Question

1-

Special Order

Pope Company manufactures a variety of hiking boots and has received a special one-time-only order from a new customer. Pope has sufficient idle capacity to accept the special order to manufacture 500 pairs of boots at a price of $45.00 per pair. Pope’s normal selling price is $65.00 per pair of boots. Variable manufacturing costs are $35.00 per pair and fixed manufacturing costs are $12.00 a pair. Pope’s variable selling expense for its normal line of boots is $1.00 per pair.

What would the effect on Pope’s operating income be if the company accepted the special order?

Pope's operating income would Answer [    ? ] by $ Answer [    ?    ] if the order was accepted.

2-

Excess Present Value Index and Average Rate of Return
Highpoint Company is evaluating five different capital expenditure proposals. The company's hurdle rate for net present value analyses is 12%. A 10% salvage value is expected from each of the investments. Information on the five proposals is as follows:

Proposal	Required Investment	PV at 12% of After-Tax Cash Flows	Avg. Annual Net Income from Investment
A	$280,000	$320,030	$37,400
B	210,000	246,780	26,000
C	170,000	183,040	19,200
D	190,000	226,300	27,600
E	138,000	146,990	14,960

a. Compute the excess present value index for each of the five proposals.
Round answers to three decimal places.

Proposal	Excess PV Index
A	Answer 0
B	Answer 0
C	Answer 0
D	Answer 0
E	Answer 0

b. Compute the average rate of return for each of the five proposals.
Round answers to one decimal place. For example, 0.4567 equals 45.7%

Proposal	Avg. Rate of Return
A	Answer 0
B	Answer 0
C	Answer 0
D	Answer 0
E	Answer 0

c. Assume that Highpoint will commit no more than $500,000 to new capital expenditure proposals.

Using the excess present value index, which proposals would be accepted. Select the best answer.

Answer [ ? ]

Now using the average rate of return, which proposals would be accepted? Select the best answer.

Answer [ ? ]

3-

Service Emphasis
The following analysis of selected data is for each of the two services Gates Corporation provides.

				Service A	Service B
Per-service data at 10,000 services
Sales price				$29	$25
Service costs:
Variable				15	14
Fixed				6	4
Selling and administrative expenses:
Variable				5	3
Fixed				3	1

In the Gates operation, labor capacity is the company's constraining resource. Each unit of A requires 3 hours of labor, and each unit of B requires 2 hours of labor. Assuming that all services can be sold at a normal price, prepare an analysis showing which of the two services should be provided with any unused productive capacity that Gates might have.

	Service
	A	B
Revenue	Answer 0	Answer 0
Less: Variable cost	Answer 0	Answer 0
Contribution margin	Answer 0	Answer 0
Labor hours per unit	Answer 0	Answer 0
Contribution margin per labor hour	Answer 0	Answer 0

Is the answer a,b, or c?

(a ) Any unused capacity should be devoted to Service B, which has $1 less contribution margin per labor hour than does Service A.

(b ) Any unused capacity should be devoted to Service A, which has $1 more contribution margin per labor hour than does Service A.

(c ) Any unused capacity should be devoted to Service B, which has $1 more contribution margin per labor hour than does Service A.

Answer 1