with respect to labor and overhead.

ompute the total cost of ending inventory <<<<< Answer here

WIP
Units
BI 80
Started 900
Units to account for 980 Materials conversion
%completed EU %completed
Completed 915 100% 915 100%
EI 65 40% 26 20%
Unit accounted for 980 941

Cost to account for mat conversion

BI $ 3,216 $ 1,917
Cost added $ 8,076 $ 12,003
$ 11,292 $ 13,920 $ 25,212
Equv. Full Units of production 941 928
$ 12 $ 15 $ 27
 5000
-15000
-45000
80000
25000
you deposit $100 in a savings account that pays 10%.
How much will you have on deposit in your account in 5 years?????

0 1 2 3 4 5
100 161.051

You want to have $500 on deposit in you account 5 years from today. How much do you need on deposit today?

0 1 2 3 4 5
310.46066153 500

You want to be able to withdraw $1,000 per year for three years starting one year from today. How much do you ne

0 1 2 3 4 5
909.09090909 1000
826.44628099 1000
751.3148009 1000
2487

You want to make five annual withdrawals starting one year from today. The first three are $30,000 each and the las
Your account pays 4%. How much do you need on deposit today??

0 1 2 3 4 5
28846 30000
27737 30000
26670 30000
17096 20000
16439 20000
$ 116,787.36
Maple Wood Company Manufactures two products, dining room tables, and desk chairs. Materials and labor
per unit for the two products are:

Tables Chairs
Materials $127.00 $211.00
Direct labor $306.00 $408.00

Manufacturing overhead costs are:

Estimated Estimated
Total Activity
Cost pool Cost Cost Driver Tables Chairs
Machinery cost $155,511 Machine hours 4,800 hrs 6,300 hrs
Indirect materials cost $42,264 Direct Mat cost $101,600 $109,720
Quality control cost $20,460 Number of unit 800 units 520 units
Other overhead costs $2,239,104 Direct labor co $ 244,800 $ 212,160
$2,457,339
Compute the total overhead allocated to each product using Activity Based Costing
Tables Chairs
Total overhead allocated to $ $
cost pool tables chairs rates
machienry cost 4800 6300 14.01
indirect mat cost 101600 109720 20%
qual costrol cost 800 520 15.5
other overhead 244800 212160 490%
er business and cost $35,000 two
or $6,000. the new truck will cost
. The new truck is more efficient and
of this type.

--------|----------

accept
sale 17900
DM -8600
Mod -1700
DL -4500
VMO -600
graphics -1200
1300

-14000
11000
-3000
quipment will produce a
expenses over the three-

ine in an environmentally
e of $23,900.
have the following cost:
 Select and move this circle to choose "better" or "worse".

s and newspapers.
 The fixed cost is monthly
pace. If books and newspapers
xpected to increase sales of

hree years starting on December 31, 2008.

have on deposit on December 31, 2006?

12-31-12

12-31-11 12-31-12

s used in her business and cost $35,000 two

ree years for $6,000. the new truck will cost
or $16,500. The new truck is more efficient and
nvestments of this type.
ent by $15,992

off.

ai
li
ai

are $40,000 and variable costs

fer from Y Company for 16,000
not affect the current sales of

off
tivity based costing.
 Conversion wip
$ 1,917 units
$ 12,003 bi 80
$ 13,920 started 900 conversion
Maters % co EU
ct to labor and overhead. completed 915 100% 915 100% 915
EI 65 40% 26 20% 13

cost to account for

EU
915
13
928
sell or modify

sell now
17000
12000
-26000
3000
 add flights
30000
-40000
-10000

do you need on deposit today?

from today. How much do you need today??

three are $30,000 each and the last two, $20,000 each.

6
36499.5871
35095.7568
32448
21632
20800
146475.344
aterials and labor

stimated

Total Rates
11,100 hrs $14.01
$ 211,320 0.2
1,320 units 15.5
$ 456,960 490%

tables chairs
67248 88263
20320 21944
12400 8060
1199520 1039584
1299488 1157851 $ 2,457,339