10.4 C. George (Controls) Ltd manufactures a thermostat that can be used in a range ofkitchen appliances. The manufacturing process is, at present, semi-automated. Theequipment used cost £540,000 and has a carrying amount of £300,000. Demand forthe product has been fairly stable and output has been maintained at 50,000 units a yearin recent years.The following data, based on the current level of output, have been prepared inrespect of the product:Using existing equipmentSelling priceLabourMaterialsOverheads: VariableFixed£Selling priceLabourMaterialsOverheads: VariableFixed(3.30)(3.65)(1.58)(1.60)Operating profitOperating profitAlthough the existing equipment is expected to last for a further four years before it issold for an estimated £40,000, the business has recently been considering purchasingnew equipment that would completely automate much of the production process. Thiswould give rise to production cost savings. The new equipment would cost £670,000 andwould have an expected life of four years, at the end of which it would be sold for anestimated £70,000. If the new equipment is purchased, the old equipment could be soldfor £150,000 immediately.Per unitThe assistant to the business's accountant has prepared a report to help assess theviability of the proposed change, which includes the following data:Using existing equipmentPer unit££12.40(1.20)(3.20)(1.40)(3.30)(10.13)2.27£12.40(9.10)3.30Depreciation charges will increase by £85,000 a year as a result of purchasing the newmachinery; however, other fixed costs are not expected to change.In the report the assistant wrote:The figures shown above that relate to the proposed change are based on the current levelof output and take account of a depreciation charge of £150,000 a year in respect of the newequipment. The effect of purchasing the new equipment will be to increase the operatingprofit to sales revenue ratio from 18.3 per cent to 26.6 per cent. addition, purchase ofthe new equipment will enable us to reduce our inventories level immediately by £130,000.In view of these facts, I recommend purchase of the new equipment.The business has a cost of capital of 12 per cent. Ignore taxation.Required:(a) Prepare a statement of the incremental cash flows arising from the purchase of thenew equipment.(b) Calculate the net present value of the proposed purchase of new equipment.(c) State, with reasons, whether the business should purchase the new equipment.(d) Explain why cash flow projections are used rather than profit projections to assessthe viability of proposed capital expenditure projects.

The cash inflow, or quantity of money, a new initiative, product, investment, or campaign generates…

C. George (Controls) Ltd manufactures a thermostat that can be used in a range of kitchen appliances. The manufacturing process is, at present, semi-automated. The equipment used cost £540,000 and has a carrying amount of £300,000. Demand for the product has been fairly stable and output has been maintained at 50,000 units a year in recent years. The following data, based on the current level of output, have been prepared in respect of the product: Using existing equipment Selling price Labour Materials Overheads: Variable Fixed Operating profit £ (3.30) (3.65) (1.58) (1.60) Per unit £ 12.40 (10.13) 2.27

C. George (Controls) Ltd manufactures a thermostat that can be used in a range of kitchen appliances. The manufacturing process is, at present, semi-automated. The equipment used cost £540,000 and has a carrying amount of £300,000. Demand for the product has been fairly stable and output has been maintained at 50,000 units a year in recent years. The following data, based on the current level of output, have been prepared in respect of the product: Using existing equipment Selling price Labour Materials Overheads: Variable Fixed Operating profit £ (3.30) (3.65) (1.58) (1.60) Per unit £ 12.40 (10.13) 2.27

