Heating of water is a significant cost for most households, with about one third of all household
water consumption going to either showers or baths. If a low efficiency shower head is used,
approximately 18 L of water are used per minute of shower time. A high efficiency shower head
reduces that to about 10 L of water per minute. If water enters the hot water heater at 14 oC and is
heated to 49 oC to be used, determine the daily cost of each of the following:
a) 5 minute shower with high efficiency shower head at off-peak times.
b) 5 minute shower with low efficiency shower head at on-peak times.
c) 10 minute shower with high efficiency shower head at mid-peak times.
d) 15 minute shower with low efficiency shower head at on-peak times.

e) how much difference would there be in the annual costs for a
family of 5 if all 5 had the least expensive shower instead of the most expensive shower?

Converting Joules to KWhrs

1KWhr = 3.6x10^6 J

Cost of electricity

off peak = 12.6 cents/KWHr

mid peak = 18.6 cents/KWHr

On peak = 24.6 cents/KWHr

The Olney Company purchased a machine 3 years ago at a cost of $150,000. It had an expected life of 10 years at the time of purchase and an expected salvage value of $5,000.    The existing machine costs $54,000 year to run and generates $1,000,000 a year in revenue with a gross profit margin of 20%.   The old machine can be sold today for $55,000 and the expectation is that it can be sold for $7,500 in 7 years.

A new machine with a 7 year life can be purchased for $225,000. Cash operating expenses will be $65,000 per year. The new machine will boost revenue to $1,075,000 in the first three years of operation and then revenue of the new machine will increase to $1,090,000 per annum for the balance of machine’s life. The machine has a gross profit margin of 23% due to fewer defects. At the end of its useful life, the machine will have no value. The firm's tax rate is 34 percent. Straight-line depreciation is used for all assets. The firm’s WACC is 12 percent. The firm has an ACP of 63 days and pays its bills after 25 days.

Calculate project’s NPV and IRR.

The firm reduces its ACP to 55 days and starts to pay its bills after 30 days. What will be the project’s NPV ?

i) A company is financed 60% by debt and 40% by equity. The pre-tax cost of debt is currently 10%. The Finance Director has stated that the weighted average cost of capital for the company is 9.6%. What is the cost of equity? Assume the tax rate is 40%.

a) 11.4%

b) 9.8%

c) 12%

d) 15%

ii) Ashley Ardern has been researching a vaccine for Covid-19. The cost of the research efforts has already amounted to $500,000.

If Ashley Ardern carries on the research efforts additional lab space and equipment will need to be purchased for $1,000,000 to ensure adequate social distancing is maintained. At the end of a 2 year period, it is estimated that the salvage value of the equipment will be $0.

The results of the research are expected to result in a vaccine that will generate positive cash flows for two years. The estimated after-tax operating cash inflows are $572,000 in year 1 and $744,000 in year 2. The operating cash flows are earned evenly throughout the year.

Additional working capital of $100,000 will be required at the start of the project.

The company has an after-tax required rate of return of 10% per annum.

Question: The initial investment is:

a) $900,000

b) $1,000,000

c) $1,300,000

d) $1,100,000

iii) It is estimated that the border to Tonga will not be open until 10 months from today. I have $1,600 in the bank that is earning interest of 4% monthly. How much money will I have for my holiday when the border reopens for travel? (Round to the nearest dollar)

a) $2,342.

b) $1,728.

c) $2,367.

d) $10,736.

The Cost-Value-Profit analysis is a necessary tool for forecasting as well as for management control. The authors present a paper which includes a number of techniques and methods based on understanding patterns of evolution characteristics of costs.

discuss why it is useful only in special circumstances.

USING COST-VOLUME-PROFIT ANALYSIS IN DECISION MAKING
by GABRIELA BUŞAN, IONELA-CLAUDIA DINA

Sweeten Company had no jobs in progress at the beginning of March and no beginning inventories. The company has two manufacturing departments—Molding and Fabrication. It started, completed, and sold only two jobs during March—Job P and Job Q. The following additional information is available for the company as a whole and for Jobs P and Q (all data and questions relate to the month of March):

Sweeten Company had no underapplied or overapplied manufacturing overhead costs during the month.

Required:

For questions 1-8, assume that Sweeten Company uses a plantwide predetermined overhead rate with machine-hours as the allocation base. For questions 9-15, assume that the company uses departmental predetermined overhead rates with machine-hours as the allocation base in both departments.

Foundational 2-6

If Job Q included 30 units, what was its unit product cost? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

Unit product cost _________________

How can home bias affect the cost of capital of domestic firms? Explain.

5 uncertainities about how much it will cost to produce a new product in the market

Daily Enterprises is purchasing a $10.59 million machine. It will cost $63,833.00 to transport and install the machine. The machine has a depreciable life of five years using the straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.20 million per year along with incremental costs of $1.16 million per year. Daily’s marginal tax rate is 37.00%. The cost of capital for the firm is 10.00%. (answer in dollars..so convert millions to dollars) The project will run for 5 years. What is the NPV of the project at the current cost of capital?

The mean cost of domestic airfares in the United States rose to an all-time high of $400 per ticket. Airfares were based on the total ticket value, which consisted of the price charged by the airlines plus any additional taxes and fees. Assume domestic airfares are normally distributed with a standard deviation of $115. Use Table 1 in Appendix B.

a. What is the probability that a domestic airfare is $560 or more (to 4 decimals)?

b. What is the probability that a domestic airfare is $245 or less (to 4 decimals)?

c. What if the probability that a domestic airfare is between $310 and $500 (to 4 decimals)?

d. What is the cost for the 5% highest domestic airfares? (rounded to nearest dollar)
$ or - Select your answer -morelessItem 5

5. Which of the following cost classifications would be the most useful for the managerial decision making purposes such as planning and control?

A. Manufacturing costs vs non manufacturing costs

B. Product costs vs period costs

C. Expired costs vs unexpired costs

D. Variable costs vs fixed costs

12. Limited human capacity to process a given job for a given period, combined with fixed compensation paid periodically, would MOST likely result in a:

A. Mixed cost

B. Step cost

C. Variable cost

D. Fixed cost

13. A disadvantage of the high-low method for cost analysis is:

A. It does not consider all the available observations

B. It cannot be used when there are a large number of observations

C. It is too time consuming to apply

D. It relies totally on the judgement of the person performing the cost analysis

15. Costs incurred to make products can be capitalized (inventoried) in asset accounts in the balance sheet until the products are actually sold. Which of the following accounting concepts or principles justifies the use of this deferral accounting procedure?

A. Historical cost principle

B. Matching principle

C. Going-concern principle

D. Accrual-basis accounting

23. Which of the following can NOT be regarded as the criticism for the "actual costing" (i.e. using an actual overhead rate instead of a predetermined overhead rate)"?

A. It does not have any overhead variance at the end of each period

B. It does not allow timely reporting or assignment of costs for specific jobs or products

C. It may not provide stable overhead rates if the market and production conditions change frequently

D. Identical products may be assigned different amounts of overhead costs if they are produced in different periods of time