1. What is the Cost Principle?and Definition of Cost Principle

2. give 3 example of Cost Principle

3. Some Issues with the Cost Principle

4. Short-Term vs Long-Term Assets

Cost of Production Report: Average Cost Method Use the average cost method with the following data: Work in process, December 1, 5,500 units, 20% completed $40,040 Materials added during December from Weaving Department, 103,900 units 734,573 Direct labor for December 187,974 Factory overhead for December 143,141 Goods finished during December (includes goods in process, December 1), 101,700 units — Work in process, December 31, 7,700 units, 60% completed — Prepare a cost of production report for the Cutting Department of Tanner Carpet Company for December 2016 using the average cost method. If required, round your cost per equivalent unit answer to two decimal places. Tanner Carpet Company Cost of Production Report-Cutting Department For the Month Ended December 31, 2016

Refer to Questions 2 and 3. The land for the factory will cost $640,000 . The factory will cost $8,440,000 to build and construction will take two years with construction costs payable in equal installments at the start of each year. The factory will operate for 20 years. At the end of its 20 year lifespan, the land can be resold for $260,000 . There is a 70% probability that the factory's net operating cash flows will be $1,169,836 ; however, there is a 30% chance that net cash flows will only be $730,326 . You may assume that net operating cash flows are received at the end of each year.

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(question 2)

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QUESTION 3

Sunburst Veggies is a vertically-integrated company which both grows[1] and processes organic vegetables. Their company-grown vegetables are canned and then sold wholesale to grocery stores. The company began their operations in San Marcos, Texas in the mid-1990s and the corporate headquarters remain there. Sunburst grows a wide variety of organic (non-GMO) vegetables in greenhouses, some of which cover more than 200 acres. The vegetables are shipped from manufacturing facilities near the greenhouses. This assures the vegetables are processed as quickly as possible after being picked which inspired the company’s marketing tag line: “fresh from the field.”

Consumer demand for organically-grown vegetables has increased tremendously since Sunburst began operations 10 years ago. Gross revenues have increased 500% since year 1. The firm now has five greenhouses and processing plants in locations near the following cities: Sacramento, CA; San Marcos, TX; Baton Rouge, LA; Montgomery, AL; and Jacksonville, FL. They employ nearly 600 people.

Potential Sites: Sunburst is at maximum capacity in all locations and must add another greenhouse and processing plant in order to continue their sales growth to new customers (and to assure they have no out-of-stock issues for existing customers). Both the greenhouse operations for growing the vegetables and the canning facility require large volumes of fresh water. It is essential to locate near an interstate highway because all shipments are shipped via semi-trucks.

Two sites are being considered near the towns of Gulfport, Mississippi and Little Rock, Arkansas. Because of extensive damage caused in Gulfport by Hurricane Katrina in August 2005 (and more recently by Hurricane Harvey), the cost of real estate in that area is significantly lower than in Little Rock.

Estimated Operating Costs: Estimates of operating costs for the two locations are as follows:

                                                                                        Gulfport             Little Rock

         Life of greenhouse & processing plant                        50 years                  50 years

         Expected annual sales (# cases)                                   300,000                  300,000

         Selling price (average per case)                                         $90                         $90

         Variable costs (average per case)                                  $60.00                    $60.00

         Fixed Costs (annual):

       Salaries & fringe benefits (labor is higher in L.R.)   $1,300,000              $1,500,000

       Depreciation* (see calculations on pg. 2)                   $455,000                $485,000        

       Other fixed costs                                                      $655,000                $655,000

         Total Fixed Costs                                                  $2,410,000              $2,640,000

*Straight-line depreciation on buildings is over 50 years, based on the initial investment with -0- salvage. Equipment is depreciated using straight-line over 20 years with -0- salvage value. Land is not depreciated. Calculations have been simplified more than would be in business (only for use in this problem).

