You have been hired as a project management consultant to assist the Acme Company in evaluating two different project proposals they are considering. Proposal A calls for the construction of a new plant which will require three years to complete and will have much greater capacity than the old plant. Because the plant will have to be built on the current site, the old plant will have to be razed. Proposal B involves the renovation of this plant. This renovation will require two years to complete, but the plant can remain in operation in a reduced capacity during this upgrade. Once the renovation is complete revenue will be increased by 25% per year, however annual maintenance will be 50% higher than Proposal A.

Proposal A: Build New Plant

         Year1 Year2 Year3   Year4   Year5   Year6 Year7 Year8 Year9   Year10

Revenue 0     0        0   400     800     800    800   800    800     800

Expense 800    600    600    50      50      50      50    50     50   50

Proposal B: Renovate Existing Plant

         Year1   Year2 Year3   Year4 Year5   Year6   Year7 Year8 Year9 Year10

Revenue 100   100    350     350     350     350     350   350     350    350

Expense 500   500    75      75      75      75      75    75      75      75

Questions:

a.   What is the profit associated with the project carried out in Proposal A? Proposal B?

b.   When does payback occur on the project carried out in Proposal A? Proposal B?

c.   What is the present value of revenue for the project carried out in Proposal A? Proposal B? (In computing present value, do not discount the value for the first year being examined.) (Assume i = 0.10)

d.   What is the present value of expense for the project carried out in Proposal A? Proposal B? (In computing present value, do not discount the value for the first year being examined.) (Assume i = 0.10)

e.   What is net present value for the project described in Proposal A? Proposal B? (In computing present value, do not discount the value for the first year being examined.) (Assume i = 0.10)

f.    What is the internal rate of return for the project described in Proposal A? Proposal B?

g.   Which project would you recommend? Why? What are the merits? What are the risks?

Syed & Zhang Customized Manufacturing Ltd. produces several different alternators for over 10 different auto manufacturers that currently have manufacturing operations located in Southwestern Ontario. Each one of these customers have very different specifications.

Syed & Zhang also has several departments. The first is the moulding department, followed by the customization department and then finally the finishing department. In the first department that being the moulding department they create a very specific template for the alternators. This component is called an Altitude Alternator which is the starting point for all the different types of alternators that are manufactured at Syed & Zhang. The following relates to the production of these alternators during the month of June in the moulding department:

Please keep in mind that their previous controller recommended they use process costing. Base your calculations on the assumption that Syed & Zhang continue to use process costing for allocating and tracking costs.

Required

Using the weighted-average method, calculate the following:

1-a. Costs per equivalent unit. (Round your answers to 4 decimal places.)

1-b. Cost of goods completed and transferred out. (Round "Cost per EU" to 4 decimal places. Round final answer to nearest whole dollars.)

1-c. Costs remaining in the Work-in-Process Inventory account. (Round "Cost per EU" to 4 decimal places. Do not round other intermediate calculations. Round final answer to nearest whole dollars.)

2. Assume that you are the company’s controller. The production department’s June equivalent unit cost is higher than expected. If the manager of the first department asks you to do him a favor by increasing the ending inventory completion percentage from 30 to 50% to lower the unit costs, how much would unit cost be affected by this request? (Round your answer to 4 decimal places.)

CH12

1. With double-digit annual percentage increases in the cost of health insurance, more and more workers are likely to lack health insurance coverage (USA Today, January 23, 2004). The following sample data provide a comparison of workers with and without health insurance coverage for small, medium, and large companies. For the purposes of this study, small companies are companies that have fewer than 100 employees. Medium companies have 100 to 999 employees, and large companies have 1000 or more employees. Sample data are reported for 50 employees of small companies, 75 employees of medium companies, and 100 employees of large companies.

1. Conduct a test of independence to determine whether employee health insurance coverage is independent of the size of the company. Use  = .05. Use Table 12.4.
   
   Compute the value of the  ² test statistic (to 2 decimals).
   
   
   The p value is ?
   
   
   
2. The USA Today article indicated employees of small companies are more likely to lack health insurance coverage. Calculate the percentages of employees without health insurance based on company size (to the nearest whole number).
   

   Small	%
   Medium	%
   Large	%

   SMALL ? , MEDIUM? LARGE ?

2.

During the first 13 weeks of the television season, the Saturday evening 8:00 P.M. to 9:00 P.M. audience proportions were recorded as ABC 30%, CBS 27%, NBC 25%, and independents 18%. A sample of 300 homes two weeks after a Saturday night schedule revision yielded the following viewing audience data: ABC 93 homes, CBS 63 homes, NBC 88 homes, and independents 56 homes. Test with  = .05 to determine whether the viewing audience proportions changed. Use Table 12.4.

