Question

In: Accounting

HappyFruit Cell Phones makes consumer grade cellar devices. The Company is currently making their own chargers....

HappyFruit Cell Phones makes consumer grade cellar devices. The Company is currently making their own chargers. The production cost information per charger is presented below. Direct Materials $4.9 Direct Labor $5.97 Variable Overhead $5.5 Fixed Overhead $11.93 Another company has offered to sell HappyFruit the charger they supply with their devices $18 per charger. None of the fixed overhead can be avoided. What is the cost/benefit of purchasing the charger from the outside supplier on a per unit basis. Enter a net cost as a negative number (ie. -1.50). Enter a net benefit as a positive number (ie. 1.50). Round your answer to two decimal places.

The Little Buddy Bench Press Company makes family friendly fitness equipment. They recently received an offer to sell 565 customized kiddo-planks to a Planet Mall Fitness for $28 per kiddo-plank.  The company has capacity to fill the order. The average costs for kiddo-plank are:

Direct Materials $4
Direct Labor 9
Variable Manufacturing Overhead 5
Variable Selling Expenses 3
Fixed Manufacturing Overhead 4
Total Cost per Plank $25

The custom order will incur no variable selling expenses. However, due to a special logo needing to be embossed on each product, the direct materials expense will increase by $9 per plank.  How much will the profit of the company increase or decrease if they decide to accept the offer?  Enter a net decrease as a negative number (ie. -4000). Enter a net increase as a positive number (ie. 4000). Round your answer to the whole dollar.

If you invest $1297 and the investment generates $620 per year, how many years will it take to recover your original investment? Round your answer to one decimal place.

What is the value in today's dollars of $1 each year for the next 9 years if the current discount rate is 9%? Round your answer to three decimal places.

How much would you need to invest today at 5% to have one dollar in 10 years? Enter your answer to three decimal places.

If you invested $1 today an interest rate of 1%, and the interest compounded annually, how much would your dollar be worth in 8 years? Round your answer to two decimal places.

Solutions

Expert Solution

1. Net Cost of buying the charger is -$1.63

Working Note:

Cost of Buying the charger------------------------------------$ 18.00

Less: Avoidable cost of manufacturing the charger

Direct Materials-----------------------------$ 4.9

Direct Labour--------------------------------$ 5.97

Variable Overhead--------------------------$ 5.5$ 16.37

Net Cost of buying the charger--------------------------------$-1.63

2) If the order ia accepted net increase= $ 565

Working Note

Statement showing the Break –up per Kiddo-plank

Particulars

Cost ($)

Direct material

$ 13

Direct Labour

$ 9

Variable Manufacturing Overhead

$ 5

Total Variable Cost

$ 27

Selling Price of plank /unit

$ 28

Contribution/unit

$ 1

Total Contribution=$ 1* 565 units=$ 565

3. Payback Period= Initial Investment/Periodic Cash Flow=$ 1297/$ 620=2.09 years=2.1 year

4. Present value in today’s dollars of $ 1 each year for the next 9 years if the current discount rate is 9% =$ 5.995{ Present value=1/(1+0.9)^1+1/(1+0.9)^2…………….1/(1+0.9)^9}

5. Amount to be invested today=$ 0.614

Amount invested today=x

Amount received after 10 years= $ 1

Rate of Interest=5%

X(1.05)^10=$ 1

X*1.629=1

Therefore x=0.614


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