McGilla Golf is evaluating selling a new line of golf clubs for five years. The clubs will generate $90,000 of annual revenue for five years with an annual variable cost of $80,000. The company has spent $31,000 for a marketing study that determined the company’s expected sales. The marketing study also determined that the company will lose sales of its high-priced clubs. The high-priced clubs will have a decrease in sales resulting in a decrease in revenue of $10,000 a year as well as a decrease in variable costs of $8,000 per year. The company will also increase sales of its cheap clubs. The cheap clubs revenue will increase by $40,000 per year and have an increase in annual variable costs of $15,000. The fixed costs each year will increase by $16,000. The company has also spent $26,000 on research and development for the new clubs. The plant and equipment required will cost $55,000 and will be depreciated on a straight-line basis over ten years or $5,500 a year. The new clubs will also require an increase in net working capital of $4,000 that will be returned at the end of the project. The plant and equipment can be sold for $11,000 at the end of five years. The tax rate is 20 percent, and the cost of capital is 14.5% percent and the company tries to achieve a three year payback period.

1. a) What is the sunk cost

2. b) What is the initial investment

3. c) What are the annual operating cash flows

4. d) What is the terminal value

5. e) Calculate the payback period, the NPV, Profit Index and the IRR, Show all work

6. f) Do you accept the project, why?

Woodland Hotels Inc. operates four resorts in the heavily wooded areas of northern California. The resorts are named after the predominant trees at the resort: Pine Valley, Oak Glen, Mimosa, and Birch Glen. Woodland allocates its central office costs to each of the four resorts according to the annual revenue the resort generates. For the current year, the central office costs (000s omitted) were as follows:

Required:

1. Based on annual revenue, what amount of the central office costs are allocated to each resort?

2. Suppose that the current methods were replaced with a system of four separate cost pools with costs collected in the four pools allocated on the basis of revenues, assets invested in each resort, square footage, and number of rooms, respectively. Which costs should be collected in each of the four pools?

3. Using the cost pool system in requirement 2, how much of the central office costs would be allocated to each resort?

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs:

For example, electricity costs are $1,200 per month plus $0.15 per car washed. The company expects to wash 9,000 cars in August and to collect an average of $4.90 per car washed.

The actual operating results for August appear below.

Required:

Calculate the company's revenue and spending variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Company ehf. which produces high quality headphones has been in the marketing campaign for the past six years. To meet ever-increasing competition in this market, the CEO of Company ehf. that an ad campaign is needed next year to maintain the company's market share. At his request, the operating accountant has compiled the accompanying figures from the cost accounting for 2012 in order to prepare the marketing plan for next year, ie. 2013.

It is requested:

a) What will be the estimated operating income this year, ie.

B) What is the contribution margin per unit of contribution this year?

C) What is the break-even point in units this year?

D) The CEO believes that in order to achieve sales targets next year, ISK 1 million needs to be set. more advertising than this year, but other costs will remain unchanged. What then does the sales revenue need to be in 2013 in order for the business to be in balance (to break-even)?

E) What does the sales revenue need to be in 2013, e.g. this ISK 1 million advertising campaign, to have the same operating profits as expected this year?

Bensen Company began operations when it acquired $26,700 cash from the issue of common stock on January 1, 2018. The cash acquired was immediately used to purchase equipment for $26,700 that had a $3,500 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $2,300 cash. Bensen uses straight-line depreciation.

Required

Prepare income statements, statements of changes in stockholders’ equity, balance sheets, and statements of cash flows for each of the five years. Present the statements in the form of a vertical statements model. (Statement of Cash Flows and Balance Sheet only: Items to be deducted must be indicated with a minus sign.)

Problem 18-10

On March 1, 2017, Sandhill Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,310,000. The building was completed by October 31, 2019. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2017, 2018, and 2019 are given below:

(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.)

2017

Costs to date (12/31/17)    $________

Estimated Costs to Complete $________

Estimated Total Costs $________

Percent Complete ________%

Revenue Recognized $________

Costs Incurred $________

Profit/(Loss) Recognized in 2017 $________

2018

Costs to date (12/31/18) $________

Estimated Costs to Complete $________

Estimated Total Costs $________

Percent Complete ________%

Revenue Recognized in 2018 $________

Costs Incurred in 2018 $________

Profit/ (Loss) Recognized in 2018 $________

2019

_______________? $________

Total Revenue Recognized $________

Total Profit on Contract $________

Less: Profit Previously Recognized $________

Profit/(Loss) Recognized in 2019 $________

(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.)

2017 $________

2018 $________

2019 $________

Woodland Hotels Inc. operates four resorts in the heavily wooded areas of northern California. The resorts are named after the predominant trees at the resort: Pine Valley, Oak Glen, Mimosa, and Birch Glen. Woodland allocates its central office costs to each of the four resorts according to the annual revenue the resort generates.

Required: 1. Based on annual revenue, what amount of the central office costs are allocated to each resort?

2. Suppose that the current methods were replaced with a system of four separate cost pools with costs collected in the four pools allocated on the basis of revenues, assets invested in each resort, square footage, and number of rooms, respectively. Which costs should be collected in each of the four pools?

3. Using the cost pool system in requirement 2, how much of the central office costs would be allocated to each resort?

The following relate to an operating lease agreement:

1. The lease term is 3 years, beginning January 1, 2018.
2. The leased asset cost the lessor $850,000 and had a useful life of eight years with no residual value. The lessor uses straight-line depreciation for its depreciable assets.
3. Annual lease payments at the beginning of each year were $144,500.
4. Incremental costs of negotiating costs of negotiating and consummating the completed lease transaction incurred by the lessor were $3,150.

Required:
Prepare the appropriate entries for the lessor from the beginning of the lease through the end of the lease term. (Round your intermediate and final answers to the nearest whole dollar amount. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the cash received. (Jan 1, 2018)

2. Record the payment of initial direct costs. (Jan 1, 2018)

3. Record the cost of the lease. (Dec 31, 2018)

4. Record the depreciation expense. (Dec 31, 2018)

5. Record the rent revenue. (Dec 31, 2018)

6. Record the cash received. (Jan 1, 2019)

7. Record the cost of the lease. (Dec 31, 2019)

8. Record the depreciation expense. (Dec 31, 2019)

9. Record the rent revenue. (Dec 31, 2019)

10. Record the cash received. (Jan 1, 2020)

11. Record the cost of the lease. (Dec 31, 2020)

12. Record the depreciation expense. (Dec 31, 2020)

13. Record the rent revenue. (Dec 31, 2020)

Table 1

The following table shows output per hour produced by the different units of labor.

Table 1

The marginal revenue product of a resource is equal to the product of the marginal product of an input and marginal revenue.

     8.   According to Table 1, if the wage rate is $9 per hour, how many workers should this firm hire?

     9. According to Table 1, the marginal-revenue product of the:

   10.   According to Table 1, if the wage rate is $6 per hour, how many workers should this firm hire?

   11.   Refer to Table 1. If both the wage rate and the price of the good falls to $2, how many workers would the firm hire?

12.­ The structure of the product market as described by Table 1 is: