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ACCT 505 Entire Course (New) FOR MORE CLASSES VISIT www.acct505outlet.com ACCT 505 Week 1-7 All Discussion Questions ACCT 505 Week 1 Case Study ACCT 505 Week 2 Quiz Job Order and Process Costing Systems ACCT 505 Week 2 Quiz Set 2 ACCT 505 Week 3 Case Study II ACCT 505 Week 4 Midterm Exam ACCT 505 Week 5 Course Project 1 LBJ Company (New) ACCT 505 Week 5 Measuring Performance - Course Project A ACCT 505 Week 6 Quiz Segment Reporting and Relevant Costs for Decisions ACCT 505 Week 6 Quiz Set 2 ACCT 505 Week 7 Capital Budgeting Course Project ACCT 505 Week 7 Course Project 2 Capital Budgeting Decision (New) ACCT 505 Final Exam Guide (New) Set 1 ACCT 505 Final Exam Guide (New) Set 2 ACCT 505 Final Exam Guide (New) Set 3 ACCT 505 Midterm Exam (New) Set 1 ACCT 505 Midterm Exam (New) Set 2 ************************************************* ACCT 505 Final Exam (Devry) FOR MORE CLASSES VISIT www.acct505outlet.com ACCT 505 Final Exam (Devry) ************************************************* ACCT 505 Final Exam (New) All 3 Set FOR MORE CLASSES VISIT www.acct505outlet.com Score 248/250 Multiple Choice 2 Short 2 Essay 7 Question 1 : (TCO E) Designing a new product is a(n) 2. Question : (TCO G) Given the following data, what would ROI be? Sales $70,000 Net operating income $10,000 Contribution margin $20,000


Average operating assets $50,000 Stockholder's equity $25,000 1. Question : (TCO C) Longiotti Corporation produces and sells a single product. Data concerning that product appear below. Selling price per unit $375.00 Variable expense per unit $144.00 Fixed expense per month $1,686,300 Required: Determine the monthly breakeven in units or dollar sales. Show your work! .Units in beginning work in process inventory 400 Materials costs $6,900 Conversion costs $2,500 Percent complete for materials 80% Percent complete for conversion 15% Units started into production during the month 6,000 Units transferred to the next department during the month 5,600 Materials costs added during the month $112,500 Conversion costs added during the month $210,300 1. Question : (TCO D) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below. Units in beginning inventory 2,000 Units produced 9,000 Units sold 10,000 Sales $100,000 Less cost of goods sold: Beginning inventory 12,000 Add cost of goods manufactured 54,000 Goods available for sale 66,000 Less ending inventory 6,000 Cost of goods sold 60,000 Gross margin 40,000 Less selling and admin. expenses 28,000 Net operating income $12,000

************************************************* ACCT 505 Final Exam Guide (New) Set 1 FOR MORE CLASSES VISIT www.acct505outlet.com


Score 248/250 Multiple Choice 2 Short 2 Essay 7 Question 1 : (TCO E) Designing a new product is a(n) 2. Question : (TCO G) Given the following data, what would ROI be? Sales $70,000 Net operating income $10,000 Contribution margin $20,000 Average operating assets $50,000 Stockholder's equity $25,000 1. Question : (TCO C) Longiotti Corporation produces and sells a single product. Data concerning that product appear below. Selling price per unit $375.00 Variable expense per unit $144.00 Fixed expense per month $1,686,300 Required: Determine the monthly breakeven in units or dollar sales. Show your work!

