Chapter 7 Question 1:

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $83 per unit.

Required:

1. Assume the company uses variable costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

2. Assume the company uses absorption costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

Q1

Eb's Eggs just bought a new egg sorting machine for $124201. The machine will save $33343 in year 1, $30661 in year 2, $15526 in year 3, and $7650 per year from year 4 until the machine is salvaged at the end of year 11. At the end of year 11 it will have a salvage value of $2001. Eb uses a MARR of 8% to make decisions.

What is the payback period (PBP) for this machine?

Enter your answer as 12.34

Q2

Professor Xavier is creating a budget for his recently awarded 9-year research grant. His research requires machinery that has an initial cost of $44104. He will need to pay for maintenance on the machinery beginning at the end of year 4. He estimates the first year of maintenance will cost $3370, with the maintenance costs increasing by $511 per year each subsequent year.  How much should he put in the budget today for maintenance costs? Assume he will pay maintenance until the end of the research grant. He is using a MARR of 4%.

Enter your answer as follows: 1234

Round your answer. Do not use a dollar sign ("$"), any commas (","), or a decimal point (".").

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 25 Direct labor $ 18 Variable manufacturing overhead $ 4 Variable selling and administrative $ 3 Fixed costs per year: Fixed manufacturing overhead $ 240,000 Fixed selling and administrative expenses $ 70,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $54 per unit. Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1. Loading...

Wizard Inc. has to choose between two mutually exclusive projects. If it chooses project A, Wizard Inc. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 11%?

A. $18,097

B. $14,807

C. $9,871

D.$16,452

E. $11,516

Wizard Inc. is considering a five-year project that has a weighted average cost of capital of 14% and a NPV of $80,720. Wizard Inc. can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project?

A. $22,336

B. $19,985

C. $29,390

D. $28,214

E. $23,512

Sugar Land Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by a MBA student. The production line would be set up in unused space (Market Value Zero) in Sugar Land’ main plant. Total cost of the machine is $240,000. The machinery has an economic life of 4 years, and MACRS will be used for depreciation. The machine will have a salvage value of $25,000 after 4 years. MACRS calculated by 5 year period

The new line will generate Sales of 1,250 units per year for 4 years and the variable cost per unit is $100 in the first year. Each unit can be sold for $200 in the first year. The sales price and variable cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm’s net working capital would have to increase by $30,000 at time zero (No additional NWC is needed in years 2, 3 and the NWC will be recouped at the end of year 4). The firm’s tax rate is 40% and its weighted average cost of capital is 10%.

The text below can be copy/pasted into the submission box below. Please save your work often as you type your answers.

What are the annual depreciation expenses for years 1 through 4? (10 P0ints)

Calculate the annual sales revenues and variable costs (Don’t include depreciation in your cost estimation), for years 1 through 4. (15 points)

Estimate annual (Year 1 through 4) operating cash flows (25 Points)

Estimate the after tax salvage cash flow (5 points)

Estimate the net cash flow of this project (25 points)

Estimate the NPV, IRR, MIRR, and profitability Index of the project. (20 points)

I have A B and C answered I only need the answer to D and E. I have included the correct answers for A B and C

Problem 8-41 (LO. 2, 3, 9)

Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $400,000 on May 20, 2016. Lori expects the taxable income derived from her business (without regard to the amount expensed under § 179) to be about $800,000. Lori wants to elect immediate § 179 expensing, but she doesn't know which asset she should expense under § 179. She does not claim any available additional first-year depreciation.

Click here to access the depreciation tables in the textbook.

a. Determine Lori's total deduction if the § 179 expense is first taken with respect to the 5-year class asset.

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b. Determine Lori's total deduction if the § 179 expense is first taken with respect to the 7-year class asset.

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c. If § 179 expense is first allocated to the seven-year class property, the deduction for the year would be $5710 larger.

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For parts d. and e.
Assume a 6% discount rate The present value factors for a 6% discount rate are as follows: Year 1: 1.000, Year 2: 0.9434; Year 3: 0.8900, Year 4: 0.8396, year 5: 0.7921, Year 6: 0.7473, Year 7: 0.7050, Year 8: 0.6651.

d. Assume that Lori is in the 25% marginal tax bracket and that she uses § 179 on the 7-year asset.

The present value of the tax savings from the depreciation deductions for both assets $.

e. Assume that Lori is in the 25% marginal tax bracket and that Lori decides not to use § 179 on either asset.

The present value of the tax savings generated by not using the § 179 deduction on the 7-year asset $.

1. Dodie Company completed its first year of operations on December 31. All of the year's entries have been recorded except for the following:

      a. At year-end, employees earned wages of $4,000, which will be paid on the next payroll date in January of next year.

      b. At year-end, the company had earned interest revenue of $1,500. The cash will be collected March 1 of the next year.

2. A+T Williamson Company is making adjusting entries for the year ended December 31 of the current year. In developing information for the adjusting entries, the accountant learned the following:

     a. A two-year insurance premium of $4,800 was paid on October 1 of the current year for coverage beginning on that date. The bookkeeper debited the full amount to Prepaid Insurance on October 1.

     b. At December 31 of the current year, the following data relating to Shipping Supplies were obtained from the records and supporting documents.

Required:

For each of the transactions in Dodie Company and A+T Williamson Company, indicate the amount and the direction of effects of the adjusting entry on the elements of the balance sheet and income statement. (Enter negative amounts with a minus sign.)

1. Dodie Company completed its first year of operations on December 31. All of the year's entries have been recorded except for the following:

      a. At year-end, employees earned wages of $4,200, which will be paid on the next payroll date in January of next year.

      b. At year-end, the company had earned interest revenue of $1,600. The cash will be collected March 1 of the next year.

2. A+T Williamson Company is making adjusting entries for the year ended December 31 of the current year. In developing information for the adjusting entries, the accountant learned the following:

     a. A two-year insurance premium of $5,040 was paid on October 1 of the current year for coverage beginning on that date. The bookkeeper debited the full amount to Prepaid Insurance on October 1.

     b. At December 31 of the current year, the following data relating to Shipping Supplies were obtained from the records and supporting documents.

Required:

For each of the transactions in Dodie Company and A+T Williamson Company, indicate the amount and the direction of effects of the adjusting entry on the elements of the balance sheet and income statement. Using the table below, indicate + for increase and − for decrease. (Enter negative amounts with a minus sign.)