Mf Limited, a bespoke furniture manufacturing entity based in South Africa, is looking to diversify its market by entering the European and American markets. In order to gain a foothold in the new markets, Mf Limited can either produce the furniture in South Africa and export it, or acquire existing businesses in Europe and America. In order to decide between these two options, the company engaged an international consultancy firm at a cost of R800 000. Research by the consultancy firm suggested that the export route was less risky, especially considering the company’s plans to try out the international market for an initial five-year period before making a longer-term decision. In order to export the furniture, the company will need to ramp up production in South Africa. This will need the company to expand its production capacity through building a new factory and acquiring new machinery. Construction of the factory will cost the company R18 million while the new machinery will cost the company R6.5 million to purchase and R500 000 to transport and install. The company expects additional after-tax operating cash flows from the new markets to be R6 million per annum, stated in current prices. The cash flows are expected to increase in line with inflation. The expected annual inflation rate is 6%. The factory and machinery are expected to have after-tax salvage values of R10 million and R1 million, respectively (stated in current prices). The company’s nominal cost of capital is 12%.
Calculate the net present value (NPV) and internal rate of return (IRR) of the expansion project TO SHOW IF EXPANSION PROJECT IS VALID, TO WHAT TYPES OF EXCHANGE RATE RISK WILL HE BE EXPOSED
In: Finance
1.Which is not a required characteristic for a liability to be recognized?
Nonavoidable
Service potential
Incurred
2.
Which of the following is not a general category of shareholders' equity?
Net income
Contributed capital
Noncontrolling interest
Earned capital
3.
An asset is valued by the price that would be received by selling it in an orderly transaction between market participants on the date of measurement. Which measurement method is being used in this case?
Present value
Reliable value
Historical cost
Fair value
Transfer
4.
A balance sheet account that is usually reported at fair value is
Marketable Securities.
Accounts Payable.
Inventory.
Land.
5.
A balance sheet account that is usually reported at present value is
Inventory.
Accounts Payable.
Land.
Note Payable.
6.
Long-term investments include all of the following except
cash surrender value of life insurance policies.
a building held for rental activity.
bonds payable.
sinking funds.
7.
Property, plant, and equipment section of the balance sheet includes all of the following except
intangible assets.
leasehold improvements.
natural resources.
construction in progress.
8.
What is the term for the systematic allocation of the costs of intangible assets to expense?
Impairment
Amortization
Depletion
Depreciation
9.
Which of the following is not an intangible asset?
Brand name
Deferred tax asset
Franchise
Computer software
Which of the following would typically be recorded as an intangible asset with a finite useful life?
Brand name
Goodwill
Franchises
Trademarks
Which of the following would typically be recorded as an intangible asset with a finite useful life?
Brand name
Goodwill
Franchises
Trademarks
10.
The adjusted historical cost of fixed assets, calculated as historical cost minus depreciation, is called
depreciable cost.
net book value.
amortization.
impairment.
In: Accounting
Problem 04-3A Applying activity-based costing LO P1, P3, A1, A2,
C3 Skip to question [The following information applies to the
questions displayed below.] Craft Pro Machining produces machine
tools for the construction industry. The following details about
overhead costs were taken from its company records. Production
Activity Indirect Labor Indirect Materials Other Overhead Grinding
$ 380,000 Polishing $ 205,000 Product modification 550,000
Providing power $ 245,000 System calibration 560,000 Additional
information on the drivers for its production activities follows.
Grinding 14,000 machine hours Polishing 14,000 machine hours
Product modification 1,400 engineering hours Providing power 20,000
direct labor hours System calibration 400 batches Job 3175 Job 4286
Number of units 160 units 2,000 units Machine hours 300 MH 3,000 MH
Engineering hours 28 eng. hours 22 eng. hours Batches 25 batches 75
batches Direct labor hours 510 DLH 4,590 DLH Problem 04-3A
Required:
2, 3 & 4. Compute the activity overhead rates using
ABC. Combine the grinding and polishing activities into a single
cost pool. Determine overhead costs to assign to the above jobs
using ABC. What is the overhead cost per unit for Job 3175? What is
the overhead cost per unit for Job 4286? (Round your
activity rate and average overhead cost per unit to 2 decimal
places. Round "overhead assigned" to the nearest whole
dollar.)
In: Accounting
LO 2, 4, 6, 7) Carson Construction Consultants performs cement core tests in its Greenville laboratory. The following standard costs for the tests have been developed by the company's controller, Landon Carson, based on performing 2,100 core tests per month. Standard Price Standard Quantity Standard Cost Direct materials $0.50 per pound 4 pounds $ 2.00 Direct labor $10 per DLH .5 DLH 5.00 Variable overhead $9 per DLH .5 DLH 4.50 Fixed overhead $16 per DLH .5 DLH 8.00 Total standard cost per test $19.50 At the end of March, London reported the following operational results: •The company actually performed 2,250 core tests during the month. •8,500 pounds of direct materials were purchased during the month at a total cost of $5,600. •6,300 pounds of direct materials were used to conduct the core tests. •850 direct labor hours were worked at a total cost of $9,775. •Actual variable overhead was $7,800. •Actual fixed overhead was $15,750. Required (a) Calculate the direct materials price variance for March. (b) Calculate the direct materials quantity variance for March. (c) Calculate the direct labor rate variance for March. (d) Calculate the direct labor efficiency variance for March. (e) Calculate the variable overhead spending variance for March. (f) Calculate the variable overhead efficiency variance for March. (g) Calculate the fixed overhead spending variance for March. (h) Prepare a memo to Landon Carson providing possible explanations for the direct materials and direct labor variances.