2. Question : (TCO B) Maverick Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below. Work in process, beginning: Units in beginning work in process inventory 400 Materials costs $6,900 Conversion costs $2,500 Percent complete for materials 80% Percent complete for conversion 15% Units started into production during the month 6,000 Units transferred to the next department during the month 5,600 Materials costs added during the month $112,500 Conversion costs added during the month $210,300 1. Question : (TCO D) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below. Units in beginning inventory 2,000 Units produced 9,000 Units sold 10,000 Sales $100,000 Less cost of goods sold: Beginning inventory 12,000 Add cost of goods manufactured 54,000


Goods available for sale 66,000 Less ending inventory 6,000 Cost of goods sold 60,000 Gross margin 40,000 Less selling and admin. expenses 28,000 Net operating income $12,000

************************************************* ACCT 505 Final Exam Guide (New) Set 2 FOR MORE CLASSES VISIT www.acct505outlet.com Set 2 1. (TCO C) Madlem, Inc., produces and sells a single product whose selling price is $120.00 per unit and whose variable expense is $46.20 per unit. The company's fixed expense is $405,900 per month. Required: Determine the monthly breakeven in either unit or total dollar sales. Show your work! (Points : 25)

Question 2.2. (TCO B) Industrial Supply Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below. Work in process, beginning: Units in beginning work in process inventory 400 Materials costs $6,900 Conversion costs $2,500 Percent complete for materials 80% Percent complete for conversion 15% Units started into production during the month 6,000 Units transferred to the next department during the month 5,200 Materials costs added during the month $112,500 Conversion costs added during the month $210,300

Ending work in process: Units in ending work-in-process inventory 1,200 Percentage complete for materials 75%


Percentage complete for conversion 30% Required: Calculate the equivalent units for conversion for the month in the first processing department. (Points : 25) ************************************************* ACCT 505 Final Exam Guide (New) Set 3 FOR MORE CLASSES VISIT www.acct505outlet.com (TCO E) Preparing purchase orders is a(n) (Points : 5) batch-level activity. product-level activity. unit-level activity. organization sustaining activity.

2. (TCO G) Given the following data, what would ROI be? Sales $70,000 Net operating income $10,000 Contribution margin $20,000 Average operating assets $50,000 Stockholder's equity $25,000 (Points : 5) 28.6% 20.0% 40.0% 50.0%

3. (TCO C) Heckaman Corporation produces and sells a single product. Data concerning that product appear below. Selling price per unit $115.00 Variable expense per unit $56.35 Fixed expense per month $299,115

4. TCO B) Industrial Supply Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below. Work in process, beginning: Units in beginning work in process inventory 400 Materials costs $6,900 Conversion costs $2,500


Percent complete for materials Percent complete for conversion

80% 15%

5. (TCO D) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below. Units in beginning inventory 0 Units produced 9,000 Units sold 7,000 Sales $100,000

Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals $18,000 for the year. The fixed manufacturing overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements. (Points : 30)

************************************************* ACCT 505 Midterm Exam (New) Set 1 FOR MORE CLASSES VISIT www.acct505outlet.com Score 144/150 Multiple Choice 10Essay 4

1. (TCO A) Direct material cost is a part of (Points : 6) Conversion Cost NO.... Prime Cost NO. Conversion Cost YES.... Prime Cost NO. Conversion Cost YES.... Prime Cost YES. Conversion Cost NO.... Prime Cost YES.

Question 2.2. (TCO A) Total fixed costs (Points : 6) will increase with increases in activity. will decrease with increases in activity. are not affected by activity.


should be ignored in making decisions because they can never change.

Question 3.3. (TCO A) Property taxes on a company's factory building would be classified as a(n) (Points : 6) variable cost. opportunity cost. period cost. product cost.

Question 4.4. (TCO C) When the activity level is expected to increase within the relevant range, what effects would be anticipated with respect to each of the following? (Points : 6) Fixed costs per unit decrease and variable costs per unit do not change. Fixed costs per unit increase and variable costs per unit do not change. Fixed costs per unit do not change and variable costs per unit do not change. Fixed costs per unit do not change and variable costs per unit increase. Question 5.5. (TCO B) Which of the following statements is true? I. Overhead application may be made slowly as a job is worked on. II. Overhead application may be made in a single application at the time of completion of the job. III. Overhead application should be made to any job not completed at year end in order to properly value the work in process inventory. (Points : 6) Only statement I is true. Only statement II is true. Both statements I and II are true. Statements I, II, and III are true. ************************************************* ACCT 505 Midterm Exam (New) Set 2

Multiple Choice Essay 4 Question 1.