Round your answers to two decimal places.

χ ² = ??

Shown as follows is a segmented income statement for Drexel-Hall during the current month.

All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores.

Top management of Drexel-Hall is considering closing Store 3. The three stores are close enough together that management estimates closing Store 3 would cause sales at Store 1 to increase by $84,000, and sales at Store 2 to increase by $150,000. Closing Store 3 is not expected to cause any change in common fixed costs.

Compute the increase or decrease that closing Store 3 should cause in:

a. Total monthly sales for Drexel-Hall stores.

b. The monthly responsibility margin of Stores 1 and 2.

c. The company's monthly income from operations.

Marybeth and Anneal Yao are beginning to contemplate retirement. They are each forty-five years of age and have saved a total of $500,000 for retirement. Marybeth and Anneal realize that they have not saved sufficiently to be able to retire early, fully retire without some part-time employment, or replace 100 percent of current pre-retirement income. As such, they are willing to explore different approaches to reach retirement. Marybeth and Anneal have a combined annual income of $125,000. They believe their salaries will keep pace with inflation at 4 percent per year. They are also comfortable assuming that the effective annual rate of return on their retirement assets will be 9.0 percent before retirement and 6.5 percent after retirement. For now, Marybeth wants to keep the planning simple, projecting that they will both die in exactly forty years and that their retirement assets will be depleted with the exception of $100,000 to cover funeral and burial costs. Lastly, they do not want to continue saving after they retire (either partly or fully). As their financial planner, provide some assistance in calculating the amount of retirement assets needed on the first day of retirement, based on the two options listed below. Considering the information presented in the case, which outcome requires the lowest monthly (end-of-month) contribution if they also require that their retirement annuity grow by 4.0 percent per year to keep pace with inflation? (Ignore the effects of income taxes and Social Security on the answer.)

a.To retire at age fifty-five with an income replacement ratio of 60 percent.

b.To retire at age fifty-five with an income replacement ratio of 100 percent but work part-time for an additional ten years to offset half the projected annual need for those ten years. (In other words, Marybeth and Anneal will have a 50 percent replacement ratio for 10 years and a 100 percent replacement ratio thereafter.)

c.To retire at age sixty-five with an income replacement ratio of 100 percent.

The joint cost to produce Products 1A, 2A, 3A and 4A is $4,000.  Each of these products can either be sold at the end of the joint production process, or can be processed further into 1B, 2B, 3B and 4B.

Production and selling information is as follows:

For example, at the end of the joint production process, there are 30 kg of Product 1A produced, and each kg of Product 1A sells for $100/kg.  The 30kg batch of Product 1A can either be sold at this point for $3,000 (30kg x $100/kg) or the batch can be further processed into a batch of Product 1B at an additional cost of $50.  This will produce a 29kg batch of Production 1B that sells for $120/kg for a total sales value of $3,480 (29kg x $120/kg).

Required:

Part A    Assuming that none of the products are byproducts, calculate how much of the $4,000 joint cost should be allocated to each product using the four methods discussed in class (Physical measure method, Sales value at split-off method, net realizable value method, Constant gross margin NRV method).

Part B    Allocate the $4,000 joint cost assuming using the Net Realizable Value method and assuming that product 3 and product 4 are both by-products.  (hint: first determine if 3A should be processed further in 3B, and if 4A should be processed further into 4B)

1. With double-digit annual percentage increases in the cost of health insurance, more and more workers are likely to lack health insurance coverage (USA Today, January 23, 2004). The following sample data provide a comparison of workers with and without health insurance coverage for small, medium, and large companies. For the purposes of this study, small companies are companies that have fewer than 100 employees. Medium companies have 100 to 999 employees, and large companies have 1000 or more employees. Sample data are reported for 50 employees of small companies, 75 employees of medium companies, and 100 employees of large companies.

1. Conduct a test of independence to determine whether employee health insurance coverage is independent of the size of the company. Use  = .05. Use Table 12.4.
   
   Compute the value of the  ² test statistic (to 2 decimals).
   
   
   The p value is ?
   
   
2. The USA Today article indicated employees of small companies are more likely to lack health insurance coverage. Calculate the percentages of employees without health insurance based on company size (to the nearest whole number).

   Small	%
   Medium	%
   Large	%

   SMALL ? , MEDIUM? LARGE ?

2.