Estimated Capital Investment: Sunburst owns some used greenhouse equipment that they could transfer from one of their existing locations to either Gulfport or Little Rock. The book value of that equipment is $1,900,000 and requires some modifications up-front (cost of $300,000) to get it ready for use in either location. They already own some used manufacturing equipment that can be transferred to either new location; this has a book value of $1,000,000 (and, does not require any modification). Both types of equipment have been sitting idle (unused) for the past year. There is no other alternate use for the equipment.    The summary of estimated initial capital investment in each of the two locations follows:

                                                                               Gulfport                      Little Rock

         Land                                                            $4,000,000                       $7,500,000

         Greenhouse Buildings                                   $3,500,000                       $4,000,000

         Manufacturing Building                              $10,000,000                     $11,000,000

                    Sub-total for Buildings                     $13,500,000                     $15,000,000

         Greenhouse Equipment (used):

              Book value (transferred)                           $1,900,000                       $1,900,000

              Modifications (up-front)                              $300,000                         $300,000

         Manufacturing Equipment (used):

              Book Value (transferred)                          $1,000,000                       $1,000,000

         Other equipment (to be capitalized)                  $500,000                         $500,000

                    Sub-total for Equipment                     $3,700,000                       $3,700,000        

              Total                                                     $21,200,000                     $26,200,000

Depreciation Calculations (as shown in *total on previous page):

Gulfport Buildings              $13,500,000 / 50 years = $270,000  

Gulfport Equipment              $3,700,000 / 20 years = $185,000

                             Total Depreciation – Gulfport = $455,000

Little Rock Buildings                                                 $15,000,000 / 50 years = $300,000

Little Rock Equipment                                                 $3,700,000 / 20 years = $185,000

                                                                Total Depreciation – Little Rock = $485,000

Other Relevant Information:

Minimum desired rate of return is 11%.

All current locations are earning an average 14% return on sales.

Payback period for all prior capital investments has been not more than 3.75 years.

For simplicity, assume there are no income taxes.

REQUIREMENT #1 - QUANTITATIVE ANALYSIS (MUST be in Excel & use Excel functionality for ALL calculations):

Prepare an Income Statement in the Contribution Margin format for each location.

Identify which of the items on the Income Statement are “relevant” for each location.

Calculate Breakeven Point (in Sales Dollars) for each location

REQUIREMENT #2 – RECOMMENDATION & QUALITATIVE FACTORS: (MUST be in Word and must use 1-inch margins on all sides and Times Roman 12-point font.)

Based on the quantitative analysis, which location would you recommend and why?

Would your recommendation change based on qualitative factors? These might include available workforce, logistical considerations, risk from weather events, potential impact of global warming. Students must do some research of their own to identify the difference in such factors for the two locations. Because qualitative factors cannot be quantified, how would you evaluate the importance of such non-financial items?

Do the qualitative factors impact your recommendation? If “yes,” in what way?

- Dont worry about excel file not being attached. I only need help with qualitative analysis.(#2 of the question).

1.

CASE STUDY

Australian Motor Execs (AME) is set up as a proprietary company and is considering whether to enter the discount rental car market in Tasmania. This project would involve the purchase of 100 used, late model, mid-sized cars at the average price of $18,000. In order to reduce their insurance costs, AME will have a LoJack Stolen Vehicle Recovery System installed in each car at a cost of

$1,500 per vehicle. The rental car operation projected by AME will have two locations: one near Hobart airport and the other near Launceston airport. At each location, AME owns an abandoned lot and building where it could store its vehicles. If AME does not undertake the project, the lots can be leased to an auto-repair company for $90,000 per year (total amount for both lots). The $25,000 annual maintenance cost (total for both lots) will be paid by AME whether the lots are leased or used for this project. This discount rental car business is expected to have minimum impact on AME’s regular car rental business in Tasmania, where the net cash flow is expected to fall by only

$20,000 per year.

For taxation purposes, the useful life of the cars is determined to be five years and they will be depreciated using the most advantageous depreciation method set out by the Income Tax Assessment Act. It is assumed that the cars will first be used at the beginning of the next financial year: 1 July 2018.

Before starting this new operation, AME will need to redevelop and renovate the buildings at each airport location. This is expected to cost $220,000 for both locations. AME has also budgeted

$80,000 in marketing costs that will be spent prior the start of operation and during the first two years of operation. In addition, if the project is undertaken, a total new injection of $150,000 in net working capital will be required.

