ACCT 346 WEEK 6 QUIZ

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ACCT 346 Week 6 Quiz,
Incremental analysis [If Serving Pieces dropped]: Table 1
Snail Extraction Serving Total
Tools Pieces
Sales [$1,200,000 * 1.13] $1,356,000 $1,356,000
Less: Cost of goods sold [500,000/1,200,000 * 1,356,000] $565,000 $565,000
Contribution margin $791,000 $791,000
Less: Avoidable direct fixed costs:
Salaries $175,000 $175,000
Other $60,000 $60,000
Less: Unavoidable allocated fixed costs:
Rent $24,000 $24,000
Insurance $6,000 $6,000
Cleaning $7,000 $7,000
Executive salary $130,000 $130,000
Other $12,000 $12,000
Total costs $414,000 $414,000
Net Income $377,000 $377,000
Assumptions made:
Cost of goods sold are totally direct and variable. So, if serving pieces is droped, there would be no
fixed cost of goods sold to be absorbed by Snail.
Incremental analysis : Table 2
Serving Serving Pieces Incremental
Pieces Dropped Effect
Retained
Sales $2,000,000 $1,356,000 $(644,000)
Less: Cost of goods sold 1,200,000 $565,000 $635,000

Contribution margin $800,000 $791,000 $(9,000)

Less: Avoidable direct fixed costs:
Salaries 350,000 $175,000 $175,000
Other 120,000 $60,000 $60,000
Less: Unavoidable allocated fixed costs:
Rent 24,000 $24,000
Insurance 6,000 $6,000
Cleaning 7,000 $7,000
Executive salary 130,000 $130,000
Other 12,000 $12,000
Total costs 649,000 $414,000 $235,000
Net Income $151,000 $377,000 $226,000
Question 4.4. (TCO 9) Thurman Munster, the owner of Adams Family RVs, is considering the addition
of a service center his lot. The building and equipment are estimated to cost $1,200,000, and both the
building and equipment will be depreciated over 10 years using the straight-line method. The building
and equipment have zero estimated residual value at the end of 10 years. Munsters required rate of
return for this project is 12%. Net income related to each year of the investment is as follows.
Revenue $450,000
Less:
Material Cost $60,000
Labor 100,000
Depreciation 120,000
Other 10,000 290,000
Income before taxes 160,000
Taxes at 40% 64,000
Net Income $96,000
(A) Determine the net present value of the investment in the service center. Should Munster invest in
the service center?
(B) Calculate the internal rate of return of the investment to the nearest 0.5%.
(C) Calculate the payback period of the investment.
(D) Calculate the accounting rate of return. (Points : 10)