Henry Doyle the president of King’s sugar is evaluating the addition of a new sugar-processing mill, to make white sugar, and eliminate the need to buy white sugar from its competitor, Kennard’s sugar company. King’s sugar makes brown sugar only, but would need a mill to process the brown sugar into white sugar. Kennard’s company produces white sugar from the raw sugar cane. Doyle believes that the new mill will bring in additional revenues and reduce operating costs. The competitor had excess capacity of white sugar that it sells to other sugar mills. Therefore, building the new mill would compete with Kennard’s mill. The new mill will cost $20 million in addition to the working capital requirements. Henry Doyle is wondering whether the investment can be justified. The project is expected to be 6 years until 2025.

The construction of the mill will take two years. $18 million will be spent in 2019, and $2 million in 2020. It is expected that when the plant start operating fully in 2020, the company’s operating costs will be reduced because the savings will be derived from the cost differences of producing versus buying white sugar from Kennard’s mill. The cost savings will be $ 2.8 million in 2020 and $ 3.7 million for the next five years. The company uses 15 % as the cost of capital. The following are the financial projections for the new mill.

Net working capital (10% of incremental sales)

SG&A (5% sales)

Taxes 40%

Answer all of the questions.

1. What is the net present value (NPV) and internal rate of return (IRR) for the investment?
2. What is the payback period of the project?
3. Would you recommend that King’s sugar go ahead with making this investment? Why?

Which of the following is an example of errors in financial statements? Select one:

a. While working on the financial statements, Maria accidentally adds $500 when the amount was actually $50.

b. While working on the financial statements, Maria recognizes the new estimate for useful lives of their new work truck.

c. While working on the financial statements, Maria decides to implement a new valuation method decided on by the company.

d. While working on the financial statements, Maria makes sure to have other employees check to ensure everything is included.

The company’s accountant forgot to record $25,000 in depreciation expense for the past year. If the books have not been closed then the necessary correcting entry is: Select one:

a. Debit Depreciation Expense, $25,000; Credit Accumulated Depreciation, $25,000.

b. Debit Retained Earnings, $25,000; Credit Accumulated Depreciation, $25,000.

c. Debit Retained Earnings, $25,000; Credit Depreciation Expense, $25,000.

d. Debit Accumulated Depreciation, $25,000; Credit Retained Earnings, $25,000.

The company’s accountant forgot to record $25,000 in depreciation expense for the past year. If the books have been closed then the necessary correcting entry is: Select one:

a. Debit Depreciation Expense, $25,000; Credit Accumulated Depreciation, $25,000.

b. Debit Retained Earnings, $25,000; Credit Accumulated Depreciation, $25,000.

c. Debit Retained Earnings, $25,000; Credit Depreciation Expense, $25,000.

d. Debit Accumulated Depreciation, $25,000; Credit Retained Earnings, $25,000.

Which of the following scenarios requires the company to issue restatements? Select one:

a. Penn West Petroleum capitalized $300 million dollars in operating expenses.

b. Apple backdated its employee stock options to the point when the stock price was at the lowest point in the prior period.

c. Waste Management estimates that its capital assets would have twice the useful lives as the industry averages and inappropriately high salvage values.

d. All of the above. Poland Springs purchased a water Machine two years ago for $120,000 and the asset now has $20,000 in accumulated depreciation.

At the beginning of Year 3, there was a revision in periodic depreciation and the company now estimates that the total estimated life should be six years with a salvage value of $12,000 at the end of that time. Poland Springs uses the straight-line method of depreciation for the machine. What is the amount of depreciation expense the company would recognize in Year 3? Select one:

a. $14,700

b. $18,000

c. $22,000

d. $25,000

At the beginning of 2019, Bayside Co. changed from the recognition overtime (percentage-of-completion) to the completed-contract method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2019, pretax income under the two methods was as follows: percentage-of-completion $278,000, and completed-contract $231,000. The tax rate is 30%.
In preparing its 2019 journal entry to record the change in accounting principle, Construction in Process would be credited by what amount?

Select one:

a. $14,100

b. $32,900

c. $47,000

d. $231,000

At the beginning of 2019, Bayside Co. changed from the recognition overtime (percentage-of-completion) to the completed-contract method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2019, pretax income under the two methods was as follows: percentage-of-completion $278,000, and completed-contract $231,000. The tax rate is 30%.
In preparing its 2019 journal entry to record the change in accounting principle, Deferred Tax Liability would be debited by what amount?

Select one:

a. $14,100

b. $231,000

c. $47,000

d. $32,900

In 2020, Nike discovered that equipment purchased on January 1, 2019, for $63,000 was expensed at that time. The equipment should have been depreciated over 6 years using the straight-line method, with a $6,600 value. The effective tax rate is 40%.
When preparing the 2020 correcting entry, Retained Earnings would be credited by what amount?

