Which Depreciation Method Should We Use?

Atwater Manufacturing Company purchased a new machine especially built to perform one particular function on the assembly line. A difference of opinion has arisen as to the method of depreciation to be used in connection with this machine. Three methods are now being considered:

(a)The straight-line method

(b)The productive-output method

(c)The sum-of-the-years’-digits method

List separately the arguments for and against each of the proposed methods from both the theoretical and practical viewpoints.

Talk-2-Me Corporation produces and markets mobile phones for corporate use. The mobile phones have built in tracking devices and a network enabled shutdown system so that corporate security or the telephone holder can locate and quickly disable a corporation issued cell phone, when necessary.

The cost of producing and installing the shutdown technology is as follow:

Talk-2-Me receives a bid from an outside vendor to produce the shutdown system for the mobile telephones at a cost of $12.00 per cell phone.

Additional Information:

• Power and utilities costs are directly related to producing the shutdown systems.
• Inspection, materials handling, and setup costs are variable costs. However, those costs vary per “production run” rather than per unit. Each production run produces 10 shutdown systems.
• Specialized machine rental costs are fixed costs, however, they are directly associated with producing shutdown systems. Therefore, if the company discontinues producing the shutdown system, they will not incur the related specialized machine rental costs.
• The vendor will produce and deliver the shutdown systems for Talk-2-Me to install.

Required:

1. If Talk-2-Me accepts the vendor’s bid, they will still use the production facility for existing production related activities. At the $12.00-unit cost, should Talk-2-Me accept the vendor’s offer? (Show your work).
2. Assume that if Talk-2-Me accepts the outside vendor’s offer, they could use the new available production capacity to upgrade their cell phone product. Details associated with the upgrade are:
   • Selling price of upgraded phone will increase by $18
   • Power and utilities costs will decrease to $1.25 per unit
   • Additional other variable cost of the upgrade = $14 per unit
   • Additional fixed cost related to the upgrade = $16,000.

Assuming Talk-2-Me will still produce and sell 10,000 units, re-evaluate the vendor’s offer to produce the shutdown system given this new information

The built-in data set treering provides Annual tree-ring widths in normalized units for years from -6000 to 1979. Assume that the n measurements x=(

x₁, x₂,...,x_n

) are a random sample from a population true mean μ and true unknown variance

σ²

. Using R we can define the vector x by the assignment x<-as.vector(treering).
a) Calculate, n, the number of elements in x.  

b)Calculate the sample standard deviation s, of x.  

c) Estimate true mean μ, using this data by calculating the sample mean.  

d) Calculate an unbiased point estimate of the population variance,

σ²

of tree-ring widths.  

e) Assuming normality of tree ring widths, calculate the maximum likelihood estimate of μ?  
f) Calculate the 60th percentile of x using R.  

g) Calculate a

trimmed mean for x using R.  

h) Since the sample size is >30 we can create a confidence interval for μ using a normal critical value. If we want the confidence interval to be at the 96% level and we use a normal critical value, then what critical value should we use?

i) Calculate a 96% confidence interval(using a normal critical value) for μ.
(

,

)

j) How long is the 96% confidence interval just created in part i?  

Baggage Blunders Terminal 5, built by British Airways for $8.6 billion, is Heathrow Airport’s newest state-of-the-art facility. Made of glass, concrete and steel, it is the largest freestanding building in the United Kingdom opened in 2008. With 96 self-service check-in kiosks, more than 90 fast bag drops, 54 standard check-in desks, and over 15 kilometres of suitcase-moving belts that were supposed to be able to process 12,000 bags per hour. Terminal 5 had been planned to ease congestion at Heathrow and improve the flying experience for the 30 million passengers expected to pass though it annually. However, the facility’s design did not initially seem to support those goals. After two decades of planning and 100 million hours of labour, opening day did not work out as planned. Within the first few hours of the terminal’s operation, problems developed. Baggage workers, presumably understaffed, were unable to clear unclaimed luggage fast enough. Many arriving passengers had to endure long delays to get their bags. There were problems for departing passengers as well, as many tried in vain to check in for flights. Planes were allowed to leave with empty cargo holds. At one point on that first day, the airline had no choice but to check in only those passengers with no checked luggage. And it did not help matters when the moving belt system became jammed. Lesser problems also became apparent: a few broken escalators, some hand dryers that did not work, a gate that would not function, and inexperienced ticket sellers who did not know the fares between Heathrow and various stations on the Piccadilly line. By the end of the first day of operation, Britain’s Department of Transportation released a statement calling for British Airways and the airport operator BAA to ‘work hard to resolve these issues and limit disruptions to passengers’. Almost 250 flights in and out of Terminal 5 were cancelled during the first four days of operation because of problems with the baggage-handling system, the temporary suspension of luggage checking and staff lack of knowledge. Some 28,000 bags were delayed, and 9000 items still needed to be returned to their owners by the second week of operation. The airline said the problems were expected to cost it about $16 million. However nine days after the new terminal opened the system was still experiencing problems. BAA’s computer system, which sorts bags before loading onto flights, malfunctioned and baggage had to be sorted manually. British Airways had to cancel 24 flights to and from Terminal 5 as a result of these latest problems. A spokesperson for British Airways described the situation as ‘incredibly disappointing’ and said they were working with BAA to get the problem resolved as quickly as possible. BAA said the problem was entirely its responsibility. (Case taken from M Scott, ‘New Heathrow hub: Slick but no saviour’,Businessweek, 28 March 2008, p.11). Questions: 1) Explain the terms feed-forward, concurrent and feedback control mechanisms. Which of these is of most importance in this situation? Explain your choice. 2) How might immediate corrective action have been used in this situation? How about basic corrective action?