FOR MORE CLASSES VISIT www.acct505outlet.com 10 9

Question :

Student Answer:

(TCO A) The variable portion of advertising costs is a Conversion YES... Period NO.

Conversion YES .... Period YES.


Conversion NO.... Period NO. Conversion NO.... Period YES.

Question 2. Question : (TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n) Student Answer: period cost. incremental cost. opportunity cost. None of the above Question 3. Question : (TCO A) Property taxes on a company's factory building would be classified as a(n) Student Answer:

variable cost.

opportunity cost. period cost. product cost.

************************************************* ACCT 505 Week 1 Case Study (Devry) FOR MORE CLASSES VISIT www.acct505outlet.com Top Switch Inc. designs and manufactures switches used in telecommunications. Serious flooding throughout the state of Tennessee affected Top Switch’s facilities. Inventory was completely ruined, and the company’s computer system, including all accounting records, was destroyed. Before the unfortunate incident, recovery specialists cleaned the buildings. The company controller is very nervous and anxious to recover whatever records he can to support the insurance claim for the destroyed inventory. After consulting with the cost accountant, they decide to retrieve the previous year’s annual report for the beginning inventory numbers. In addition, they also agreed that they need first quarter cost data. The cost accountant was working on the first quarter results before the storm hit, and to


his surprise, the report was still in his desk drawer. After reviewing the data , the information shows the following information: Material purchases were $ 325,000; Direct Labor was $ 220,000. Further discussions between the controller and the cost accountant revealed that sales were $ 1,350,000 and the gross margin was 30% of sales. The cost accountant also discovered, while sifting through the information, that cost of goods available for sale was $ 1,020,000 at cost. While assessing the damage, the controller determined that the prime costs were $ 545,000 up to the time of the damage and that manufacturing overhead is 65% of conversion cost. The cost accountant is not sure about all of this, but he decides to see what he can do with the information. The beginning inventory numbers are as follows: Raw Materials, $ 41,000 Work in Process, $ 56,000 Finished Goods, $ 35,000 Required: Determine the amount of cost in the Raw Materials, Work in Process, and Finished Goods Inventory as of the date of the storm. ( Hint: You may wish to reconstruct the various schedules and statements that would have been affected by the company’s accounts during the period.) Grading Rubric for Case Study I: Category Points % Description Documentation & Formatting 10 22% Worksheet will be done in Excel and will contain formulas to receive maximum credit Organization and Cohesiveness 15 33% Calculations for all parts should be organized and correctly labeled. Content 20 45% A quality case study will have all required work completed and will be correct. Total 45 100% A quality project will meet or exceed all of the above requirements.


************************************************* ACCT 505 Week 1-7 All Discussion Questions (Devry) FOR MORE CLASSES VISIT www.acct505outlet.com Week 1DQ 1 Cost Terms, Classifications, and Behavior Week 1DQ 2 Research and Application Week 2DQ 1 Job Order and Process Costing Systems Week 2DQ 2 Research and Application Week 3DQ 1 Variable Costing and CVP Concepts Week 3DQ 2 Research and Application Week 4DQ 1 Budgeting Case Study Week 4DQ 2 Exam Review Week 5DQ 1 Standards, Variances, Flexible Budgets Week 5DQ 2 Research and Application Week 6DQ 1 Segment Reporting and Relevant Costs Week 6DQ 2 Research and Application Week 7DQ 1 Capital Budgeting Week 7DQ 2 Exam Review ************************************************* ACCT 505 Week 2 Quiz Job Order and Process Costing Systems (Devry) FOR MORE CLASSES VISIT www.acct505outlet.com 1. Question : (TCO F) For which situation(s) below would an organization be more likely to use a job-order costing system of accumulating product costs rather than a process costing system? 2. Question : (TCO F) Process costing would be appropriate for each of the following except: 3. Question : (TCO F) Lucas Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in the Forming Department, which is the first of two stages in its production process. Information concerning operations in the Forming Department in October follows: Units Material Cost Work in process on October 1 6,000