Maeve, the company CFO would like you help her examine the viability of the project for the next five years taking into account the projections of sales and operating costs prepared by AME’s accountants. Given the risk associated with the project, she believes it is reasonable to use a cost of capital of 12% for the evaluation of this project. Further financial data relating to the project can be found in the appendix.

*Question1. Discuss which costs are relevant for the evaluation of this project and which costs are not. Your discussion should be justified by a valid argument and supported by references to appropriate sources.

APPENDIX: Additional information for the case

Initial capital expenditure

Acquisition of the car fleet (including LowJack system): $18,000 + $1,500 per vehicle

Renovation of building at airport locations :$220,000

Injection of net Working capital $150,000

For tax purposes, the cars (including the LowJack system) may be depreciated using either the prime cost or the diminishing value methods as set out in Division 40 of the Income tax Assessment Act (ITAA) 1997. The economic life of 5 years has been approved by the Commissioner of taxation. Maeve indicated to you that the company will retain the method that is the most advantageous to the company from a financial point of view.

Assume that AME is not able to claim any tax deduction for the capital expenditure relating to the renovation of the building until the business is sold. At that time the cost of renovation is taken into account to calculate the capital gain.

Marketing costs

The $80,000 marketing costs will be incurred as follows:

$40,000 immediately before the launch of the new operation (1/7/2018)

$20,000 at the beginning of year 2 (1/7/2019) i.e. end of year 1

$20,000 at the beginning of Year 3 (1/7/2020) i.e. end of year 2

These costs are fully tax deductible in the year they are incurred (assume calendar year).

Revenue projections

Revenue projections from car rental for the next five years are as follows

Operating costs

Operating variable costs associated with the new business represent 10 % of revenue. Annual operating fixed costs (excluding depreciation) are $1800 per vehicle.

Existing administrative costs are $550,000 per annum. As a result of the new operation these administrative cost will increase by 20 %.

Tax rate

The company is subject to a tax rate of 27.5% on its profits. The capital gain (if any ) on the sale of the business would also be taxed at 27.5%.

The table shows the number of people, in thousands, in a country without health insurance in a certain year.

a) What percentage of the countries' population in the year did not have health insurance and was between the ages of 18 to 24 years?

b) What percentage of the countries' population in the year did not have health insurance or was between the ages of 25 to 34 years?

c) What percentage of the countries' population in the year did have health insurance, given they were 65 years or older?

d) Do age group and health insurance appear to be independent or dependent events? Define Event A was a person 45 to 64 years old and Event B as the person

2. A sample of 25 items yields X(This is X with bar ¯ on top) = 60 grams and s = 5 grams. Assuming a normal parent distribution, construct a 99 percent confidence interval for the population mean weight.

3. Of a random sample of 600 trucks at a bridge, 120 had bad signal lights. Construct a 90 percent confidence interval for the percentage of trucks that had bad signal lights.

4.A cable TV company wants to estimate the percentage of cable boxes in use during an evening hour. An approximation based on previous surveys is 25 percent. The company wants the new estimate to be at the 90 percent confidence level and within 3 percent of the actual proportion. What sample size is needed?

5. Suppose that 55 percent of the voters in a particular region support a candidate. Find the probability that a sample of 900 voters would yield a sample proportion in favor of the candidate within 2 percentage points of the actual proportion.

1. Class of 2018 graduates were 1250 students, 40% of them were female students, and the rest were male, 10% of the female students got a grade of “A” and 10 students of the female graded “A” were international students. Class of 2019 had 875 male students, also 10 female students got an “A” in their grade in class 2019, where the total number of students did not change from last year.

Calculate the following: (Show your calculations-write the steps)

1. The number of female students.
2. The number of Female students with a grade “A”.
3. The percentage of the female international students graded “A” out of the total number of female students with a grade “A”.
4. What is the percentage increase or decrease in the number of male students in comparison to class 2018?
5. What is the percentage of female students who got “A” out of the female students?

2. 23, 30, 1, 49, 2, 36, 7, 23, 13, 9, 30, 17, 20.

Calculate the mean median and mode.