Cysco Corp has a budget of $1,200,000 in 2015 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $100,000 in variable costs. The new method will require $50,000 in training costs and $140,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 200,000 units.

Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $30 per failed unit of finished goods. The internal failure rate is expected to be 5% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $50 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.
What is the net change in the budget of prevention costs if the procedures are automated in 2015? Will management agree with the changes?

       A) $100,000 decrease, yes
       B) $90,000 decrease, yes

       C) $100,000 increase, no

       D) $90,000 increase, yes

Variables typically included in a multivariate supply function (other than the price and quantity of the item the supply function represents) are prices of other goods that use similar input resources for production, expectations, the number of suppliers, techniques of production, taxes and subsidies, and prices of input resources, weather.  Please answer the following questions about the affect changes in other variables might have on the supply of the item.  These changes will either cause supply to increase (shift right) or decrease (shift left).  Use either word as applicable, for the short answer.

1. Suppose the market price of fuel oil increases (preparing for the winter demand), what will refiners do to the supply of gasoline (which uses the same input resources as fuel oil)?

2. A tariff is a form of trade restriction (that behaves much like a tax).  Suppose the United States imposes a high tariff on imported broccoli.  How might this change the supply of imported broccoli?

3. How will a decrease in the productivity of technology affect the supply of the item being considered, assuming no increase in the availability of manufacturing materials?

4. If the price of an input resource increases (and there are no cheaper substitutes for the resource) then producers of the item the resource is used to produce are likely to ____________________ the amount of the item produced

5. A subsidy is paid to vaccine producers in order to _______________ the supply of vaccine.

You are the operations manager for a small kayak and canoe manufacturer (Valley Kayaks) located on the Pacific Northwest (Oregon). Lately your company has experienced product quality problems. Simply put, the kayaks that you produce occasionally have defects and require rework. Consequently, you have decided to assess the impact of introducing a total quality management (TQM) program. After discussing the potential effects with representatives from marketing, finance, accounting, and quality, you arrive at a set of estimates (contained in the following table). Top management has told you that they will accept any proposal that you come up with PROVIDED that it improves the return on assets measure by at least 25 percent. Use Figure 2.3.

a) Calculate the ROA (return on assets) with changes AND without changes.

b) Would you go forward with this proposal to improve quality, YES or NO?

Mazeppa Corporation sells relays at a selling price of $28 per unit. The company's cost per unit, based on full capacity of 160,000 units, is as follows: Direct materials $ 6 Direct labor 4 Overhead (2/3 of which is variable) 9 Mazeppa has been approached by a distributor in Montana offering to buy a special order consisting of 30,000 relays. Mazeppa has the capacity to fill the order. However, it will incur an additional shipping cost of $2 for each relay it sells to the distributor.

a-1. Assume that Mazeppa is currently operating at a level of 100,000 units. Show the calculation for the unit price to charge the distributor which will generate an increase in operating income of $4 per unit?

a-2. What is your interpretation of the changes to the contribution margin per unit and the operating income on account of the increase in selling price?

b-1. Assume that Mazeppa is currently operating at full capacity. Show the calculation for the unit price to charge the distributor which will generate an increase in operating income of $60,000 more than it would be without accepting the special order?

b-2. What is your interpretation of the changes to the contribution margin per unit and the operating income on account of the unit price charged to the distributor?

