Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 102,000 units per year is: Direct materials $ 1.70 Direct labor $ 4.00 Variable manufacturing overhead $ 0.70 Fixed manufacturing overhead $ 4.45 Variable selling and administrative expenses $ 1.60 Fixed selling and administrative expenses $ 3.00 The normal selling price is $24.00 per unit. The company’s capacity is 132,000 units per year. An order has been received from a mail-order house for 2,500 units at a special price of $21.00 per unit. This order would not affect regular sales or the company’s total fixed costs.

Required: 1. What is the financial advantage (disadvantage) of accepting the special order?

2. As a separate matter from the special order, assume the company’s inventory includes 1,000 units of this product that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. The company does not expect the selling of these inferior units to have any effect on the sales of its current model. What unit cost is relevant for establishing a minimum selling price for these units?

Mary Co. sold a machine that cost $78,000 and had a book value of $44,000 for $45,000. Data from Mary's comparative balance sheets are:

Complete the cash flow statement below. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

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?