Select one:

a. $63,000

b. $9,400

c. $21,440

d. $32,160

Cheyenne, Inc. changed depreciation methods in 2017 from straight-line to double-declining-balance. Depreciation prior to 2017 under straight-line was $107,000, whereas double-declining-balance depreciation prior to 2017 would have been $162,600. Cheyenne’s depreciable assets had a cost of $406,500 with a $32,000 salvage value, and a 5-year remaining useful life at the beginning of 2017
What is the 2017 Depreciation Expense?

Select one:

a. $119,800

b. $93,625

c. $74,900

d. $162,600

Mindzak Corp leases equipment and recognizes a right-of-use asset. This account is increased by

Select one:

a. initial direct costs incurred by the lessee only.

b. lease incentives received.

c. prepaid lease payments only.

d. lease prepayments made by the lessee and initial direct costs incurred by the lessee.

Cavco Industries of Phoenix Arizona produces manufactured housing for the 21st century that rivals the construction and design elements found in traditional site built homes. In business for over 40 years Cavco sells manufactured homes, camping cabins, and park model homes under 400 square feet in size and commercial buildings. The company has several hundred floor plans to choose from or it can customize floor plans to fit the design specifications of the buyer. Sales have risen about 7% annually over the past 3 years.

Cavco relies on lean manufacturing and just in time inventory management techniques at its 3 manufacturing facilities. With thousands of stock keeping units direct materials inventory turns over every week. The most expensive inventory items consist of wood and wood products, steel, drywall abd petroleum based products. There are about 50 different stations in the main assembly lines. On Cavco's production floor. They are fed daily by subsidiary job shops close by such as the in house cabinet making shop and flooring shop. Nothing is ever made to stock so the bills of materials coming from independent dealer orders drive the release of direct materials onto the floor at each station in assembly.

At each plant the manager schedules production so tightly that there is rarely downtime at any station in an assembly line. Efficiency is so consistent that budgeted direct materials and direct manufacturing labor usually match the actual costs incurred at month end. Instead of computing a budgeted overhead allocation rate at the beginning of the year and adjusting at year end the company applies actual plant overhead. This consists of
1-Utilities
2-Engineering
3-Purchasing
4-Plant manager salaries

This is done each month so managers can see how they did and make adjustments before the next month's production activities get too far along. Once each home section is completed it is driven out of the plant by independent shippers title passes to the dealer sales revenue is booked and the home is taken to its destination. With no unsold finished goods in stock at month end the only materials to account for each month are those not yet released into production and those in work in process inventory.

QUESTION 1
Assume Cavco has dedicated one of its manufacturing plants to building camping cabins. Budgeted annual fixed manufacturing costs for this facility are $2,000,000 and include the items listed in the case. The amount will remain the same even though shifts per day and days worked per week may fluctuate. The master budget for 2006 is based on one shift production of 2 camping cabins per day over a 4 day work week. The plant is closed on Mondays for building and equipment maintenance. The company also shuts down production for one week in July and one week at the end of December. Normal capacity utilization is based on one shift production of 2 cabinets per day 5 days per week throughout the year. If every camping cabin built in this plant takes the same amount of time to complete what is the 2006 budgeted fixed manufacturing overhead cost rate per cabin under theoretical capacity, practical capacity, normal capacity utilization, and master budget capacity utilization?

A kitchen appliance manufacturer is deciding whether or not to introduce a new product. Management has identified three possible demand regimes, with associated projected income for the first year of operation. In addition, if the company decides to produce the new product, it can do so by using its existing facilities, which will cost it $3,500,000 in renovations; or build a new facility, which will cost $6,500,000. Expanding will allow it to make more product and so its potential sales can be higher. The following table contains a summary of management expectations:

The company believes that if the new product is not introduced, in the first year of operation the company will lose $10,500,000 in sales to competitors in a high demand regime, $1,500,000 in a medium demand regime, and $0 in a low demand regime.

(a) Construct a payoff table and decision tree for this problem.

(b) Using the expected value approach, what should the company do?

(c) The company finds itself in a difficult financial situation. How does this information affect your recommendation in part (b)?

(d) A consulting company claims it can perform a more thorough market research study. In your opinion, should this study be performed?

(e) The company has the option of constructing a new facility after 1 year of operation. In your opinion, which conditions would warrant an expansion after year 1?

A kitchen appliance manufacturer is deciding whether or not to in- troduce a new product. Management has identified three possible demand regimes, with associated projected income for the first year of operation. In addition, if the company decides to produce the new product, it can do so by using its existing facilities, which will cost it $3,500,000 in renovations; or build a new facility, which will cost $6,500,000. Expanding will allow it to make more product and so its potential sales can be higher. The following table contains a summary of management expectations:

The company believes that if the new product is not introduced, in the first year of operation the company will loose $10,500,000 in sales to competitors in a high demand regime, $1,500,000 in a medium demand regime, and $0 in a low demand regime.

