Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $130 per unit. Variable expenses are $91 per stove, and fixed expenses associated with the stove total $195,000 per month.

Required:

1. What is the break-even point in unit sales and in dollar sales?

2. If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.)

3. At present, the company is selling 18,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes.

4. Refer to the data in Required 3. How many stoves would have to be sold at the new selling price to attain a target profit of $74,000 per month?

Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $130 per unit. Variable expenses are $91 per stove, and fixed expenses associated with the stove total $175,500 per month.

Required:

1. What is the break-even point in unit sales and in dollar sales?

2. If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.)

3. At present, the company is selling 20,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes.

4. Refer to the data in Required 3. How many stoves would have to be sold at the new selling price to attain a target profit of $71,000 per month?

Governments must now account for their capital assets, including infrastructure, and they must recognize in their accounts that the assets may not last forever (unless continually preserved). In the year a road maintenance district was established, it engaged in the transactions that follow
involving capital assets (all dollar amounts in thousands). The district maintains only a single governmental fund (a general fund).

1. Received authority over roads previously “owned” by the county. The estimated replacement cost of the roads was $60,000. On average they have a remaining useful life of 40 years.
2. Acquired machinery and equipment for $700, with general fund resources. They have a useful life of 10 years.
3. Incurred costs of $3,000 to construct a building. The construction was financed with general obligation bonds. The building has a useful life of 30 years.
4. Acquired equipment having a fair value of $60 in exchange for $20 cash (from general-fund resources) plus used equipment for which the district had paid $50. The used equipment had a fair value at the time of the trade of $40; depreciation of $25 had previously been recognized.
5. Sold land for $70 that had been acquired for $90.
6. Received a donation of land from one of the towns within the district. The land had cost the town $120, but at the time of the contribution had a fair market value of $500.
7. Incurred $1,200 in road resurfacing costs. The district estimates that its roads must be resurfaced every four years if they are to be preserved in the condition they were in when they were acquired.
8. Recognized depreciation of $100 on its building, $70 on its machinery and equipment, and $1,500 on its roads, in addition to any depreciation relating to the resurfacing costs.

a. Prepare entries to record the transactions so that they could be reflected in the district’s government-wide statements. The district has opted to depreciate its infrastructure assets.
b. Suppose instead that the district has elected not to depreciate its roads but to record as an expense only the costs necessary to preserve the roads in the condition they were in when acquired. How would your entries differ?
c. If, in fact, the roads have a useful life of 40 years, do you think it is sound accounting not to depre-ciate the roads? Explain.
d. If, in fact, the preservation costs are sufficient to preserve the roads in the condition they were in when the district acquired them, do you think it is sound accounting to depreciate the roads? Explain.

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $860 per set and have a variable cost of $260 per set. The company has spent $184,000 for a marketing study that determined the company will sell 22,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 4,000 sets of its high-priced clubs. The high-priced clubs sell at $1,170 and have variable costs of $610. The company will also increase sales of its cheap clubs by 4,000 sets. The cheap clubs sell for $480 and have variable costs of $190 per set. The fixed costs each year will be $7,370,000. The company has also spent $1,105,000 on research and development for the new clubs. The plant and equipment required will cost $18,900,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,038,000 that will be returned at the end of the project. The tax rate is 33 percent, and the cost of capital is 15 percent. Assume that the values are accurate to within only ±9 percent. (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) Required: (a) What is the best-case NPV? (Do not round your intermediate calculations.) (b) What is the worst-case NPV? (Do not round your intermediate calculations.)

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $860 per set and have a variable cost of $260 per set. The company has spent $184,000 for a marketing study that determined the company will sell 22,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 4,000 sets of its high-priced clubs. The high-priced clubs sell at $1,170 and have variable costs of $610. The company will also increase sales of its cheap clubs by 4,000 sets. The cheap clubs sell for $480 and have variable costs of $190 per set. The fixed costs each year will be $7,370,000. The company has also spent $1,105,000 on research and development for the new clubs. The plant and equipment required will cost $18,900,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,038,000 that will be returned at the end of the project. The tax rate is 33 percent, and the cost of capital is 15 percent. Assume that the values are accurate to within only ±9 percent. (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) Required: (a) What is the best-case NPV? (Do not round your intermediate calculations.) (b) What is the worst-case NPV? (Do not round your intermediate calculations.)

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $865 per set and have a variable cost of $425 per set. The company has spent $340,000 for a marketing study that determined the company will sell 70,600 sets per year for seven years. The marketing study also determined that the company will lose sales of 13,800 sets of its high-priced clubs. The high-priced clubs sell at $1,235 and have variable costs of $695. The company will also increase sales of its cheap clubs by 15,800 sets. The cheap clubs sell for $455 and have variable costs of $245 per set. The fixed costs each year will be $10,750,000. The company has also spent $2,900,000 on research and development for the new clubs. The plant and equipment required will cost $39,200,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,600,000 that will be returned at the end of the project. The tax rate is 24 percent, and the cost of capital is 12 percent.

Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $760 per set and have a variable cost of $360 per set. The company has spent $146,000 for a marketing study that determined the company will sell 58,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,100 sets of its high-priced clubs. The high-priced clubs sell at $1,060 and have variable costs of $660. The company will also increase sales of its cheap clubs by 10,600 sets. The cheap clubs sell for $400 and have variable costs of $210 per set. The fixed costs each year will be $9,060,000. The company has also spent $1,070,000 on research and development for the new clubs. The plant and equipment required will cost $28,420,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,260,000 that will be returned at the end of the project. The tax rate is 22 percent, and the cost of capital is 12 percent. Suppose you feel that the values are accurate to within only ±10 percent. (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) What are the best-case and worst-case NPVs? I have provided all the data that I have, no probabilities data...

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $840 per set and have a variable cost of $440 per set. The company has spent $154,000 for a marketing study that determined the company will sell 58,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,900 sets of its high-priced clubs. The high-priced clubs sell at $1,140 and have variable costs of $740. The company will also increase sales of its cheap clubs by 11,400 sets. The cheap clubs sell for $480 and have variable costs of $250 per set. The fixed costs each year will be $9,140,000. The company has also spent $1,150,000 on research and development for the new clubs. The plant and equipment required will cost $28,980,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,340,000 that will be returned at the end of the project. The tax rate is 38 percent, and the cost of capital is 10 percent. Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $860 per set and have a variable cost of $460 per set. The company has spent $156,000 for a marketing study that determined the company will sell 60,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,100 sets of its high-priced clubs. The high-priced clubs sell at $1,160 and have variable costs of $760. The company will also increase sales of its cheap clubs by 11,600 sets. The cheap clubs sell for $500 and have variable costs of $260 per set. The fixed costs each year will be $9,160,000. The company has also spent $1,170,000 on research and development for the new clubs. The plant and equipment required will cost $29,120,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,360,000 that will be returned at the end of the project. The tax rate is 35 percent, and the cost of capital is 12 percent. Suppose you feel that the values are accurate to within only ±10 percent.

What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)