$3,000 Units started in October 50,000 $25,560 Units completed and transferred to next Department during October 44,000

What was the materials cost of work in process at on October 31? 4. Question : (TCO F) In a job-order costing system, the use of direct materials that have been previously purchased is recorded as a debit to: 5. Question : (TCO F) During December at Ingrim Corporation, $74,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $6,000. The journal entry to record the requisition from the storeroom would include a: 6. Question : (TCO F) Valles Corporation had $22,000 of raw materials on hand on February 1. During the month, the company purchased an additional $75,000 of raw materials. The journal entry to record the purchase of raw materials would include a: 1. Question : (TCO F) Whether a company uses process costing or job-order costing depends on its industry. A number of companies in different industries are listed below: i. Brick manufacturer ii. Contract printer that produces posters, books, and pamphlets to order iii. Natural gas production company iv. Dairy farm v. Coal mining company vi. Specialty coffee roaster (roasts small batches of specialty coffee beans) For each company, indicate whether the company is most likely to use job-order costing or process costing. i. Brick manufacturer Process Costing ii. Contract printer that produces posters, books, and pamphlets to order Job Order Costing iii. Natural gas production company Process Costing iv. Dairy farm Process Costing v. Coal mining company Process Costing vi. Specialty coffee roaster (roasts small batches of specialty coffee beans) Job Order Costing 2.


Question : (TCO F) Job 484 was recently completed. The following data have been recorded on its job cost sheet: Direct materials $57,240 Direct labor hours 1,692 DLHs Direct labor wage rate $12 per DLHS Number of units completed 3,600 units

The company applies manufacturing overhead on the basis of direct labor-hours. The predetermined overhead rate is $24 per direct labor-hour. Compute the unit product cost that would appear on the job cost sheet for this job. 3. Question : (TCO F) Miller Company manufactures a product for which materials are added at the beginning of the manufacturing process. A review of the company's inventory and cost records for the most recently completed year revealed the following information: Units Materials Conversion Work in process. Jan. 1 (80% complete with respect to conversion costs) 100,000 $100,000 $157,500 Units started into production 500,000 Costs added during the year: Materials $650,000 Conversion $997,500 Units completed during the year 450,000

The company uses the weighted-average cost method in its process costing system. The ending inventory is 50% complete with respect to conversion costs. Required:


i. Compute the equivalent units of production and the cost per equivalent units for materials and for conversion costs. ii. Determine the cost transferred to finished goods. iii. Determine the amount of cost that should be assigned to the ending work in process inventory. 4. Question : (TCO F) Weisinger Corporation has provided the following data for the month of January: Inventories Beginning Ending Raw materials $28,000 $29,000 Work In process $16,000 $14,000 Finished goods $42,000 $54,000 Additional Information Raw material purchases $56,000 Direct labor costs $87,000 Manufacturing overhead cost incurred $51,000 Indirect materials included in manufacturing overhead costs incurred $3,000 Manufacturing overhead cost applied to work in process $55,000

Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold in good form. ************************************************* ACCT 505 Week 2 Quiz Set 2


FOR MORE CLASSES VISIT www.acct505outlet.com Essay 4 Multiple Choice 6 Question 1. Question : (TCO B) Assume there is no beginning work in process inventory and the ending work in process inventory is 100% complete with respect to materials costs. The number of equivalent units with respect to materials costs under the weighted average method is ************************************************* ACCT 505 Week 3 Case Study II (Devry) FOR MORE CLASSES VISIT www.acct505outlet.com Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available: Number of seats per passenger train car 90 Average load factor (percentage of seats filled) 70% Average full passenger fare $160 Average variable cost per passenger $70 Fixed operating cost per month $3,150,000 What is the break-even point in passengers and revenues per month? What is the break-even point in number of passenger train cars per month? If Springfield Express raises its average passenger fare to $ 190, it is estimated that the average load factor will decrease to 60 percent. What will be the monthly break-even point in number of passenger cars? (Refer to original data.) Fuel cost is a significant variable cost to any railway. If crude oil increases by $ 20 per barrel, it is estimated that variable cost per passenger will rise to $ 90. What will be the new break-even point in passengers and in number of passenger train cars? Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $ 750,000? (Use original data). Springfield Express is considering offering a discounted fare of $ 120, which the company believes would increase the load factor to 80 percent. Only the additional seats would be sold at the discounted fare. Additional monthly advertising cost would be $ 180,000. How much pre-tax income would the discounted fare provide Springfield Express if the company has 50 passenger train cars per day, 30 days per month? Springfield Express has an opportunity to obtain a new route that