(a) Construct a payoff table and decision tree for this problem.
(b) Using the expected value approach, what should the company do?
(c) The company finds itself in a difficult financial situation. How does this information affect your recommendation in part (b)?
(d) A consulting company claims it can perform a more thorough market research study. In your opinion, should this study be performed?
(e) The company has the option of constructing a new facility after 1 year of operation. In your opinion, which conditions would warrant an expansion after year 1?

Below are transactions related to Bridgeport Company. (a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The fair value of this land is determined to be $77,400. (b) 13,000 shares of common stock with a par value of $51 per share are issued in exchange for land and buildings. The property has been appraised at a fair value of $774,000, of which $192,100 has been allocated to land and $581,900 to buildings. The stock of Bridgeport Company is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago at $66 per share, and a block of 200 shares was sold by another stockholder 18 months ago at $59 per share. (c) No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead the amounts properly chargeable to plant asset accounts for machinery constructed during the year. The following information is given relative to costs of the machinery constructed. Materials used $11,850 Factory supplies used 944 Direct labor incurred 16,040 Additional overhead (over regular) caused by construction of machinery, excluding factory supplies used 2,680 Fixed overhead rate applied to regular manufacturing operations 60% of direct labor cost Cost of similar machinery if it had been purchased from outside suppliers 47,320

Prepare journal entries on the books of Bridgeport Company to record these transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

The data in the following two questions are taken from assignment 4 page 296 of Merdith & Shafer. The Dubai based construction company Blue Ocean Towers uses a constant flow of in total 15,000 solar panels per year, which it buys from King Kong. Blue Ocean Towers receives the ordered panels from King Kong’s regional distribution center. The ordering cost per delivered order are 50 USD, and the holding cost for Blue Ocean Towers are 1.5 USD per panel per year.

Question 1. Calculate the EOQ for Solar Panels for Blue Ocean Towers.

As a result of implementing Sun Kong’s coloring innovation, King Kong offers Blue Ocean Towers to switch to buying colored panels. The colors red, yellow, and blue are available for the same price as the original panel for a period of 12 months. As King Kong will have to set up the coloring machines, the ordering costs for the red and green solar panels will be four times higher than for the regular panels, at 200 USD per order.

Question 2. Calculate the EOQ for Colored Solar Panels for Blue Ocean Towers. Briefly interpret the change in quantity when compared to the answer to Question 1.

Question 3. Blue Ocean Towers experiences that demand for the colored panels is less stable than for the original ones, causing risks for going out of stock. What inventory replenishment do you advise them to use in this situation.

Luxed Construction Ltd (LCL) is a large manufacturing firm with two products in its product mix – SP General and SP Special. LCL produces Component LMN that is used in the manufacture of both its products. LCL’s 2018 books contain the following per unit cost of producing Component LMN:

                              Direct materials                            $ 149

                              Direct labor                                   $ 131

                              Variable overhead                         $ 109

                              Fixed overhead                              $ 120

                                    Total                                        $509

Sydney Sussex Manufacturing’s (SSM) production manager approached LCL offering it a sale of 4100 Component LMN at a price of $461 each, a price less than the LCL’s per unit in-house manufacturing cost of $509. If LCL management agrees to the offer, it will be able to avoid only 40% of its fixed overhead costs. The decision under consideration for LCL’s management is whether to accept or reject SSM’s offer.

Required: Showing all necessary calculations/steps, work out for LCL:

1. The relevant Variable costs, relevant Fixed costs and relevant Total costs for the decision under consideration at LCL.
2. LLC’s production manager approached you as the company’s management accountant asking you to evaluate SSM’s offer and help him make a decision as to whether LLC should accept or reject SSM’s offer. Show your calculations/working out on both the alternatives and suggest financially the best one to the production manager.
3. Briefly explain any four ‘qualitative factors’ that LLC needs to take into consideration before opting for one of the two alterative under requirement A.

President Dwight Eisenhower is credited with the establishment of a national network of controlledaccess roadways–now simply called “Interstates”–authorized under the Federal Aid Highway Act of 1956. The road construction and growing popularity of highway travel presented an opportunity for PQMaps, which created and sold maps for highway drivers. The paper maps were printed in color and folded for drivers’ convenience. In 1960, the PQMap’s total cost curve was given by 15 + 0.6Q + 0.01Q 2 where Q was measured in standard bulk units of printed material. PQMap’s marginal cost was 0.6 + 0.02Q.

12. What was the firm-level supply curve for PQMap?

13. Suppose there were 5 map printing companies operating in the U.S. in 1960. All of the firms are price-takers. What was the market-level supply curve for highway maps?

14. Suppose that the market demand for printed maps in 1960 is given by 9300 − 722P. What was the equilibrium price and quantity of highways maps in America in 1960?

15. Suppose that you are an analyst who is interested in the map production industry. You already have the equilibrium price and quantity data for 1960. As you do more research, you find recent a statistic for the market. You learned that, in 2015, roughly 1,200 bulk units of paper highway maps were sold at a price of $6. What must have happened in the map printing market between 1960 and 2015? You can speculate, but you must justify your argument. (Hint: Start with a graph.)