In: Accounting
Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $88,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $39,800. A new piece of equipment will cost $280,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Year | Cash Savings | |||
| 1 | $ | 66,000 | ||
| 2 | 56,000 | |||
| 3 | 54,000 | |||
| 4 | 52,000 | |||
| 5 | 49,000 | |||
| 6 | 38,000 | |||
The firm’s tax rate is 35 percent and the cost of capital is 12
percent.
a. What is the book value of the old equipment?
(Do not round intermediate calculations and round your
answer to the nearest whole dollar.)
b.What is the tax loss on the sale of the old
equipment?
c. What is the tax benefit from the sale?
d. What is the cash inflow from the sale of the old equipment?
e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.)
f.Determine the depreciation schedule for the
new equipment. (Round the depreciation base and annual
depreciation answers to the nearest whole dollar. Round the
percentage depreciation factors to 3 decimal places.)
year
g. Determine the depreciation schedule for the
remaining years of the old equipment. (Round the
depreciation base and annual depreciation answers to the nearest
whole dollar. Round the percentage depreciation factors to 3
decimal places.)
h. Determine the incremental depreciation between
the old and new equipment and the related tax shield benefits.
(Enter the tax rate as a decimal rounded to 2 decimal
places. Round all other answers to the nearest whole dollar.)
i. Compute the aftertax benefits of the cost
savings. (Enter the aftertax factor as a decimal rounded to
2 decimal places. Round all other answers to the nearest whole
dollar.)
j-1. Add the depreciation tax shield benefits and
the aftertax cost savings to determine the total annual benefits.
(Do not round intermediate calculations and round your
answers to the nearest whole dollar.)
j-2. Compute the present value of the total annual
benefits. (Do not round intermediate calculations and round
your answer to the nearest whole dollar.)
k-1. Compare the present value of the incremental
benefits (j) to the net cost of the new equipment
(e)
In: Accounting
Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $92,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $41,800. A new piece of equipment will cost $300,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Year | Cash Savings | |||
| 1 | $ | 68,000 | ||
| 2 | 58,000 | |||
| 3 | 56,000 | |||
| 4 | 54,000 | |||
| 5 | 51,000 | |||
| 6 | 40,000 | |||
The firm’s tax rate is 30 percent and the cost of capital is 13
percent.
e. What is the net cost of the new equipment?
(Include the inflow from the sale of the old equipment.)
(Do not round intermediate calculations and round your
answer to the nearest whole dollar.)
f. Determine the depreciation schedule for the new
equipment. (Round the depreciation base and annual
depreciation answers to the nearest whole dollar. Round the
percentage depreciation factors to 3 decimal places.)
g. Determine the depreciation schedule for the
remaining years of the old equipment. (Round the
depreciation base and annual depreciation answers to the nearest
whole dollar. Round the percentage depreciation factors to 3
decimal places.)
h. Determine the incremental depreciation between
the old and new equipment and the related tax shield benefits.
(Enter the tax rate as a decimal rounded to 2 decimal
places. Round all other answers to the nearest whole dollar.)
i. Compute the aftertax benefits of the cost
savings. (Enter the aftertax factor as a decimal rounded to
2 decimal places. Round all other answers to the nearest whole
dollar.)
j-1. Add the depreciation tax shield benefits and
the aftertax cost savings to determine the total annual benefits.
(Do not round intermediate calculations and round your
answers to the nearest whole dollar.)
j-2. Compute the present value of the total annual
benefits. (Do not round intermediate calculations and round
your answer to the nearest whole dollar.)
k-1. Compare the present value of the incremental
benefits (j) to the net cost of the new equipment
(e). (Do not round intermediate calculations.