would be traveled 20 times per month. The company believes it can sell seats at $ 175 on the route, but the load factor would be only 60 percent. Fixed cost would increase by $ 250,000 per month for additional personnel, additional passenger train cars, maintenance, and so on. Variable cost per passenger would remain at $ 70. Should the company obtain the route? How many passenger train cars must Springfield Express operate to earn pre-tax income of $ 120,000 per month on this route? If the load factor could be increased to 75 percent, how many passenger train cars must be operated to earn pre-tax income of $ 120,000 per month on this route? What qualitative factors should be considered by Springfield Express in making its decision about acquiring this route? ************************************************* ACCT 505 Week 4 Midterm Exam (Devry) FOR MORE CLASSES VISIT www.acct505outlet.com 1. Question : (TCO A) Wages paid to an assembly line worker in a factory are a 2. Question : (TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n) 3. Question : (TCO A) Depreciation of office buildings and office equipment is also known as 4. Question : (TCO A) When the activity level is expected to increase within the relevant range, what effects would be anticipated with respect to each of the following? 5. Question : (TCO F) Which of the following statements is true? I. Overhead application may be made slowly as a job is worked on. II. Overhead application may be made in a single application at the time of completion of the job. III. Overhead application should be made to any job not completed at year end in order to properly value the work in process inventory. 6. Question : (TCO F) A job-order cost system is employed in those situations where ************************************************* ACCT 505 Week 5 Course Project 1 LBJ Company (New)


FOR MORE CLASSES VISIT www.acct505outlet.com COURSE PROJECT 1 INSTRUCTIONS You have just been contracted as a budget consultant by LBJ Company, a distributor of bracelets to various retail outlets across the country. The company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. You have decided to prepare a cash budget for the upcoming fourth quarter in order to show management the benefits that can be gained from proper cash planning. You have worked with accounting and other areas to gather the information assembled below. The company sells many styles of bracelets, but all are sold for the same $10 price. Actual sales of bracelets for the last three months and budgeted sales for the next six months follow: The concentration of sales in the fourth quarter is due to the Christmas holiday. Sufficient inventory should be on hand at the end of each month to supply 40% of the bracelets sold in the following month.

Suppliers are paid $4 for each bracelet. Fifty-percent of a month's purchases is paid for in the month of purchase; the other 50% is paid for in the following month. All sales are on credit with no discounts. The company has found, however, that only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. Monthly operating expenses for the company are given below: Variable expenses: Sales commissions 4% of sales Fixed expenses: Advertising $220,000 Rent $20,000 Salaries $110,000 Utilities $10,000 Insurance $5,000 Depreciation $18,000 Insurance is paid on an annual basis, in January of each year. The company plans to purchase $22,000 in new equipment during October and $50,000 in new equipment during November; both purchases will be for cash. The company declares dividends of $20,000 each quarter, payable in the first month of the following quarter.