Almost all U.S. light-rail systems use electric cars that run on tracks built at street level. The Federal Transit Administration claims light-rail is one of the safest modes of travel, with an accident rate of .99 accidents per million passenger miles as compared to 2.29 for buses. The following data show the miles of track and the weekday ridership in thousands of passengers for six light-rail systems.

1. Use these data to develop an estimated regression equation that could be used to predict the ridership given the miles of track.
   
   Compute b₀ and b₁ (to 2 decimals).
   b₁
   b₀
   
   Complete the estimated regression equation (to 2 decimals).
   =  +  x
   
2. Compute the following (to 1 decimal):

   SSE
   SST
   SSR
   MSE

   
   
3. What is the coefficient of determination (to 3 decimals)? Note: report r² between 0 and 1.
   
   
   Does the estimated regression equation provide a good fit?
   SelectYes, it even provides an excellent fitYes, it provides a good fitNo, it does not provide a good fitItem 10
   
4. Develop a 95% confidence interval for the mean weekday ridership for all light-rail systems with 30 miles of track (to 1 decimal).
   (  ,  )
   
5. Suppose that Charlotte is considering construction of a light-rail system with 30 miles of track. Develop a 95% prediction interval for the weekday ridership for the Charlotte system (to 1 decimal).
   (  ,  )

Daddy Warbucks, a very wealthy investor, built his fortune through his legendary investing knowledge. At present, he has been offered three investments from which he would like to choose one.

The first is a conservative investment that would perform quite well in an expanding economy and only suffer a small loss in a worsening economy. The second is a speculative investment that would perform extremely well in an expanding economy, but do quite poorly in a worsening economy. The last alternative is a countercyclical investment that would suffer some loss in an expanding economy, but perform well in a worsening economy.

Warbucks believes that there are three possible scenarios during the lives of these investments as follows:

· An Expanding Economy

· A Stable Economy

· A Worsening Economy

He is somewhat pessimistic about where the economy is headed, and so has assigned probabilities of 0.1, 0.5, and 0.4 respectively to these three scenarios. He also estimates that his profits under these respective scenarios are shown in the following payoff table.

1. Considering this data, which investment should he make based on an Expected Monetary Value (EMV) criterion?

2. Upon reflection, Daddy Warbucks doesn't have a great deal of confidence in the accuracy of his probability estimates. Which investment should he make under each of the following criteria?

a) Maximax

b) Maximin

c) Realism Criterion with indices of 0.25, 0.65, and 0.85

d) Equally Likely States of Nature e) Minimax Regret

3. Briefly describe how Warbucks might leverage Bayes' Theorem (Bayes' Decision Rule) to improve his confidence about his probability estimates if he believes that the 10% estimate for an expanding economy is accurate, but is unsure about the odds of the other two scenarios.

eBook Almost all U.S. light-rail systems use electric cars that run on tracks built at street level. The Federal Transit Administration claims light-rail is one of the safest modes of travel, with an accident rate of .99 accidents per million passenger miles as compared to 2.29 for buses. The following data show the miles of track and the weekday ridership in thousands of passengers for six light-rail systems.

Program Specifications

The built-in Java Math methods make some calculations much easier. Write a program called "DoTheMath" that accepts as input three floating-point numbers x, y, and z (define them as double) and outputs several calculations:

1. x to the power of y
2. x to the power of (y to the power of z)
3. The absolute value of x
4. The square root of (x*y to the power of z).

Sample Run:

Enter the values for x, y, z:
-3.7 -3 5
 <-- print a blank line before outputting calculations
x to the power y is -0.019742167295125655
x to the power y to the power z is -8.452419664263233E-139
The absolute value of x is 3.7
The square root of x*y to the power z is 410.49459863681534 <-- end with a println

honestly just kind of lost on how to do this.