Negative amount should be indicated by a minus sign. Round your
answer to the nearest whole dollar.)
k-2. Should the replacement be undertaken?
| No | |
| Yes |
In: Finance
The following financial statements relate to Techmation Ltd for 2016 and 2017 respectively.
| Assets | 2016 | 2017 |
| Non current Assets | 1 315 000 | 1 180 000 |
| Inventory | 150 000 | 170 000 |
| Trade Debtors | 525 000 | 450 000 |
| 1 990 000 | 1 800 000 | |
| Equity & Liabilities | ||
| Ordinary share capital | 1 000 000 | 1 000 000 |
| Distributable Reserve | 700 000 | 500 000 |
| Bank Overdraft | 80 000 | 110 000 |
| Trade Creditors | 210 000 | 190 000 |
| 1 900 000 | 1 800 000 |
| 2016 | 2017 | |
| Sales | 1 800 000 | 1 500 000 |
| Cost of Sales | 1 200 000 | 800 000 |
| Gross Profit | 600 000 | 700 000 |
| Less: Expenditure | 150 000 | 120 000 |
| Profit before interest and Tax | 450 000 | 580 000 |
| Interest | 50 000 | 40 000 |
| Profit before Tax | 400 000 | 540 000 |
| Taxation | 120 000 | 160 000 |
| Net Profit for the year | 280 000 | 380 000 |
Required: 2.1 Calculate each of the following accounting ratios for both years:
2.1.1 Gross Margin Percentage (3)
2.1.2 Mark-up Percentage (3)
2.1.3 Return on Assets before Interest and Tax (do not use average figures) (3)
2.1.4 Current Ratio (3) 2.1.5 Acid-test Ratio (3)
2.1.6 Return on Equity (do not use average figures) (3)
2.2 Comment on the trends for the following ratios:
2.2.1 Gross margin percentage (3)
2.2.2 Current Ratio (2)
2.2.3 Acid-test ratio (2)
In: Finance
|
Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales data for the two products follow: |
| Hawaiian Fantasy |
Tahitian Joy |
|||||
| Selling price per unit | $ | 14 | $ | 120 | ||
| Variable expenses per unit | $ | 7 | $ | 36 | ||
| Number of units sold annually | 24,000 | 5,200 | ||||
| Fixed expenses total $510,300 per year. |
| Required: | |
| 1. | Assuming the sales mix given above, do the following: |
| a. |
Prepare a contribution format income statement showing both dollar and percent columns for each product and for the company as a whole. |
| b. |
Compute the break-even point in dollar sales for the company as a whole and the margin of safety in both dollars and percent. Round your "Margin of safety percentage" to 1 decimal place (i.e .1234 should be entered as 12.3). |
| 2. |
The company has developed a new product to be called Samoan Delight. Assume that the company could sell 14,000 units at $60 each. The variable expenses would be $42 each. The company’s fixed expenses would not change. |
| a. |
Prepare another contribution format income statement, including sales of the Samoan Delight (sales of the other two products would not change). Round your "Percentage" answers to 1 decimal place (i.e .1234 should be entered as 12.3). |
| b. |
Compute the company’s new break-even point in dollar sales and the new margin of safety in both dollars and percent. Round your dollar amounts to nearest whole number. Round your "Percentage" answer to 1 decimal place (i.e .1234 should be entered as 12.3). |
In: Accounting
E6-11 Calculating Target Profit, Margin of Safety, Degree of Operating Leverage [LO 6-2, 6-3, 6-4, 6-5]
Dana’s Ribbon World makes award rosettes. Following is
information about the company:
| Variable cost per rosette | $ | 2.40 | ||||||||||||||||||||
| Sales price per rosette | 5.00 | |||||||||||||||||||||
| Total fixed costs per month | 3900.00 | |||||||||||||||||||||
Required: 1. Suppose Dana’s would like to generate a profit of $1,060. Determine how many rosettes it must sell to achieve this target profit. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)
|
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3. Calculate Dana’s degree of operating leverage
if it sells 1,700 rosettes. (Round your intermediate
calculations to 2 decimal places and final answer to 4 decimal
places.)
|
4. Using the degree of operating leverage,
calculate the change in Dana’s profit if unit sales drop to 1,275
units. Confirm this by preparing a new contribution margin income
statement. (Round your intermediate calculations to 4
decimal places and final answer to 2 decimal places. (i.e. .1234
should be entered as 12.34%.))
|
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In: Accounting
Rooney Company is considering the addition of a new product to its cosmetics line. The company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. Relevant information and budgeted annual income statements for each of the products follow.
| Relevant Information | ||||||||||||
| Skin Cream | Bath Oil | Color Gel | ||||||||||
| Budgeted sales in units (a) | 128,000 | 208,000 | 88,000 | |||||||||
| Expected sales price (b) | $ | 9 | $ | 7 | $ | 14 | ||||||
| Variable costs per unit (c) | $ | 2 | $ | 4 | $ | 9 | ||||||
| Income statements | ||||||||||||
| Sales revenue (a × b) | $ | 1,152,000 | $ | 1,456,000 | $ | 1,232,000 | ||||||
| Variable costs (a × c) | (256,000 | ) | (832,000 | ) | (792,000 | ) | ||||||
| Contribution margin | 896,000 | 624,000 | 440,000 | |||||||||
| Fixed costs | (693,000 | ) | (495,000 | ) | (140,000 | ) | ||||||
| Net income | $ | 203,000 | $ | 129,000 | $ | 300,000 | ||||||
Required:
a) Determine the margin of safety as a percentage for each product.
b) Prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume.
c) For each product, determine the percentage change in net income that results from the 20 percent increase in sales.
d) Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line?
e) Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?
|
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a^
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b^
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c^
In: Accounting