Relevant Costs for Equipment Replacement Decision

Accounting…Question 1Not completePoints out of 20.00Flag question Question textRelevant Costs for Equipment Replacement DecisionHealth Scan, Inc. paid $50,000 for X­ray equipment four years ago. The equipment was expected to have a useful life of 10 years from the date of acquisition with annual operating costs of $45,000. Technological advances have made the machine purchased four years ago obsolete with a zero salvage value. An improved X­ray device incorporating the new technology is available at an initial cost of $100,000 and annual operating costs of $26,000. The new machine is expected to last only six years before it, too, is obsolete. Asked to analyze the financial aspects of replacing the obsolete but still functional machine, Health Scan’s accountant prepared the following analysis. After looking over these numbers, the Center’s manager rejected the proposal.Six-year savings [($45,000 ? $26,000) × 6] $114,000 Cost of new machine (100,000) Undepreciated cost of old machineAdvantage (disadvantage) of replacement (30,000)$(16,000) Calculate the net benefit (cost) of purchasing the new machine.$Answer Check Next Question 2Not completePoints out of 20.00 Flag question Question textShanghai Exports, LTD produces wall mounts for flat panel television sets. The forecasted income statement for 2014 is as follows:Shanghai Exports, LTDBudgeted Income StatementFor the Year 2014Sales ($ 44 per unit)Cost of good sold ($ 32 per unit)Gross profitSelling expenses ($ 3 per unit)Net income $ 4,400,000(3,200,000)1,200,000(300,000)$ 900,000 Additional Information (1) Of the production costs and selling expenses, $800,000 and $100,000, respectively, are fixed. (2) Shanghai Exports, LTD received a special order from a hospital supply company offering to buy 12,500 wall mounts for $30. If it accepts the order, there will be no additional selling expenses, and there is currently sufficient excess capacity to fill the order. The company’s sales manager argues for rejecting the order because "we are not in the business of paying $32 to make a product to sell for $30." Calculate the net benefit (cost) of accepting the special order. $Answer Check Next Question 3Not completePoints out of 10.00 Flag question Question textSell or Process FurtherGreat Lakes Boat Company manufactures sailboat hulls at a cost of $4,200 per unit. The hulls are sold to boat yards for $4,800. The company is evaluating the desirability of adding masts, sails, and rigging to the hulls prior to sale at an additional cost of $1,500. The completed sailboats could then be sold for $6,200 each.Calculate the net benefit (cost) of processing the boat hulls into sail boats. Assume sales volume willnot be affected. Use a negative sign with your answer, if appropriate.$Answer Check Next Question 4Not completePoints out of 15.00Flag question Question textSpecial Order: High­Low Cost EstimationSafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $11.00 each. Budgeted costs for 180,000 and 240,000 units are as follows:180,000 Units 240,000 UnitsManufacturing costsDirect materials $450,000 $600,000 180,000 Units 240,000 UnitsDirect labor 315,000 420,000 Factory overhead 1,215,000 1,260,000 Total 1,980,000 2,280,000 765,000 780,000 $2,745,000 $3,060,000 Manufacturing $11.00 $9.50 Selling andadministrative 4.25 3.25 $15.25 $12.75 Selling andadministrativeTotalCosts per unit Total Sales to North American manufacturers are priced at $23 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of $1.75 per unit. She believes obtaining this order would open up several new markets for the company’s product. The general manager commented that the company cannot tighten its belt to absorb the $105,000 loss ($1.75 × 60,000) it would incur if the order is accepted.(a) Calculate the net benefit (cost) of accepting the order from the German business.$Answer (b) Calculate the net benefit (cost) of accepting the order from the German business, assuming the company is operating at full capacity.$Answer Check Next Question 5Not completePoints out of 15.00 Flag question Question textOutsourcing (Make­or­Buy) DecisionAssume a division of Hewlett­Packard currently makes 16,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of $27 per board, consisting of variable costs per unit of $22 and fixed costs per unit of $5. Further assume Sanmina­SCI offers to sell Hewlett­Packard the 16,000 circuit boards for $27 each. If Hewlett­Packard accepts this offer, the facilities currently used to make the boards could be rented to one of Hewlett­Packard’s suppliers for $25,000per year. In addition, $3 per unit of the fixed overhead applied to the circuit boards would be totally eliminated.Calculate the net benefit (cost) to HP of outsourcing the component from Samina­SCI. Use a negative sign with your answer, if appropriate.