Cost of Units Completed and in Process

The charges to Work in Process—Assembly Department for a period, together with information concerning production, are as follows. All direct materials are placed in process at the beginning of production.

Cost per equivalent units of $6.80 for Direct Materials and $3.00 for Conversion Costs.

a. Based on the above data, determine the different costs listed below.

b. Did the production costs change from the preceding period?

c. Assuming that the direct materials cost per unit did not change from the preceding period, did the conversion costs per equivalent unit increase, decrease, or remain the same for the current period?

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 15 million. The cash flows from the project would be SF 4.1 million per year for the next five years. The dollar required return is 11 percent per year, and the current exchange rate is SF 1.06. The going rate on Eurodollars is 4 percent per year. It is 3 percent per year on Euroswiss. Use the approximate form of interest rate parity in calculating the expected spot rates.

a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to two decimal places, e.g., 1,234,567.89)

b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b-2. What is the NPV of the project in Swiss francs? (Do not round intermediate calculations and enter your answer in francs, not in millions, rounded to two decimal places, e.g., 1,234,567.89)

b-3. What is the NPV in dollars if you convert the franc NPV to dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to two decimal places, e.g., 1,234,567.89)

What is meant by a sunk cost? Give examples of typical sunk costs for an IT project as well as examples from your personal life. Why is it difficult for people to ignore them when they should?

1. A new operating system for an existing machine is expected to cost $720,000 and have a useful life of six years. The system yields an incremental after-tax income of $275,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $21,800.
2. A machine costs $510,000, has a $33,800 salvage value, is expected to last eight years, and will generate an after-tax income of $66,000 per year after straight-line depreciation.

Assume the company requires a 10% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1 and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Write a program that asks the user to enter an item’s wholesale cost and the markup percentage. It should then display the item’s retail price, which also includes a sales tax. For example, if the item’s wholesale cost is $5.00 and it’s markup is 100 percent, than the item’s retail price will be the marked up cost ($10.00) plus the sales tax (assume 6%), which would be $10.60). If an item’s wholesale cost is $10.00 and it’s markup is 50 percent, then the retail cost would be $15.90.

The program should have a method named “calculateRetail” that receives the wholesale cost and markup percentage as arguments and return the retail price of the item.

Arden Corporation is considering an investment in a new project with an unlevered cost of capital of 9.2 %. ​Arden's marginal corporate tax rate is 36 %​, and its debt cost of capital is 4.7 %. a. Suppose Arden adjusts its debt continuously to maintain a constant​ debt-equity ratio of 0.5. What is the appropriate WACC for the new​ project? b. Suppose Arden adjusts its debt once per year to maintain a constant​ debt-equity ratio of 0.5. What is the appropriate WACC for the new project​ now? c. Suppose the project has free cash flows of $ 9.7 million per​ year, which are expected to decline by 2 % per year. What is the value of the project in parts ​(a​) and ​(b​) ​now?

Question 4

A machine was acquired on January 1, 2015, at a cost of $80,000. The machine was originally estimated to have a residual value of $5,000 and an estimated life of 5 years. The machine is expected to produce a total of 100,000 components during its life, as follows: 15,000 in 2015, 20,000 in 2016, 20,000 in 2017, 30,000 in 2018, and 15,000 in 2019.

Instructions

(a)   Calculate the amount of depreciation to be charged each year, using each of the following methods:

       1.    Straight-line method

       2.    Units-of-production

       3.    Double diminishing-balance

(b)   Which method results in the highest depreciation expense during the first two years? Over all five years?

Question 5

Certossi Service Ltd. uses straight-line depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during their first three years of operations:

2014    Jul       1          Purchased equipment for $32,000 cash, with shipping costs of $2,000.

            Nov     3          Incurred ordinary repairs on the computer of $360.

            Dec     31        Recorded 2014 depreciation on the basis of a four-year life and estimated residual value of $200.

2015    Dec     31        Recorded 2015 depreciation.

2016    Jan      1          Paid $1,600 for a major upgrade of the equipment. This expenditure is expected to increase the operating efficiency and capacity of the equipment.

Instructions

Prepare journal entries to record the above events. (Show calculations.)

Question 6

Comparative statements of financial position for Campbell Inc. appear below:

CAMPBELL INC.

Comparative Statements of Financial Position

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Assets

                                                                                                Dec. 31, 2016 Dec. 31, 2015

Cash                                                                                        $ 29,000         $15,000

Accounts receivable                                                                   28,000         19,000

Prepaid expenses                                                                         9,000         12,000

Merchandise inventory                                                               37,000         27,000

Long-term investments                                                               35,000         53,000

Equipment                                                                                   75,000         48,000

Accumulated depreciation—equipment                                   (26,000)        (22,000)

Total assets                                                                             $187,000         $152,000

Liabilities and Shareholders' Equity

Accounts payable                                                                   $ 21,000         $ 9,000

Mortgage payable                                                                       37,000         45,000

Common shares                                                                         40,000         23,000

Retained earnings                                                                       89,000         75,000

            Total liabilities and shareholders' equity                    $187,000         $152,000

Additional information regarding fiscal 2016:

1.         Profit for the year was $27,000.

2.         Cash dividends of $13,000 were declared and paid during the year.

3.         Long-term investments with a carrying amount of $53,000 were sold for $48,000 cash.

Instructions

Using the indirect method, prepare a statement of cash flows for the year ended December 31, 2016.

​OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $ 495 ​million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $ 70.7 million and its cost of capital is 12.1 %. a. Prepare an NPV profile of the purchase. b. Identify the IRR on the graph. c. Should OpenSeas proceed with the​ purchase? d. How far off could​ OpenSeas' cost of capital estimate be before your purchase decision would​ change?