Other relevant data is given below: Cash balance as of September 30 Inventory balance as of September 30 Merchandise purchases for September

$74,000 $112,000 $200,000

The company maintains a minimum cash balance of at least $50,000 at the end of each month. All borrowing is done at the beginning of a month; any repayments are made at the end of a month. The company has an agreement with a bank that allows the company to borrow the exact amount needed at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash. Required: Prepare a cash budget for the three-month period ending December 31. Include the following detailed budgets: 1. a. A sales budget, by month and in total. b. A schedule of expected cash collections from sales, by month and in total. c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total. d. A schedule of expected cash disbursements for merchandise purchases, by month and in total. 2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000. ************************************************* ACCT 505 Week 6 Quiz Segment Reporting and Relevant Costs for Decisions (Devry) FOR MORE CLASSES VISIT www.acct505outlet.com Question : (TCO D) Return on investment (ROI) is equal to the margin multiplied by 2. Question : (TCO D) For which of the following decisions are opportunity costs relevant? The decision to make or buy a needed part The desision to keep or drop a product line (A) Yes Yes (B)


Yes No (C) No Yes (D) No No 3. Question : (TCO D) Last year, the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover, rounded to the nearest tenth? 1. Question : (TCO D) Data for December concerning Dinnocenzo Corporation's two major business segments-Fibers and Feedstocks-appear below: Sales revenues, Fibers $870,000 Sales revenues, Feedstocks $820,000 Variable expenses, Fibers $426,000 Variable expenses, Feedstocks $344,000 Traceable fixed expenses, Fibers $148,000 Traceable fixed expenses, Feedstocks S156,000 Common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to the Fibers business segment and $185,000 to the Feedstocks business segment. ************************************************* ACCT 505 Week 6 Quiz Set 2 FOR MORE CLASSES VISIT www.acct505outlet.com Multiple Choice Short 5

3

Question 1. Question : margin multiplied by

(TCO D) Return on investment (ROI) is equal to the


Question 2. Question : (TCO D) For which of the following decisions are opportunity costs relevant? The decision to make or buy a needed part The decision to keep or drop a product line Question 3. Question : (TCO D) Last year, the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover, rounded to the nearest tenth?

Question 1. Question : (TCO D) Data for December concerning Dinnocenzo Corporation's two major business segments-Fibers and Feedstocks-appear below. Sales revenues, Fibers $870,000 Sales revenues, Feedstocks $820,000 Variable expenses, Fibers $426,000 Variable expenses, Feedstocks $344,000 Traceable fixed expenses, Fibers $148,000 Traceable fixed expenses, Feedstocks $156,000 Common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to the Fibers business segment and $185,000 to the Feedstocks business segment. Required: Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.

Question 2. Question : (TCO D) Wryski Corporation had net operating income of $150,000 and average operating assets of $500,000. The company requires a return on investment of 19%. Required: i. Calculate the company's current return on investment and residual income. ii. The company is investigating an investment of $400,000 in a project that will generate annual net operating income of $78,000. What is the ROI of the project? What is the residual income of the project? Should the company invest in this project?

************************************************* ACCT 505 Week 7 Course Project 2 Capital Budgeting Decision (New)


FOR MORE CLASSES VISIT www.acct505outlet.com ACCT 505 Course Project 2 Hampton Company

Capital Budgeting Decision Hampton Company: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the cans instead of purchasing them. The equipment needed would cost $1,000,000, with a disposal value of $200,000, and would be able to produce 27,500,000 cans over the life of the machinery. The production department estimates that approximately 5,500,000 cans would be needed for each of the next 5 years. The company would hire six new employees. These six individuals would be full-time employees working 2,000 hours per year and earning $15.00 per hour. They would also receive the same benefits as other production employees, 15% of wages in addition to $2,000 of health benefits. It is estimated that the raw materials will cost 30¢ per can and that other variable costs would be 10¢ per can. Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted. It is expected that cans would cost 50¢ each if purchased from the current supplier. The company’s minimum rate of return (hurdle rate) has been determined to be 11% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for the company’s products as well as number of units sold will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased. Required: 1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase. o Annual cash flows over the expected life of the equipment o Payback period o Simple rate of return o Net present value o Internal rate of return The check figure for the total annual after-tax cash flows is $271,150. 2. Would you recommend the acceptance of this proposal? Why or why not? Prepare a short, double-spaced paper in MS Word elaborating on and supporting your answers.


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