$Answer Check Next Question 6Not completePoints out of 20.00Flag question Question textMake or BuyRashad Rahavy, M.D., is a general practitioner whose offices are located in the South Falls Professional Building. In the past, Dr. Rahavy has operated his practice with a nurse, a receptionist/secretary, and a part­time bookkeeper. Dr. Rahavy, like many small­town physicians, has billed his patients and their insurance companies from his own office. The part­time bookkeeper, who works 10 hours per week, is employed exclusively for this purpose.North Falls Physician’s Service Center has offered to take over all of Dr. Rahavy’s billings and collections for an annual fee of $6,000. If Dr. Rahavy accepts this offer, he will no longer need the bookkeeper. The bookkeeper’s wages and fringe benefits amount to $15 per hour, and the bookkeeper works 50 weeks per year. With all the billings and collections done elsewhere, Dr. Rahavy will have two additional hours available per week to see patients. He sees an average of three patients per hour at an average fee of $30 per visit. Dr. Rahavy’s practice is expanding, and new patients often have to wait several weeks for an appointment. He has resisted expanding his office hours or working more than 50 weeks per year. Finally, if Dr. Rahavy signs on with the center, he will no longer need to rent a records storage facility for $100 per month.(a) Calculate the net benefit (cost) of outsourcing the bookkeeping.$Answer (b) In making a final decision, all of the following are possible disadvantages that should be considered by Dr. Rahavy, except:It could become more expensive than the bookkeeper in the future if the outside provider increases fees.Not having to be concerned about managing this function internally, and being able to focus entirely on serving patients.The loss of direct control of this important function.The quality of the outsourced service may not meet expectations.None of the above.Check Next Question 7Not completePoints out of 1.00 Flag question Question textOutsourcing (Make­or­Buy) DecisionMountain Air Limited manufactures a line of room air purifiers. Management is currently evaluating the possible production of an air purifier for automobiles. Based on an annual volume of 10,000 units, the predicted cost per unit of an auto air purifier follows.Direct materials $8.00 Direct labor 1.50 Factoryoverhead 9.00 Total $18.50 These cost predictions include $60,000 in facility­level fixed factory overhead averaged over 10,000 units.One of the component parts of the auto air purifier is a battery­operated electric motor. Although the company does not currently manufacture these motors, the preceding cost predictions are based on the assumption that it will assemble such a motor. Mini Motor Company has offered to supply an assembled battery­operated motor at a cost of $5.50 per unit, with a minimum annual order of 5,000 units. If Mountain Air accepts this offer, it will be able to reduce the variable labor and variable overhead costs of the auto air purifier by 50 percent. The electric motor’s components will cost $2.00if Mountain Air assembles the motors.(a) Calculate the net benefit (cost) of outsourcing the electric motors from Mini Motor Company.$Answer (b) Calculate the net benefit (cost) of outsourcing the electric motors from Mini Motor Company, assuming the motor­assembly space could be rented to another company for $24,000 per year.$Answer (c) Management should consider which of the following nonquantitative factors in deciding whether to make or buy the motors. The quality of their own and the supplier’s motors.The dependability of the supplier.Whether Mini Motor has a track record of meeting its commitments.Whether they can depend on Mini Motor to supply motors for a number of years or whether it is attempting to use some temporarily idle capacity.All of these.Check Question 8Not completePoints out of 1.00Flag question Question textSell or Process FurtherPort Allen Chemical Company processes raw material D into joint products E and F. Raw material D costs $4 per liter. It costs $100 to convert 100 liters of D into 60 liters of E and 40 liters of F. Product F can be sold immediately for $4 per liter or processed further into Product G at an additional cost of $6 per liter. Product G can then be sold for $14 per liter.Determine whether Product F should be sold or processed further into Product G. Calculate the net benefit (cost) of further processing.