FINAL / ACC 3123 / FALL 2010 / PART 2
FINAL / ACC 3123 / FALL 2010 /PART2
Write all your answers on the answer sheet below. You must show your workin the space provided under each question. Use 4-decimals in all your work. The exam is open-book/notes. You can use Excel and/or your mathematical calculator for your computations. Each answer is worth equal points.
UPPER CASE ONLY:
LAST-NAMEFIRST-NAME
SEAT #
VERSION 1
Q / ANSWER / Q / ANSWER1 / 6
2 / 7
3 / 8
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5 / 10
1.Roses Inc. produces four varieties of colognes: X401, X402, X403, and X404. The unit costs (per bottle) are as follows:
X401X402X403X404
Direct material in pounds 12 4 9 6
Direct labor in hours 2 5 3 1
Variable mfg. OH$100$210$130 $70
Fixed mfg. OH * $12 $20 $10 $6
Variable mkt. OH $20 $30 $20 $40
Fixed mkt. OH * $20 $9 $18 $11
Unit selling price$400$455$380$300
(* the fixed OH have been allocated using the product mix for November. Short-term variations in the product mix do not affect the total fixed OH.)
Product X401 requires specialized labor that is paid $20 per hour. Rest of the products use labor costing $10 per hour. The sales department has projected that the demand for the colognes in December will be as follows:
X401300 bottles; X4021,000 bottles; X403900 bottles; and X404500 bottles.
All the colognes use a chemical Attractium-Desirate as the direct material. The chemical costs only $10 per pound but is not readily available in the market. The procurement department has informed that they will only be able to arrange 11,500 pounds of the chemical in December and that there will be no opening inventory. Your assignment as the manager is to choose the product mix for December that will maximize profit. How many bottles of X403 cologne will you manufacture?
2.The following information was made available concerning the four departments of the Winky Company.
A B C D
Sales100,00025,00050,00075,000
Variable COGS70,000 15,000 30,000 50,000
Variable Selling Overhead10,000 2,000 6,000 12,000
Fixed Overheads 20,000 4,000 11,000 15,000
Operating Income (Loss)0 4,000 3,000 (2,000)
Management of the company has decided to drop a department to maximize profits. The President of the company picks department D in view of its poor performance. If any one department is dropped, the Company's total fixed overheads will be reduced by 27%. What is your advice (as the CFO) to the President?
3.Bond Corporation is interested in purchasing a state-of-the-art widget machine for its manufacturing plant. The new machine has been designed to basically eliminate all errors and defects in the widget-making production process. The new machine will cost $150,000, and have a salvage value of $70,000 at the end of its seven-year useful life. Bond has determined that cash inflows for years 1 through 7 will be as follows: $32,000; $57,000; $15,000; $28,000; $16,000; $10,000, and $15,000, respectively. Maintenance will be required in years 3 and 6 at $10,000 and $7,000 respectively. Bond uses a discount rate of 11 percent. Compute the firm's profitability index (EPVI).
4.OceanBound Corporation is considering the purchase of a new ocean-going vessel that could potentially reduce labor costs of its operation by a considerable margin. The new ship would cost $500,000 and would be fully depreciated by the straight-line method over 10 years. At the end of 10 years, the ship will have no value and will be scuttled. The annual cost savings is estimated to be $77,000. OceanBound Corporation’s cost of capital is 12 percent, and its marginal tax rate is 40 percent. What is the present value of the depreciation tax benefit of the new ship? (Round to the nearest dollar.)
5.The Cleanest Automobile Corporation is contemplating the acquisition of an automatic car wash. The following information is relevant:
The cost of the car wash is $160,000The anticipated revenue from the car wash is $100,000 per annum.
The useful life of the car wash is 10 years.
Annual operating costs are expected to be:
Salaries / $30,000
Utilities / 9,600
Water usage / 4,400
Supplies / 6,000
Repairs/maintenance / 10,000
The firm uses straight-line depreciation.
The salvage value for the car wash is zero.
The firm does not pay income taxes.
Compute internal rate of return of the project.
6.The Precise Printing Corporation is contemplating the acquisition of a state of the art printing press. The following information is relevant:
The cost of the printing press is $180,000The anticipated revenue from the printing press is $120,000 per year.
The useful life of the car wash is 12 years.
Annual operating costs are expected to be:
Salaries / $40,000
Utilities / 10,000
Power usage / 4,600
Supplies / 6,400
Repairs/maintenance / 12,000
Discount rate / 16%
The firm uses straight-line depreciation.
The salvage value for the car wash is zero.
The company's cutoff points are as follows:
Payback / 4 years
Accounting rate of return / 16%
Ignore income taxes.
Compute the Profitability Index of the printing press.7.Johnson Corporation is interested in purchasing a state-of-the-art stamping machine for its manufacturing plant. The new machine will cost $180,000, and have a salvage value of $80,000 at the end of its eight-year useful life. Bailey has determined that cash inflows for years 1 through 8 will be as follows: $33,000; $58,000; $28,000; $39,000; $27,000; $22,000, $27,000 and $29,000, respectively. Maintenance will be required in years 3 and 6 at $14,000 and $9,000 respectively. Bailey uses a discount rate of 12 percent and wants projects to have a payback period of no longer than six years. What is the net present value of the new machine?
8.The management of Hepner Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as follows:
Direct material / $ 15Direct labor / 40
Variable manufacturing overhead / 10
Fixed manufacturing overhead / 35
$100
Hepner Industries uses 4,000 components per year. After Goudge Corporation submitted a bid of $80 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Goudge Corporation, Hepner Industries' unused production facilities could be leased to another company for $50,000 per year.
Determine the maximum amount per unit Hepner Industries could pay an outside supplier.
9.Phoenix Corporation makes and sells the "Desert Icon”, a wall hanging depicting a magical cactus plant. The Desert Icons are sold at specialty shops for $50 each. The capacity of the plant is 15,000 Icons. Costs to manufacture and sell each wall hanging are as follows:
Direct material / $ 5.00Direct labor / 6.00
Variable overhead / 8.00
Fixed overhead / 10.00
Variable selling expenses / 2.50
Phoenix Corporation has been approached by a Oklahoma company about purchasing 2,500 Desert Icons. The company is currently making and selling 15,000 per year. The Oklahoma company wants to attach its own state label, which increases costs by $.50 each. No selling expenses would be incurred on this order. The corporation believes that it must make an additional $1 on each Desert Icon to accept this offer.What is the minimum selling price that should be set?
10. Jupiter Corp. is considering investing in an automated manufacturing line. Installation of the line will cost $2 million. This amount will be paid up front. It will be depreciated using straight-line depreciation and is expected to last five years and will be fully depreciated for tax purposes. The cost savings for each year are expected to be as follows:
Year 1 - $400,000
Year 2 - $600,000
Year 3 - $700,000
Year 4 - $800,000
Year 5 - $900,000
At the end of year 5, management expects to discontinue the manufacturing line and sell the equipment for $100,000. The equipment will be fully depreciated when sold, so the entire sales price is a taxable gain. Saturn is subject to a 30% tax rate and using a discount rate of 14% when making investment decisions. Compute the net present value.
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