MGA 301 Final: Homework_CH6(1)
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Foam Products, Inc., makes foam seat cushions for the automotiveand aerospace industries. The company’s activity-based costingsystem has four activity cost pools, which are listed below alongwith their activity measures and activity rates:
Activity Cost Pool | ActivityMeasure | Activity Rate | ||
Supporting direct labor | Numberof direct labor-hours | $5.55 | perdirect labor-hour | |
Batch processing | Number ofbatches | $ 107.00 | per batch | |
Order processing | Number oforders | $ 275.00 | per order | |
Customer service | Number ofcustomers | $ 2,463.00 | percustomer | |
The company just completed asingle order from Interstate Trucking for 1,000 custom seatcushions. The order was produced in two batches. Each seat cushionrequired 0.25 direct labor-hours. The selling price was $20 perunit, the direct materials cost was $8.50 per unit, and the directlabor cost was $6.00 per unit. This was Interstate Trucking’s onlyorder during the year. |
Required: |
Prepare a report showing the customer margin on sales toInterstate Trucking for the year. (Round your final answersto 2 decimal places.) |
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Problem 10-23A Make or Buy Decision [LO10-3]
Silven Industries, which manufactures and sells a highlysuccessful line of summer lotions and insect repellents, hasdecided to diversify in order to stabilize sales throughout theyear. A natural area for the company to consider is the productionof winter lotions and creams to prevent dry and chapped skin. |
Afterconsiderable research, a winter products line has been developed.However, Silven’s president has decided to introduce only one ofthe new products for this coming winter. If the product is asuccess, further expansion in future years will be initiated. |
Theproduct selected (called Chap-Off) is a lip balm that will be soldin a lipstick-type tube. The product will be sold to wholesalers inboxes of 12 tubes for $8.50 per box. Because of excess capacity, noadditional fixed manufacturing overhead costs will be incurred toproduce the product. However, a $110,000 charge for fixedmanufacturing overhead will be absorbed by the product under thecompany’s absorption costing system. |
Using theestimated sales and production of 100,000 boxes of Chap-Off, theAccounting Department has developed the following cost per box: |
Directmaterials | $ | 4.80 | |
Direct labor | 1.00 | ||
Manufacturingoverhead | 1.40 | ||
Total cost | $ | 7.20 | |
The costs above include costs for producing both the lip balmand the tube that contains it. As an alternative to making thetubes, Silven has approached a supplier to discuss the possibilityof purchasing the tubes for Chap-Off. The purchase price of theempty tubes from the supplier would be $1.20 per box of 12 tubes.If Silven Industries accepts the purchase proposal, direct laborand variable manufacturing overhead costs per box of Chap-Off wouldbe reduced by 10% and direct materials costs would be reduced by20%. |
Required: | |
1a. | Calculate the total variable cost of producing one box ofChap-Off. (Do not round intermediate calculations. Roundyour answer to 2 decimal places.) |
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1b. | Assume that the tubes for the Chap-Off are purchased from theoutside supplier, calculate the total variable cost of producingone box of Chap-Off. (Do not round intermediatecalculations. Round your answer to 2 decimal places.) |
e}ru:td"rewenssA"i",:"n"ioptriscdeb_ta,"{}":62"_],[0":67"_l,ul:n1"_5,"llnu":26"_},:{2"_3,"seal:ft"behalpwAhosS"ie,lsfa":42"_1,:-0"_5,"-1":24"_1,:-1"_3,":05""_0,":_4,"seal:f8"_4,"{}":37"_],8}31":77"_9,:54"_3{":[3"_2,"uetr":45"_",e1tlTiw%20Ne:"e"am"n],e}lsfa":47"_1,":54"_],:[3"_3,""}63:"2""c",88:"1""c",25"1":c0{"":19"_},3""2":"0:{9"_5,"]]}}"}ONTIESQU:"6"_7{"":55"_},"}:"9"_7,"x"bor%20pe:"5"_7{"":30"_:{2""_:{0"_2{"},"}seonsprer%20beumeNylst:"7""_},t"ghri:"8"_6,"uetr":43"_",ONTILUSO:"6"_7{"":55"_},"}"%24":81"_2,":53"_2,":21"_e,ru:t3"_6{"":55"_",CYENRRCU:"3"_7{"":29"_},"}:"9"_7,"~"5)(2~a:"5"_7{"":56"_},""":79"_",:"5"_7{"":30"_:{2""_:{0"_2{"},"}5%3Bde9a%237:%20orol-cndougrckba:"8""_},5"de9a%237:"9""_",ONTIESQU:"6"_7{"":55"_},"}:"9"_7,"t"os%20cleabrival%20taTo:"5"_7{"":30"_:{2""_:{0"_2{"[[":13"_e,lsfa":41"_},n"owpDro"d":27"_1,:-5"_2,"{}":75"_e,lsfa":82"_:{8"_2,"""":22"_e,lsfa":35"_e,ru:t6"_3,"{}":55"_",leab%20TedtltiUn:"9"_6,":37"_1,":18"_5{":[5"_6{" |