You need to pay a bill of 250,000 EURO in 90 days. You have US dollars. You can buy a futures contract today                  
that allows you to buy 125,000 EURO at a rate of $1.0967 (while the spot rate is 1.088) US$ to 1 EURO that                  
matures in 90 days. Margin requirement per contract is $3,350                  
                  
The following happens.                    
                  
At the end of one month, the contract price changes to 1.09000. Since you have not settled the position, the                   
exchange requires you to adjust the margin requirement. What is the new Margin Account Value and would you be                  
able to take money out of the account or are you required to put money in? (how much)                  
                  
At the end of month two, the contract price changes to 1.07976. Since you have not settled the position, the                   
exchange requires you to adjust the margin requirement. What is the new Margin Account Value and would you be                  
able to take money out of the account or are you required to put money in? (how much)                  
                  
You now need at the 90 day mark to buy the EURO to pay the 250,000 bill due. What was your profit or loss on the                  
contract if the EURO to US$ rate is now 1.07888      

JT Inc

Following is the seven-year forecast for a new venture called JT Inc: (all amounts in $000)

Beginning after year 2026 the annual growth in EBIT is expected to be 1.5%, a rate that is projected to be constant over JT Inc remaining life as an enterprise.   Beginning in 2026 JT Inc capital expenditures and depreciation are expected to offset each other (capex - depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2020 as year 1.

Assume a tax rate is 21% and a cost of capital of 7.75%

Determine the NPV of JT Inc Free Cash Flow for the years 2020 -2026. HINT: Remember to account for loss carry-forwards when determining income taxes.

Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc. reported net cash flow from operating activities of $193,000 on its statement of cash flows for the year ended December 31. The following information was reported in the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method: Decrease in income taxes payable $3,700 Decrease in inventories 9,300 Depreciation 14,300 Gain on sale of investments 6,400 Increase in accounts payable 2,600 Increase in prepaid expenses 1,600 Increase in accounts receivable 7,000 a. Determine the net income reported by Curwen Inc. for the year ended December 31. $ b. Curwen’s net income is different than net cash flow from operating activities. Which of the following could possibly be the reason for such difference? Because depreciation expense which has no effect on cash flows from operating activities. Changes in current operating assets and liabilities that are added or deducted. Changes in fixed assets and liabilities that are added or deducted. Gain from sales of investment is included in net income while the sales proceeds are added in operating activities of cash flow statements. Pick two.

Mazeppa Corporation sells relays at a selling price of $28 per unit. The company's cost per unit, based on full capacity of 160,000 units, is as follows: Direct materials $ 8 Direct labor 6 Overhead (2/3 of which is variable) 9 Mazeppa has been approached by a distributor in Montana offering to buy a special order consisting of 30,000 relays. Mazeppa has the capacity to fill the order. However, it will incur an additional shipping cost of $2 for each relay it sells to the distributor. a-1. Assume that Mazeppa is currently operating at a level of 100,000 units. Show the calculation for the unit price to charge the distributor which will generate an increase in operating income of $5 per unit? a-2. What is your interpretation of the changes to the contribution margin per unit and the operating income on account of the increase in selling price? b-1. Assume that Mazeppa is currently operating at full capacity. Show the calculation for the unit price to charge the distributor which will generate an increase in operating income of $60,000 more than it would be without accepting the special order? b-2. What is your interpretation of the changes to the contribution margin per unit and the operating income on account of the unit price charged to the distributor?

McEquity Corporation

EQUITY CASE

As a new staff accountant joining McEquity Corporation, an Irish company using IFRS, you have been asked by the senior accountant of financial reporting to assemble the statement of changes in equity for 2012 that will be used in the annual report.

After getting various amounts and figures from the prior year financial statements, general ledger and subsidiary ledger, you are able to ascertain the following:

Ending balances as of December 31, 2011, were as follows:

The summarized transactions for 2012 are as follows:

REQUIRED:

Based on the above information,

Prepare a statement of changes in equity for 2012 using IFRS.

We are evaluating a project that costs $744,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 45,000 units per year. Price per unit is $60, variable cost per unit is $20, and fixed costs are $740,000 per year. The tax rate is 35 percent, and we require a return of 18 percent on this project. a. Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Break-even point units b-1 Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.) Cash flow $ NPV $ b-2 What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) ΔNPV/ΔQ $ c. What is the sensitivity of OCF to changes in the variable cost figure? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) ΔOCF/ΔVC $