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14. The following information relates to three possible capital expenditure projects. Because of...
The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted. Project ABC Initial Cost £200 000 £230 000 £180 000 Expected Life 5 years 5 years 4 years Scrap value expected £10 000 £15 000 £8000 Expected Cash Inflows (£) (£) (£) End Year 1 80 000 100 000 55 000 End Year 2 70 000 70 000 65 000 End Year 3 65 000 50 000 95 000 End Year 4 60 000 50 000 100 000 End Year 5 55 000 50 000 The company estimates its cost of capital is 18%. Calculate (a) The pay back period for each project. (4 marks) (b) The Accounting Rate of Return for each project. (4 marks) (c) The Net present value of each project. (8 marks) (d) Which project should be accepted – give reasons. (5 marks) (e) Explain the factors management would need to consider: in addition to the financial factors before making a final decision on a project. (4 marks) (Total 25 marks) AAT Stage 3 Cost Accounting and Budgeting Question IM 13.1 Advanced Question IM 13.2 Payback, accounting rate of return and NPV calculations plus a discussion of qualitative factors
15. Advanced Managerial and Cost Accounting
Case 3- 62
FiberCom, Inc., a manufacturer of fiber optic communications equiptment, uses a job-order costing system. Since the production process is heavily automated, manufacturing voverhead is applied on the basis of machine hours using a predetermined overhead rate. The current annual rate of $15 per machine hour is based on budget manufacturing overhead costs of $1,200,000 and a budgeted activity level of 80,000 machine hours (the company's estimated practical capacity). Operations for the year have been completed, and all accounting entries have been made for the year except the application of manufacturing overhead to the jobs worked on during December, and transfer of costs from work-in-Precess to Finished Goods for the jobs completed in December, and the transfer of costs from Finished Goods to Cost of Goods Sold for the jobs that have been sold during December. Summarized data as of November 30 and the month of December are Presented in the following table. Jobs T11-007, N11-013, and N11-015 were completed during December. All Completed jobs except job N11-013 had been turned over to customers by the close of business on December 31.
Work-in-Process December Activity
Job No. Balance November 30 Direct Material Direct Labor Machine Hours
T11-007 $ 87,000 $ 1,500 $ 4,500 300
N11-013 $ 55,000 4,000 $ 12,000 1,000
N11-015 $ 0 25,600 26,700 1,400
D12-002 0 37,900 20,000 2,500
D12-003 0 26,000 16,800 800
Total $142,000 $95,000 $80,000 600
Operating Activity: Activity through November 30 December Activity
Actual Manufacturing Overhed Occured:
Indirect Material $ 125,000 $ 9,000
Indirect Labor $ 345,000 30,000
Utilities $ 245,000 22,000
Depreciation $ 385,000 35,000
Total Overhead $ 1,100,000 96,000
Other Data:
Raw Material Purchases $ 965,000 $ 98,000
Direct Labor costs $ 845,000 $ 80,000
Machine hours 73,000 6,000
Accounts Balances at Beginning of Year January 1
Raw-Material Inventory $105,000
Work-in-Process 60,000
Finished Goods Inventory 125,000
Note: Raw material purchases and raw material inventory consist of both direct and indirect materials. The balance of the Raw Material Inventory account as of December 31, of the year just completed is $85,000.
Required:
2. How much manafacturing overhead would FiberCom have applied to jobs through November 30 of the year just completed?
3. How much manufacturing overhead would have been applied to jobs during December of the year just completed?
4. Determined the amount by which manafacturing overhead is overapplied or underapplied as of December 31 of the year
completed.
5. Determined the balance in the Finish Goods Inventory account on December 31, of the year just completed.
6. Prepare a Schedule of Cost of Goods Manufactured for FiberCom, Inc., for the year just completed. (Hint: In computing the cost of direct material used, remember that Fibercom includes both direct and indirect material in its Raw-Material Inventory Account).
16. 4-28 Job Costing Johnson Inc. is a job-order manufacturing company that uses a predetermined...
4-28 Job Costing Johnson Inc. is a job-order manufacturing company that uses a predetermined over- head rate based on direct labor-hours to apply overhead to individual jobs. For 2010, estimated direct labor-hours are 95,000, and estimated factory overhead is $617,500. The following informa- tion is for September 2010. Job A was completed during September, and Job B was started but not finished.
September 1, 2010, inventories
Materials inventory | $ 7,500 |
Work-in-process inventory (All Job A) | 31,200 |
Finished goods inventory | 67,000 |
Material purchases | 104,000 |
Direct materials requisitioned Job A |
65,000 |
Job B | 33,500 |
Direct labor-hours
Job A 4,200
Job B 3,500
Labor costs incurred
Direct labor ($8.50/hour) | 65,450 |
Indirect labor | 13,500 |
Supervisory salaries | 6,000 |
Rental costs |
|
Factory | 7,000 |
Administrative offices | 1,800 |
Total equipment depreciation costs |
|
Factory | 7,500 |
Administrative offices | 1,600 |
Indirect materials used | 12,000 |
Required
1. What is the total cost of Job A?
2. What is the total factory overhead applied during September?
3. What is the overapplied or underapplied overhead for September?
17. Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit sel...
Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit selected balance sheet amounts at December 31, 2014, were inventory, $54,900 total assets, $209,400 common stock, $83,000; and retained earnings, $46,679.) CABOT CORPORATION Income Statement For Year Ended December 31, 2015 Sales 453,600 297,950 Cost of goods sold Gross profit 155,650 99,300 Operating expenses Interest expense 3,900 Income before taxes 52,450 21,129 Income taxes 31,321 Net income CABOT CORPORATION Balance Sheet December 31, 2015 Assets Liabilities and Equity 14,000 Accounts payable 16,500 Cash Short-term investments 9,000 Accrued wages payable 4,800 31,800 Income taxes payable Accounts receivable, net 4,400 Notes receivable (trade) 6,000 Long-term note payable, secured 66,400 Merchandise inventory 38,150 by mortgage on plant assets Common stock Prepaid expenses 2,850 83,000 Plant assets, net 151,300 Retained earnings 78,000 253,100 Tota liabilities and equity 253,100 Total assets These are short-term notes receivable arising from customer (trade) sales.
If, at the end of the financial year, a company makes a charge against the profits for stationery consumed but not yet invoiced, this adjustment is in accordance with the concept:
A materiality
B accruals
C consistency
D objectivity
19. Case Study The Investment Detective The essence of capital budgeting and resource allocation is a se
Case Study
The essence of capital budgeting and resource allocation is a search for good investments in which to invest the firmAc€?cs capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital budgeting analyst is necessarily, therefore, a detective who must winnow good evidence from bad. Much of the challenges is knowing what quantitative analysis to generate in the first place.
Supposed you are a new capital budgeting analyst for a company considering investments in the eight projects listed in Exhibit 1. The chief financial officer of your company has asked you to rank the projects and recommend the "four best" that the company should accept
Part I
For the first part of this assignment only quantitative considerations are relevant. No other project characteristics are deciding factors in the selection, except that management has determined that projects 7 and 8 are mutually exclusive.
All projects require the same initial investment, $2,000,000. Moreover, all are believed to be of the same risk class. The weighted average cost of capital for the first part is 10%. To simulate your analysis, consider the following questions:
Can you rank the projects simply by inspecting the cash flows?
What criteria might you use to rank the projects? Which quantitative ranking methods are better? Why?
What is the ranking you found by using quantitative methods? Does this ranking differ from the ranking obtained by simple inspection of the cash flows?
What kinds of real investment projects have cash flows similar to those in the exhibit?
Project cash flows in (00)
Project1 | Project2 | Project3 | Project4 | Project5 | Project6 | Project7 | Project8 | |
Initial Investment | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 | $2,000 |
Year | ||||||||
1 | $330 | $1,666 | $160 | $280 | $2,200 | $1,200 | $(350) | |
2 | $330 | $334 | $200 | $280 | $900 | $(60) | ||
3 | $330 | $165 | $350 | $280 | $300 | $60 | ||
4 | $330 | $395 | $280 | $90 | $350 | |||
5 | $330 | $432 | $280 | $70 | $700 | |||
6 | $330 | $440 | $280 | $4,000 | $1,200 | |||
7 | $330 | $442 | $280 | $2,250 | ||||
8 | $1,000 | $444 | $280 | |||||
9 | $446 | $280 | $2,000 | |||||
10 | $5,000 | $448 | $280 | |||||
11 | $450 | $280 | ||||||
12 | $451 | $280 | ||||||
13 | $451 | $280 | ||||||
14 | $452 | $280 | ||||||
15 | $9,000 | $(2,000) | $280 | |||||
Sum of Cash Flow | ||||||||
Benefits | $3,310 | $7,165 | $9,000 | $3,561 | $4,200 | $6,200 | $4,560 | $4,150 |
Excess of cash flow | ||||||||
Over investment | $1,310 | $5,165 | $7,000 | $1,562 | $2,200 | $4,200 | $2,560 | $2,150 |
20. Tre Corporation’s stockholders’ equity at December 31 consisted
Tre Corporation’s stockholders’ equity at December 31 consisted of the following (in thousands):
Capital stock, $10 par, 60,000 shares issued and outstanding $ 600
Additional paid-in capital 150
Retained earnings 250
Total stockholders’ equity $1,000
On January 1, 2011, Bow Corporation purchased 20,000 previously unissued shares of Tre stock directly from Tre for $500,000.
REQUIRED
1. Calculate Bow Corporation’s percentage ownership in Tre.
2. Determine the goodwill from Bow’s investment in Tre. Assume the book value of all identifiable assets and liabilities equals the fair value.
1. Accounting educators are discussing ways to incorporate communication skills, both oral and written, into accounting information systems courses. Why do you think these skills are deemed crucial for proper execution of the SDLC?
2. Comment on the following statement: ‘‘The maintenance stage of the SDLC involves making trivial changes to accommodate changes in user needs.’’
3. Discuss how rushing the system’s requirements stage may delay or even result in the failure of a systems development process. Conversely, discuss how spending too long in this stage may result in analysis paralysis.