Is It Important?" Please respond to the following: Assess the importance of causality in estimating cost functions/relationships.

Part 1 of the assignment requires you to determine the cost of a unit of coffee (Mona Loa and Malaysian) using the traditional overhead allocation method. A unit of coffee is a one pound bag. The unit cost will include direct materials, direct labor, and manufacturing overhead (as determined using the predetermined overhead rate). You NEED to use Excel formulas whenever possible. Basically, the only time you will not use formulas is when you enter given information.

Part 2 of the assignment requires you to determine the cost of a unit of coffee (Mona Loa and Malaysian) using the activity-based costing method. As with the traditional method, you will need to show direct materials, direct labor and manufacturing overhead (as determined using ABC). Once again, use formulas wherever you can.

Part 2A is a comparison of both methods. Link the numbers to Parts 1 and 2 whenever possible. Show a side-by-side comparison of unit product costs calculated under each method (show the unit product cost of each type of coffee using both traditional and ABC costing). Unit product costs include direct materials, direct labor and manufacturing overhead costs on a per unit basis. Further, determine the changes in the profit margins for each bag of coffee under both methods (the sales price mark up % is given below). How much was the company losing per bag of the Malaysian coffee under the Traditional Method? Remember to use formulas.

Part 3 requires you to write a memo on your findings. The memo should be addressed to the president of Coffee Bean, Inc. The tone and format of the memo should be professional. Make recommendations based on your findings. Point out what caused differences between the two methods. Also, point out any potential problems you see with your recommendations (hint: see the part of the chapter on the limitations of ABC). The memo should be less than 300 words. Presidents don’t like to read long memos!

Activity-Based Costing as an Alternative to Traditional Product Costing

New lithographic equipment, acquired at a cost of $800,000 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $90,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense each year. On the basis of the data presented to the manager, the double-declining-balance method was selected.

In the first week of the fifth year, the equipment was sold for $134,570.

Required:

1. Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by the following methods:

a. Straight-line method

b. Double-declining-balance method

Your company wants to purchase a 3D printer at a cost of $15,000. It estimates it can generate cash inflow in the year following purchase of $12,000. In the next a cash outflow of $4,000 will occur because the printer will require expensive maintenance and a software update. In the printer’s final year of its useful life it will generate cash flow of a $10,000. The machine will then be scrapped. Is the purchase financially justifiable if the appropriate discount rate is 8%? (Assume all cash flows occur at the end of the year)

Select one:

a. Yes, it generates a positive NPV of $620.

b. No, it generates a negative NPV of $850.

c. No, it generates a negative NPV of $1,244.

d. None of the above.

Your company operates a bulldozer that is several years old, and needs to be repaired frequently. You estimate that you can run it for only two more years, and that if you do, it will generate cash flows of $5,000 next year and $5,000 in the year after that. If you trade in the old bulldozer (forgoing these cashflows) and purchase a new one for $50,000 (the balance owing after the trade in allowance), you estimate the new one will generate cash flows in the next four years of $12,000, $14,000, $16,000 and $20,000, at which time the new bulldozer will be taken out of service and sold for $5,000. Is the purchase of the new bulldozer financially justified if the appropriate discount rate is 8%? (Assume all cash flows occur at the end of the year )

Select one:

a. Yes, it generates a positive NPV of $4,191.

b. Yes, it generates a positive NPV of $516.

c. No, it generates a negative NPV of $4,725.

d. No, it generates a negative NPV of $8,401.

e. None of the above.

You plan on saving $12,300 at the end of each of the next 20 years and investing your savings at an annual interest rate of 8%. At the end of year 20 you plan on retiring. You plan on leaving your savings in investments yielding an annual rate of 8% and withdrawing from savings a constant amount for the next 30 years commencing at the end of your first year of retirement. How large a withdrawal can you afford to make?

Select one:

a. $68,000

b. $27,500

c. $39,300

d. $50,000

e. None of the above

Novak Co. is building a new hockey arena at a cost of $2,620,000. It received a downpayment of $480,000 from local businesses to support the project, and now needs to borrow $2,140,000 to complete the project. It therefore decides to issue $2,140,000 of 12%, 10-year bonds. These bonds were issued on January 1, 2019, and pay interest annually on each January 1. The bonds yield 11%.

Assume that on July 1, 2022, Novak Co. redeems half of the bonds at a cost of $1,152,400 plus accrued interest. Prepare the journal entry to record this redemption. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Suppose that you are offered an investment that will cost $898 and will pay you interest of $70 per year for the next 20 years. Furthermore, at the end of the 20 years, the investment will pay $1,000. If you purchase this investment, what is your compound annual rate of return?

An investment project requires an initial cost of $100. The project will provide $ 25 in the first year and $110 in the second year. What is the NPV of the project if the discount rate is 10%?

You want to invest in a project in Winterland. The project has an initial cost of WM1,040,000 and is expected to produce cash inflows of WM446,000 a year for three years. The project will be worthless after three years. The expected inflation rate in Winterland is 3.7 percent while it is 2.6 percent in the U.S. The applicable interest rate in Winterland is 6.25 percent. The current spot rate is WM1 = US$.87. What is the net present value of this project in U.S. dollars using the foreign currency approach? (Find the NPV in WDM, then convert to US$ using the spot rate) $17,591.43 $15,410.28 $12,760.33 $13,733.66 $14,094.72

You must evaluate the purchase of a proposed piece of equipment. The cost of the equipment is $50,000. The installation and transportation cost of bringing the equipment to its location is $6,000. The equipment falls into the MACRS 3-year class. The project is expected to increase revenues by $80,000 each year and increase operating costs (excluding depreciation) by $30,000 each year. This project leads to an increase in net operating working capital by $10,000. You can salvage the equipment for $10,000 at the end of the project. What is the project's cash flow in Years 1, 2, 3, 4? (use MACRS of 33%, 45%, 15%, 7%). Use the NPV and IRR criteria to evaluate this project. Is this project profitable? Use marginal tax rate of 21% and WACC of 10%. (You must show your full work to earn any credit for this question)