$Answer per liter Check Next Question 1Not complete Points out of 20.00 Flag question Question textProduct Pricing: Single ProductPresented is the 2009 contribution income statement of Colgate Products.COLGATE PRODUCTSContribution Income StatementFor Year Ended December 31, 2009Sales (18,000 units) $2,160,000 Less variable costsCost of goods soldSelling andadministrative $720,000198,000 Contribution margin (918,000)1,242,000 Less fixed costsManufacturing overhead 750,000 Selling andadministrative 320,000 (1,070,000) Net income $172,000 During the coming year, Colgate expects an increase in variable manufacturing costs of $8 per unit and in fixed manufacturing costs of $108,000.(a) If sales for 2010 remain at 18,000 units, what price should Colgate charge to obtain the same profit as last year?$Answer0 (b) Management believes that sales can be increased to 24,000 units if the selling price is lowered to$109. What would be the excepted profit (or loss) as a result of this action? Use a negative sign with your answer, if appropriate. Answer0 (c) After considering the expected increases in costs, what sales volume is needed to earn a profit of$172,000 with a unit selling price of $109?Answer0 unitsQuestion 2Not completePoints out of 20.00 Flag question Question textCost­Based Pricingand Markups with Variable CostsCompu Services provides computerized inventory consulting. The office and computer expenses are$400,000 annually and are not assigned to specific jobs. The consulting hours available for the year total 20,000, and the average consulting hour has $20 of variable costs.(a) If the company desires a profit of $140,000, what should it charge per hour?$Answer0 (b) What is the markup on variable costs if the desired profit is $120,000?Answer0 %(c) If the desired profit is $40,000, what is the markup on variable costs to cover (1) unassigned costs and (2) desired profit?Markup to cover unassigned costs Answer0 %Markup to cover desired profits Answer % 0 Check Next Question 3Not completePoints out of 20.00Flag question Question textComputing MarkupsThe predicted 2009 costs for Osaka Motors are as follows:Manufacturing Costs Selling and Administrative CostsVariableFixed $100,000 Variable $300,000 220,000 Fixed 200,000 Average total assets for 2009 are predicted to be $7,000,000.(a) If management desires a 13 percent rate of return on total assets, what are the markup percentages for total variable costs and for total manufacturing costs? (Round your answers to the nearest whole percent.)Markup on variable costs Answer %Markup on manufacturing costs Answer % (b) If the company desires a 10 percent rate of return on total assets, what is the markup percentageon total manufacturing costs for (1) unassigned costs and (2) desired profit? (Round your answers tothe nearest whole percent.)Markup to cover unassigned costs Answer %Markup to cover desired profit Answer % Check Next Question 4Not completePoints out of 20.00Flag question Question textProduct Pricing: Two Products Quality Data manufactures two products, CDs and DVDs, both on the same assembly lines and packaged 10 disks per pack. The predicted sales are 400,000 packs of CDs and 500,000 packs of DVDs. The predicted costs for the year 2014 are as follows:Variable Costs Fixed CostsMaterials $200,000 $500,000 250,000 800,000 Other Each product uses 50 percent of the materials costs. Based on manufacturing time, 40 percent of the other costs are assigned to the CDs, and 60 percent of the other costs are assigned to the DVDs. The management of Quality Data desires an annual profit of $100,000.(a) What price should Quality Data charge for each disk pack if management believes the DVDs sell for 20 percent more than the CDs? Round answers to the nearest cent.CDs $Answer DVDs $Answer (b) What is the total profit per product using the selling prices determined in part (a)? Use negative signs with answers, if appropriate. CDs $Answer DVDs $ Answer Check Next Question 5Not completePoints out of 20.00Flag question Question textTarget CostingOregon Equipment Company wants to develop a new log­splitting machine for rural homeowners. Market research has determined that the company could sell 5,000 log­splitting machines per year ata retail price of $600 each. An independent catalog company would handle sales for an annual fee of $3,000 plus $70 per unit sold. The cost of the raw materials required to produce the log­splitting machines amounts to $50 per unit.If company management desires a return equal to 10 percent of the final selling price, what is the target conversion and administrative cost per unit? Round answer to the nearest cent. $Answer Check Next