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

Becton Labs, Inc., produces various chemical compounds for Industrial use. One compound, called Fludex, Is prepared using an elaborate distilling process. The company has developed standard costs for one unit of Fludex, as follows: standard Quantity or Hours standard Price Standard or Rate $18.00 per ounce $14.00 per hour Cost Direct materials 2.40 ounces $ 43.20 Direct labor 0.70 hours 9.80 variable manufacturing overhead 0.70 hours $ 3.00 per hour 2.10 Total standard cost per unit $ 55.10 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 12,000 ounces at a cost of $198,000. b. There was no beginning inventory of materials; however, at the end of the month, 3,200 ounces of materilal remalned In ending Inventory. c. The company employs 20 lab technicians to work on the production of Fludex. During November, they each worked an average of 160 hours at an average pay rate of $12.00 per hour. d. Varlable manufacturing…
Suppose a company has 1,000 units of a raw material part on hand. If 750 of these units are routed into production, should the company place an order to stock up on more of these parts? (Show calculations). Determine the economic order quantity (EOQ) for this part, assuming the following:The company plans to use 10,000 units during the coming year.The company orders this part in lots of 1,000 units, and each order placed carries a processing cost of $2.50.Each unit of inventory carries an annual holding cost of $6.40.
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: $Answer Markup 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).…
A new set of financial managers are hired to Holland Company, a manufacturing-concern entity that produces Product A. The financial managers are now planning the operations for 2022. They are currently doing the sales and production budget of the entity. Upon inspecting the financial records of the entity, they found at that each unit of Product A utilizes three kinds of materials – Material X, Material Y, and Material Z. To produce each unit of Product A, three units of Material X, 2 units of Material Y, and 4 units of Material Z are needed. It also needs 2.5 direct labor hours to manufacture each unit. Factory overhead is applied at 50% of direct labor costs. As the usual practice, the entity is preparing the budget on a quarterly basis. For the 4th quarter of 2021, the entity was able to sell 120000 units of Product A at an average price of P400 per unit. Because the new set of financial managers are confident that the company can do more, they are targeting to increase units sold…
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).…
Williams Optical Inc. is considering a new lean product cell. The present manufacturing approach produces a product in four separate steps. The production batch sizes are 45 units. The process time for each step is as follows: Step Time (in minutes) Process Step 1 5 Process Step 2 8 Process Step 3 4 Process Step 4 3 The time required to move each batch between steps is 4 minutes. In addition, the time to move raw materials to Process Step 1 is also 4 minutes, and the time to move completed units from Process Step 4 to finished goods inventory is 6 minutes. The new lean layout will allow the company to reduce the batch sizes from 45 units to 3 units. The time required to move each batch between steps and the inventory locations will be reduced to 2 minutes. The processing time in each step will stay the same. Determine the value-added, non-value-added, and total lead times, and the value-added ratio under the: present and proposed production…
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…
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.
A manufacturing firm maintains one product assembly line to produce generators. The demand for the product is 85 units/week.The production runs at 8 hours/day, 5.5 days/week. What is the maximum production time per unit in hours required of the production line to meet the demand. Show complete solution on a clear paper.
Aero Ltd manufactures and sells a range of outdoor activities and camping equipment. The company has recently produced and marketed a new product called EcoTent. The plant’s production capacity is 8,000 units on a monthly basis. Manufacturing variable costs (manufacturing and selling) amount to £12.50 per unit. EcoTent related fixed costs would total £65,000 per month. Predicted monthly demand for EcoTent is expected to exceed 8,000 units. Additional plant space would need to be rented. This would incur a fixed cost of £2,200 on a monthly basis. Variable costs of £14 per unit for the production of EcoTent would be incurred in the rented plant facility. Aero Ltd plans to sell EcoTent at £20 per unit. c) The company is also considering the implementation of a new reward scheme in which sales managers would receive a bonus of £0.50 for each unit sold in excess of the break-even point. How many units would be required to sell (monthly) to obtain a rate of return of 25% on the monthly…
D-alcohol is an alcohol factory in Kyoto. The most popular products of D-alcohol are A, B, C, and D, whose demands are 30, 40, 60, and 50 kg per hour respectively. The setup times for A, B, C, and D are 1/2, 1/3, 1/2, and 1/4 hours respectively. The production line produces A, B, C, and D in sequence and repeats this sequence iteratively (e.g., a sequence is a production cycle). The production line is able to produce 200 kg per hour. What is the batch size to minimize inventory and also satisfy customer demands if we regard A, B, C, and D as a batch? Based on (a), what is the production quantity of A during a production cycle. Suppose that the rates of consumption and fabrication of product A are constant numbers, based on (a), what is the average inventory of A?