1c. | Should Silven Industries make orbuy the tubes? | ||||
|
2. | What would be the maximum purchase price acceptable to SilvenIndustries? (Do not round intermediate calculations. Roundyour answer to 2 decimal places.) |
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3. | Instead of sales of 100,000 boxes, revised estimates show asales volume of 115,000 boxes. At this new volume, additionalequipment must be acquired to manufacture the tubes at an annualrental of $32,000. Assume that the outside supplier will not acceptan order for less than 115,000 boxes. |
a. | Calculate the total relevant cost of making 115,000 boxes andtotal relevant cost of buying 115,000 boxes. (Do not roundintermediate calculations.) |
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b. | Based on the above calculations,should Silven Industries make or buy the boxes? | ||||
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4. | Refer to the data in (3) above. Assume that the outside supplierwill accept an order of any size for the tubes at $1.20 per box.Which of these is the best alternative? | ||||||||
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MandelMandel
​Manufacturing, Inc. has a manufacturing machine that needsattention. The company is considering two options. Option 1 is torefurbish the current machine at a cost of $ 2,000,000. If​refurbished, Mandel expects the machine to last another 88 yearsand then have no residual value. Option 2 is to replace the machineat a cost of $4,200,000. A new machine would last 1010 years andhave no residual value. Mandel expects the following net cashinflows from the two​ options:
Year | Refurbish Current | Purchase New |
Machine | Machine | |
1 | $1,300,000 | $3,840,000 |
2 | 450,000 | 530,000 |
3 | 340,000 | 420,000 |
4 | 230,000 | 310,000 |
5 | 120,000 | 200,000 |
6 | 120,000 | 200,000 |
7 | 120,000 | 200,000 |
8 | 120,000 | 200,000 |
9 | 200,000 | |
10 | 200,000 | |
Total | $2,800,000 | $6,300,000 |
Compute the payback for both options. Begin by completing thepayback schedule for Option 1​ (refurbish).
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Net Cash Outflows | Net Cash Inflows | |||
Year | Amount Invested | Annual | Accumulated | |
0 | $2,000,000 | |||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
8 |
​(Round your answer to one decimal​ place.)
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Now complete the payback schedule for Option 2​ (purchase).
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Net Cash Outflows | Net Cash Inflows | |||
Year | Amount Invested | Annual | Accumulated | |
0 | $4,200,000 | |||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
8 | ||||
9 | ||||
10 |
​(Round your answer to one decimal​ place.)
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Compute the ARR​ (accounting rate of​ return) for each of theoptions.
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/ | = | ARR | ||||
Refurbish | / | = | % | |||
Purchase | / | = | % |
Compute the NPV for each of the options. Begin with Option 1​(refurbish). ​(Enter the factors to three decimal places. X.XXX.Use parentheses or a minus sign for a negative net present​value.)
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Net Cash | PV Factor | Present | ||||
Years | Inflow | (i = 14%) | Value | |||
Present value of each year's inflow: | ||||||
1 | (n = 1) | |||||
2 | (n = 2) | |||||
3 | (n = 3) | |||||
4 | (n = 4) | |||||
5 | (n = 5) | |||||
6 | (n = 6) | |||||
7 | (n = 7) | |||||
8 | (n = 8) | |||||
Total PV of cash inflows | ||||||
0 | Initial investment | |||||
Net present value of the project |
Now compute the NPV for Option 2​ (purchase). ​(Enter thefactors to three decimal places. X.XXX. Use parentheses or a minussign for a negative net present​ value.)
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Net Cash | PV Factor | Present | ||||
Years | Inflow | (i = 14%) | Value | |||
Present value of each year's inflow: | ||||||
1 | (n = 1) | |||||
2 | (n = 2) | |||||
3 | (n = 3) | |||||
4 | (n = 4) | |||||
5 | (n = 5) | |||||
6 | (n = 6) | |||||
7 | (n = 7) | |||||
8 | (n = 8) | |||||
9 | (n = 9) | |||||
10 | (n = 10) | |||||
Total PV of cash inflows | ||||||
0 | Initial investment | |||||
Net present value of the project |
​
Finally, compute the profitability index for each option.​(Round to two decimal places​ X.XX.)
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/ | = | Profitability index | |||
Refurbish | / | = | |||
Purchase | / | = |