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

The main product of cassano corp is a dry battery of various sizes. The following is the cost information that occurred during 2010 for the production of AA batteries of 232.142.543 units 1. Raw Material Cost Rp 4.297.190.614 2. Indirect Material Cost Rp 573.392.200 3. Direct Labor Cost Rp 2.931.960.310 4. Indirect Labor Cost Rp 1.653.988.720 5. Depreciation of building Rp 13.250.000 6. Material handling Rp 828.748.878 7. Gas expense Rp 8.124.989 8. Depreciation of machines Rp 20.629.930 9. Equipment expense Rp 767.419.320 10. Maintenance expense Rp 2.486.261.000 11. Insurance Rp 36.989.000 12. Electricity expense Rp 1.375.342.250 13. Telephone expense Rp 74.349.800 14. Set up expense Rp 248.392.521 15. Transportation expense Rp 48.749.934 16. Quality inspection expense Rp 192.678.310 17. Cleaning expense Rp 21.340.660 18. Spare parts management Rp 10.115.500 19. Factory…
Generators R Us (GR U) is a leading manufacturer of partible electronic generators used for emergency power supply in both civil and private disaster situations. Each year it produces 16,000 of its model HI-360 units. This model used two bearings, which the company purchases from am outside vendor. A review of Accounting and usage records reveals the following information: labor for installing the bearings = R8 per generator; per-unit cost bearings = R25; delivery charges per order = R5; processing costs per order = R6; mailing expenses per order = R2; and the estimated cost of carrying one bearing in inventory for the entire year = 35c. GR U also found that on average four days elapse between the time an order is placed and the time items are received. Required a. Compute the economic order quantity. b. Compute the reorder point. Assume that the HI-360 model is manufactured for 350 days each year
Linwood Company recently began production of a new navigation device, which required a capital investment of $660,000. Linwood is currently considering establishing a selling price for this new device that will ensure a 25% return on the capital investment. The engineering and the sales department compiled the following estimates for producing and selling 77,000 devices: Per Unit Total (77,000 units) Direct Materials $12 Direct Labor $26 Variable Manufacturing Overhead $14 Selling and Administrative Expenses $17 Fixed Manufacturing Overhead $223,000 General and Administrative Expenses $73,000 Required:Do not enter dollar signs or commas in the input boxes.Round all answers to 2 decimal places.a) Using the cost plus pricing method, calculate the markup percentage.Full Cost: $AnswerMarkup Percentage: Answer%b) The company has a cost plus pricing policy that uses the absorption (full) cost as the cost base and the markup percentage calculated in part a).…
Glassworks makes products for the sandblasting industry. One of the products they make is bags of high-grade sandblasting media that is made from a combination of quartz-sand and recycled ground-glass (cullet). Standard costs and quantities to produce one bag of sandblasting media are as follows: Quantity Cost Quartz-sand 20 kg $4.00 Cullet 5 kg $3.00 80,000 bags of sandblasting media were produced. Actual purchases and inventories were: Beginning Ending Purchases Purchases Inventory Inventory (in kg) ( in $) Quartz-sand 0 kg 0 kg 1,610,000 kg $322,161 Cullet 0 kg 120,000 kg 550,000 kg $286,000 Required: Calculate the following variances: a)Total direct material efficiency variance. b)Total direct material mix variance.…
Federated Manufacturing Incorporated (FMl) produces electronic components in three divisions: industrial, commercial, and consumer products. The commercial products division annually purchases 10,000 units of part 23-6711, which the industrial division produces for use in manufacturing one of its own products. The commercial division is growing rapidly; it is expanding its production and now wants to increase its purchases of part 23-6711 to 15,000 units per year. The problem is that the industrial division is at full capacity. No new investment in the industrial division has been made for some years because top management sees little future growth in its products, so its capacity is unlikely to increase soon. The commercial division can buy part 23-6711 from Advanced Micro Incorporated or from Admiral Electric, a customer of the industrial division now purchasing 650 units of part 88-461. The industrial division's sales to Admiral would not be affected by the commercial division's…
Iraq Inc. makes recyclable pots for plants and uses JIT to manage inventories and production. The following are standards for a typical 1-gallon pot: Annual Material Standards 32 ounces of Component X* $0.02 2 ounces of Component Y * $0.05 $0.64 0.10 $0.74 Current Material Standards 27 ounces of Component X* $0.02 . 4 ounces of Component Y* $0.05 $0.54 0.20 $0.74 In-house experiments indicated that changing the material standard would make the pots stronger, so the company issued an engineering change order for the product in February; this ECO established the current material standards. March production was 8,000 pots. Usage of raw material (all purchased at standard price) in March was 220,000 ounces of Component X and 31,000 ounces of Component Y. Required: a. Calculate the material quantity variance. b. Calculate the ECO variance. c. Summarize the company's effectiveness in managing March production costs. d. Comment on the circumstances in which a company would institute an ECO…
A company manufactures computer games. The games are in demand all year round and in the next financial year the sales manager plans to sell 12,000 games. The trainee's management accountant has provided the following cost information for 1 unit of computer game. The selling price is £10.00, and the variable cost will consist of direct, materials £1.00 per unit, direct labour cost £5.00 per unit. The fixed cost for the year is expected to be £32,000. Required: You have been asked to provide information that will help the managing director consider the effect on profitability changes in the level of sales activity next year Draw up a marginal statement that calculates the contribution per unit Draw up a marginal cost statement on the basis that 12,000 units will be sold and calculate a. b. the net profit or loss Briefly explain what is meant by breakeven points С. d. Calculate the breakeven units in value and explain what it means to the director Calculate the sales activity to reach a…
Ashley Technology Inc. manufactures a scrambling device for cellular telephones. The device's main component is a delicate part, CT140. CT140 is easily damaged and requires careful handling. Once damaged, it must be discarded. The firm hires only skilled laborers to manufacture and install CT140; however, some are still damaged. Robotic instruments process all other parts. Ashley's operating data for 2 years are as follows: Units manufactured Number of CT140 used Number of direct labor hours spent Cost of CT140 per unit Direct labor wage rate per hour 2019 $ S 750,000 900,000 150,000 156 56 2018 1,000,000 1,050,000 200,000 $ 135 $ 62 Assume that fixed manufacturing costs are $50 million in both 2018 and 2019. Required: 1. Compute the total productivity ratios for 2018 and 2019.
A chemical company is considering two types of incinerators to burn solid waste generated by a chemical operation. Both incinerators have a burning capacity of 20 tons per day. The following data have been compiled for comparison of the two incinerators: If the firm's MARR is known to be 13%. determine the processing cost per tonof solid waste for each incinerator. Assume that incinerator B will be availablein the future at the same cost.
munabhai
Gadubhai
Oriole produces and sells two products-aluminum and vinyl. Each of these products is made in a dedicated manufacturing facility, and the product line managers are evaluated based on the product line's return on investment. The following data is from the most recent year of operations, Aluminum Vinyl Sales $4,000,000 $4,350,000 Variable costs 2,050,000 2,403,750 Direct fixed costs 1,520,000 1,533,000 Average assets 2,000,000 1,500,000 (31) Your answer is correct. Calculate the margin and asset turnover for each product line. (Round answers to 2 decimal places, eg. 5.12 and 5,12%) Aluminum Vinyl Margin 10.75 % 9.50 % 2.00 2.90 Your answer is correct. Calculate return on investment for each product line. (Round ROI to 2 decimal places, e.g. 5.12 %) Aluminum Vinyl ROI 21.50 % 27.55 % eTextbook and Media Attempts: unlimited Both product line managers would like to improve their respective returns on investment, and each manager has a different idea about how to accomplish this. If the…