2. During the first 13 weeks of the television season, the Saturday evening 8:00 P.M. to 9:00 P.M. audience proportions were recorded as ABC 30%, CBS 27%, NBC 25%, and independents 18%. A sample of 300 homes two weeks after a Saturday night schedule revision yielded the following viewing audience data: ABC 93 homes, CBS 63 homes, NBC 88 homes, and independents 56 homes. Test with  = .05 to determine whether the viewing audience proportions changed. Use Table 12.4.

Round your answers to two decimal places.

χ ² = ??

Stan, a CPA, contributed the following items:

            1.   Clothing to Goodwill Industries (Cost - $600; FMV on date of contribution - $100)

            2.   Mileage driven on Red Cross Pledge Drive - 200 miles

            3.   100 hours donated to Red Cross as local chapter Treasurer (his professional hourly rate is $200/hour)

      If Stan's AGI is $100,000, his current year charitable contribution itemized deduction is:

      a.   $100.

      b.   $128.

      c.   $628.

      d.   $20,128.

      e.   none of the above.

2.   Sue contributed the following items:

            1.   Cash paid to Central Michigan University - $2,500

            2.   Cost of ticket to attend American Cancer Society Benefit Dinner (Cost, $50; FMV of dinner received, $20)

            3.   Cash paid to a family in Michigan whose home was destroyed by fire - $100

      If Sue’s AGI is $130,000, her current year charitable contribution itemized deduction is:

      a.   $2,650.

      b.   $2,550.

      c.   $2,530.

      d.   $2,500.

      e.   none of the above.

3.   Kathy contributed the following items:

            1.   Cash paid to Haitian charity to help homeless Haitian children - $500

            2.   Cash paid to National Democratic Party - $50

            3.   Cash paid to First Church - $28,000

      If Kathy's current year AGI is $40,000, her charitable contribution carryforward to next year is:

      a.   $0.

      b.   $4,000.

      c.   $4,500.

      d.   $4,550.

      e.   none of the above.

4.   Calvin, a sole proprietor, made the following contributions to qualified charities:

                                        Donee                            Item                       Cost                   FMV
                      Hobbs Medical Center            IBM stock              $ 5,000              $ 25,000

                                   (held 3 years)
                          Homeless Shelter                inventory                  5,000                   8,000

                                 (held 3 months)                       
                              United Way                        cash                     2,000                   2,000

      (Note: a sole proprietor deducts all allowable charitable contributions as an itemized deduction.) If Calvin’s AGI             is $70,000, his charitable contribution itemized deduction is:

      a.   $35,000.

      b.   $32,000.

      c.   $31,000.

      d.   $28,000.

      e.   none of the above.

Marybeth and Anneal Yao are beginning to contemplate retirement. They are each forty-five years of age and have saved a total of $500,000 for retirement. Marybeth and Anneal realize that they have not saved sufficiently to be able to retire early, fully retire without some part-time employment, or replace 100 percent of current pre-retirement income. As such, they are willing to explore different approaches to reach retirement. Marybeth and Anneal have a combined annual income of $125,000. They believe their salaries will keep pace with inflation at 4 percent per year. They are also comfortable assuming that the effective annual rate of return on their retirement assets will be 9.0 percent before retirement and 6.5 percent after retirement. For now, Marybeth wants to keep the planning simple, projecting that they will both die in exactly forty years and that their retirement assets will be depleted with the exception of $100,000 to cover funeral and burial costs. Lastly, they do not want to continue saving after they retire (either partly or fully). As their financial planner, provide some assistance in calculating the amount of retirement assets needed on the first day of retirement, based on the two options listed below. Considering the information presented in the case, which outcome requires the lowest monthly (end-of-month) contribution if they also require that their retirement annuity grow by 4.0 percent per year to keep pace with inflation? (Ignore the effects of income taxes and Social Security on the answer.)

a.To retire at age fifty-five with an income replacement ratio of 60 percent.

b.To retire at age fifty-five with an income replacement ratio of 100 percent but work part-time for an additional ten years to offset half the projected annual need for those ten years. (In other words, Marybeth and Anneal will have a 50 percent replacement ratio for 10 years and a 100 percent replacement ratio thereafter.)

c.To retire at age sixty-five with an income replacement ratio of 100 percent.

Shown as follows is a segmented income statement for Drexel-Hall during the current month.

All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores.

Top management of Drexel-Hall is considering closing Store 3. The three stores are close enough together that management estimates closing Store 3 would cause sales at Store 1 to increase by $56,000, and sales at Store 2 to increase by $116,000. Closing Store 3 is not expected to cause any change in common fixed costs.

Compute the increase or decrease that closing Store 3 should cause in:

a. Total monthly sales for Drexel-Hall stores.

b. The monthly responsibility margin of Stores 1 and 2.

c. The company's monthly income from operations.