Reference no: EM132454361

Question 1 - Joe Meat Corp. is considering replacing its old freezer with a new one that has more capacity. The company estimates that it can sell more meat products with and estimated increase of $15,000. The new freezer will require $2,500 in maintenance per year, but will have an energy savings of $1,500 per year. The new freezer costs $40,000 and it will have a salvage value of $5,000 after 10 years. What is the net present value of the freezer if the required return is 6% and the income tax rate is 30%? Should the freezer be purchased? Assume straight line depreciation.CMR Refrigeration makes a compressor part that it sells for $35 each. The cost of producing 30,000 parts in the prior year is as follows:

Direct material $230,000

Direct labor 90,000

Variable overhead 140,000

Fixed overhead 130,000

Total cost $590,000

At the first of the current year, CMR received an order for 3,000 parts from a company in Mexico. If the Mexican company is only willing to pay $27 for the part and CMR has excess capacity, should CMR accept the order? What will be the marginal profit if any? (Show your computations).

Question 2 - XYZ Company uses activity-based pricing. The company prices their products by charging customers the direct cost by using a markup of 35% on the direct cost plus adding service cost that are provided. The service costs are $7.50 per order, $3.00 for each product ordered, and a $2.00 per pound shipping charge.

Question 3 - Ben Corporation made ordered from XYX 12 orders for goods with a total direct cost of $6,000. Wilson ordered 40 different products that weighed a total of 600 lbs. What price did Ben Corporation pay?

Question 4 - Ace Electronics is planning a $150,000 investment in speakers for its business. The speakers will have a 5-year life and a $15,000 salvage value. The company has a required return of 6% and a 30% tax rate. Assuming Ace used straight line depreciation, what is the present value of the tax savings from the depreciation on the speakers?

Question 5 - The new Big Electical Warehouse, Inc., is thinking of buy a new machine on January 1, 2016 for $100,000 and have an estimated salvage value at the end of its estimated 5-year estimated life of $15,000

	2016	2017	2018	2019	2020
Net income	$7,000	$8,000	$9,000	$9,500	$9,500
Operating cash flows	20,000	21,000	21,000	19,000	19,500

The company's required rate of return is 6% and its cost of capital is 5%. The income tax rate is 30%.

Required -

1. Determine the payback period of the proposed acquisition and interpret your answer.

2. What are the problems with payback period?

Question 6 - Clean Inc. produces and sells new type of soap.

The company expects to sells 40,000, 50,000, 70,000, and 50,000 bottles of soap in the 1st, 2nd, 3rd, and 4th quarters, respectively.

The soap requires 6 ounces of Chemical A and 11 ounces of Chemical B.

Ending inventory of finished goods is be 20% of next quarter's sales. The desired ending inventory for material is 10% of next quarter's production requirements.

There are 8,000 bottles of soap, 20,000 ounces of Chemical A, and 50,000 ounces of Chemical B at the beginning of the first quarter.

At the end of the fourth quarter, the company must have 15,000 bottles of soap, 20,000 ounces of Chemical A, and 80,000 ounces of Chemical B to meet its needs in the first quarter of 2017.

The cost of Chemical A is $0.10 per ounce, the cost of Chemical B is $0.06 per ounce, and the selling price of the detergent is $11.25 per bottle.

The cost of direct labor is $0.75 per bottle, and the cost of variable overhead is $1.25 per bottle.

Variable selling and administrative expense is 5% of sales, and fixed selling and administrative expenses are $55,000 per quarter.

Fixed manufacturing overhead is $45,000 per quarter.

Required - Prepare a budgeted income statement using the variable costing format for the 3rd quarter of 2016. (Ignore income taxes).

Question 7 - ABC Extract Chemical Company produces a chemical used in diary products. Its accounting system uses standard costs:

The standards per half gallon can of chemical call for 0.65 gallons of material 1.5 hours of labor.

0.65 gallons of material are needed to produce a 0.5 gallon can of produ.

The standard cost per gallon of material is $5.25.

The standard cost per hour for labor is $11.75.

Overhead is applied at the rate of $8.90 per can.

Expected production is 19,000 cans with fixed overhead per year of $34,000.

Variable overhead of $6.95 per unit (a half gallon can).

During 2015:

- 18,000 cans were produced.

- 14,000 gallons of material were purchased at a cost of $87,750.

- 143,500 gallons of material were used in production.

- The cost of direct labor incurred in 2015 was $460,000 based on an average actual wage rate of $11.25 per hour.

- Actual overhead for 2015 was $170,000.

Required - Calculate the overhead variances and indicate if each is favorable or unfavorable.

Question 8 - Coffee Pot, Inc. is local chain of coffee shops. The standard amount of ground coffee per cup is 0.75 ounces. During October, the company sold 450,000 cups of coffee and used 19,000 pounds of coffee. Also during October, the company purchased 20,000 pounds of coffee at a price of 285,000. The company views variances greater than 0.9% of its flexible budget to be considered significant. The standard price per pound is $16.

Compute the material variances. Are they favorable or unfavorable?

Question 10 - The income statement for Scott Construction for 2014 is as follows:

Scott Construction Income Statement For the Year Ended December 31, 2014

Sales $1,030,000

Cost of goods sold 630,000

Gross profit 400,000

Less:

Depreciation expense $65,000

Amortization of patent 7,500

Wages expense 59,000

Insurance expense 11,000 142,500

Income before taxes 257500

Less income taxes 91,000

Net income $ 166,500

Also,

Accounts receivable decreased by $25,000 during the year.

Accounts payable increased by $7,000.

Wages payable had a balance of $0 at the beginning of the year; at the end of the year, the balance was $6,000

Prepaid insurance increased by $10,000 during the year.

Required - Prepare the operating activities section of the statement of cash flows for 2014 for Scott Construction using the indirect method.

Question 10 - Bill Smith is interested in purchasing the stock of Scott Constuction, a roofing company. Before purchasing the stock, Smith would like to learn as much as possible about the company. However, the only information available is a portion of Scott Construction's annual report for the current year (2014), which contains only a summary of the ratios listed below:

2014 2013 2012

Current ratio 2.7:1 2.4:1 2.2:1

Acid-test ratio 0.7:1 0.8:1 1.0:1

Accounts receivable turnover 10.2 times 10.4 times 10.6 times

Inventory turnover 5.1 times 6.1 times 7.3 times

Return on total assets 16.00% 12.00% 11.00%

Return on common stockholders' equity 18.00% 15.00% 12.00%

Price-earnings ratio 12.1 17.0 17.5

Earnings per share $1.50 $1.49 $1.50

Required - Are customers paying their accounts as well as they were in 2012? Support your answer with accounting justification citing specific information in the analysis.