The Case

You are a Senior Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. It is your final week on the job and a Manager asks you for some help prior to your departure. Eager to leaving a lasting impression, you start reading the background information provided by the Manager.

Lesley Donovan is the controller for the East division of Explorer Ltd. Jason Conner, head of plant engineering, has just left Donovan’s office after presenting three alternatives for submission in the capital expenditure budget for the fiscal year 2014. The budget is due to the CEO in two days and therefore Donovan realizes that time is of the essence.

Conner has outlined the following alternatives to replace an outdated milling machine:

build a general purpose milling machine;

buy a special purpose numerically controlled milling machine; or

buy a general purpose milling machine.

Explorer Ltd. is a well-established company. The company was set up about 30 years ago by two brothers Dan and Kevin Thompson, in Huntsville, Ontario, to produce accessories for the automobile industry. The Central division continues to serve the auto industry, and is the largest division in the company with sales of $35 million annually. Dan’s son is now head of this division. Kevin is still active in the company and is the Chief Executive Officer (CEO). His office is located in Toronto.

The parts division supplies seals to the mining and petrochemical industry from a plant in Toronto. This division is only ten years old and until 2010 was highly profitable. As a result of the downturn in the sector of the economy, sales in 2012 were only $12 million.

The East division, located in Scarborough, is the engineering division. Full-time employees tend to work approximately 2,000 hours in the division. Regular product lines include industrial fans, industrial cooling units, and refrigeration units for industrial users. The division is highly capital-intensive and sales tend to be directly related to general economic conditions.

Each division runs independently and performance is based upon budgeted return on investment. Bonuses are paid if the budget target is achieved. Annually, each division prepares a detailed budget submission to Kevin, outlining expected profit performance and capital expenditure requests. The milling machine proposal is part of the capital expenditure request.

The 2013 pro forma income statement for East division is set out below:

Jason Connor has pointed out to Donovan that the existing machine is not only outdated but maintenance costs are becoming prohibitive. Jason also noted that maintenance costs of new general purpose machines are only $26,000 while special purpose machines can save an additional $14,000 in maintenance. Also there would be a significant savings in insurance as the price for a general purpose machine would drop to $3,000 while a special purpose machine would be 67% higher than the general purpose machine. The machine has no market or salvage value and he is sure that its book value is now zero. The trouble is that he doesn’t know which proposal is best for the company. In addition to the cost and revenue date provided, Connor provided comments on each alternative below:

Build a general purpose machine:

This machine can be built by East division. The division is below capacity at present as a major contract has just been completed. The division could thus produce the machine without affecting revenue-producing activity, but it will take six months to complete. The machine is expected to last five years and have no salvage value because removal costs will probably equal selling price.

Connor believes that the division has the technical expertise to undertake the work. In 2012, the division produced a specialized drilling machine that has proven very successful. Connor pointed out that David Williams, chief engineer, loves the design challenge of new machines. Donovan sat down with Connor and produced the following cost estimates:

Donovan argues that this job should also bear a proportion of administrative costs; she suggests $12,000.

Buy a special purpose machine:
The advantage of this special purpose machine is that only one operator is required and output per hour could increase by 25%. In addition, maintenance costs are significantly reduced because microchip circuitry is employed.
Connor points out that this machine is state-of-the-art and would probably mean that new work could be taken on. A numerically controlled machine required extensive training of operators. In total, 26 weeks are spent in the supplier’s factory located in Florida. While the training is going on, the supplier provides an operator to work the machine without charge. Expected costs of this training period including hotel, per diem, and travel will cost $3,000 per week, excluding the operator’s labour which is set at $15 per hour.
The machine costs $625,000, and the supplier guarantees the salvage value of $25,000 at the end of five years. It is available immediately. It is estimated the machine can generate sales of $243,750 annually at full capacity and require $19,500 in direct materials cost. While the direct material costs are equivalent, the level of sales for the general purpose machine are $48,000 lower than the special purpose machine.

Buy a general purpose machine:
The purchase price of this machine is $295,000 and cost levels associated with the machine are expected to be the same as the general purpose machine built by the company because the technology is similar. The salvage value of the machine net of removal costs, is estimated to be $5,000 in five years. It can be delivered immediately.

General comments

The required rate of return for this investment class has been set at 8% by Kevin Thompson.

Question:

Prepare the budget submission to Kevin?

Consider a spherical capacitor
made of the 3 linear dielectrics: 1 for a < r < b, 2 for b < r < c, and 3 for c < r < d. There
is conducting material covering the inner surface (r=a) and the outer surface (r=d). What is
the capacitance of this device? You can assume that there is total charge Q and -Q built up on
each of the inner and outer conducting surfaces and that there is a potential di erence V between
the conductors.