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Ch 23 Wiley Kimmel Quiz Homework

Ch 23 Wiley Kimmel Quiz Homework

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Published by: mki on May 01, 2011
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07/18/2013

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Ming Company is considering two alternatives. Alternative A will have sales of $150,000 and costs of $100,000.Alternative B will have sales of $180,000 and costs of $120,000. Compare Alternative A to Alternative B showingincremental revenues, costs, and net income.
(If affect on net income of adopting Alternative B is a decrease useeither a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45). Enter all other amounts as positiveamounts and subtract where necessary.)
 
Alternative
 
Alternative
 
Net Income
 
Increase
 
A
 
B
 
(Decrease)
 Revenues$ 150000 $ 180000 $ 30000Costs100000 120000 -20000 Net Income$ 50000 $ 60000 $ 10000Alternative B is better than Alternative A .Felton Company has a factory machine with a book value of $90,000 and a remaining useful life of 4 years. A newmachine is available at a cost of $200,000. This machine will have a 4-year useful life with no salvage value. Thenew machine will lower annual variable manufacturing costs from $600,000 to $440,000. Complete the analysisshowing whether the old machine should be retained or replaced.
(If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign preceding the number, e.g.-45 or parenthesis, e.g. (45).)
 
etain Equipment
 
eplace Equipment
 
Net 4-Year Income
 
Increase
 
(Decrease)
 Variable manufacturing costs$ 2,400,000 $ 1,760,000 $ 640,000 New machine cost0 200,000 -200000Total$ 2,400,000 $ 1,960,000 $ 440,000The old factory machine should be replaced .Correct.Stacy McGuire recently opened her own basketweaving studio. She sells finished baskets in addition to the rawmaterials needed by customers to weave baskets of their own. Stacy has put together a variety of raw material kits,each including materials at various stages of completion. Unfortunately, owing to space limitations, Stacy is unableto carry all varieties of kits originally assembled and must choose between two basic packages.The basic introductory kit includes undyed, uncut reeds (with dye included) for weaving one basket. This basic package costs Stacy $12 and sells for $27. The second kit, called Stage 2, includes cut reeds that have already beendyed. With this kit the customer need only soak the reeds and weave the basket. Stacy is able to produce the secondkit by using the basic materials included in the first kit and adding one hour of her own time, which she values at$18 per hour. Because she is more efficient at cutting and dying reeds than her average customer, Stacy is able to
 
make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. The kit of dyed and cut reeds sells for $33.Complete the incremental analysis below to determine whether Stacy's basketweaving shop should carry the basicintroductory kit with undyed and uncut reeds, or the Stage 2 kit with reeds already dyed and cut.
(Round all answersto 2 decimal places, e.g. 5.25. If an amount is blank enter 0, all boxes must be filled to be correct. If the impact onnet income is a decrease use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45). Enter all other amounts amounts as positive and subtract where necessary.)
 
S
ell(Basic kit)
 
Process Further(
S
tage 2 Kit)
 
Net IncomeIncrease(Decrease)
 Sales per unit$ 27 $ 33 $ 6Costs per unitDirect materials $ 12 $ 6 $ 6Direct labor 0 9 -9Total$ 12 $ 15 $ -3 Net income per unit$ 15 $ 18 $ 3Should Stacy carry the Stage 2 kits?Yes(1) The cost of materials decreases because Stacy can make two Stage 2 Kits from the materials for a basic kit.(2) The total time to make the two kits is one hour at $18 per hour or 9.00 per unit.Stacy
should
carry the Stage 2 Kits. The incremental revenue, $6.00, exceeds the incremental processing costs,$3.00. Thus, net income will increase by processing the kits further.Crone Enterprises uses a word processing computer to handle its sales invoices. Lately, business has been so goodthat it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices.Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.
Current Machine
 
New Machine
 Original purchase cost $15,000 $21,000Accumulated depreciation 6,000 -Estimated operating costs 24,000 20,000Useful life 5 years 5 yearsIf sold now, the current machine would have a salvage value of $5,000. If operated for the remainder of its usefullife, the current machine would have zero salvage value. The new machine is expected to have zero salvage valueafter 5 years.Complete the analysis to determine if the current machine should be replaced.
(Ignore the time value of money. If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease useeither a negative sign preceding the amount, e.g. -45 or parenthesis, e.g. (45). Enter all other amounts as positiveamounts and subtract where necessary.)
 
etain Machine
 
eplace Machine
 
Net IncomeIncrease
 
(Decrease)
 Operating costs$ 120,000 $ 100,000 $ 20,000 New machine cost (Depr.)0 21,000 -21,000Salvage value (old)050005000Total$ 120,000 $ 116,000 $ 4,000The current machine should be replaced .
etain Machine
 
eplace Machine
 
Net IncomeIncrease(Decrease)
 Operating costs
$120,000
 (1)
$100,000
 (2)
$20,000
  New machine cost (Depr.)
0
 
21,000
 
(21,000)
 Salvage value (old)
0 5,000
 
5,000
 Total
$120,000
 
$116,000
 
$4,000
 (1) $24,000 × 5.(2) $20,000 × 5.The current machine should be
replaced.
The incremental analysis shows that net income for the five-year periodwill be $4,000 higher by replacing the current machine.Timmons Corporation is considering three long-term capital investment proposals. Relevant data on each project areas follows.
Project
 
Brown
ed Yellow
Capital investment$190,000 $220,000 $250,000Annual net income:Year 1 25,000 20,000 26,0002 16,000 20,000 24,0003 13,000 20,000 23,0004 10,000 20,000 17,00058,000 20,000 20,000Total$72,000 $100,000 $110,000Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-linemethod. The company's minimum rate of return is the company's cost of capital which is 12%.Compute the following and rank the projects for each category:Compute the average annual rate of return for each project.
(Round your answers to 1 decimal place, e.g. 5.2.)
 

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