Need help Last year (2022), Summit Realty installed a mechanized HVAC system for itsoffice building. The owner, Alex Morgan, recently attended a real estateconference where a new energy-efficient HVAC system was demonstrated. Alexwas impressed by the system's efficiency, low operating cost, and environmentalimpact. Upon returning, Alex asked the purchasing agent to gather cost andoperating data on the new HVAC system and the company's accountant toprovide data on the current system. The information is presented below:ItemPurchase PriceEstimated Salvage ValueOld HVAC System New HVAC System$120,000SOEstimated Useful Life6 yearsDepreciation MethodStraight-line$200,000SO5 yearsStraight-lineAnnual Operating Costs:Variable$40,000$12,000Fixed$30,000$15,000If the old HVAC system is replaced at the beginning of 2024, Summit Realty willbe able to sell it for $30,000.Determine any gain or loss if the old HVAC system is replaced.

Step 1: Definition of DepreciationDepreciation is the process of allocating the cost of a tangible…

Answered: Last year (2022), Summit Realty…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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Cooper Realty is a small real estate company located in Albany, New York, that specializes primarily in residential listings. The company recently became interested in determining the likelihood of one of its listings being sold within a certain number of days. An analysis of company sales of 800 homes in previous years produced the following data. a. If A is defined as the event that a home is listed for more than 90 days before being sold, estimate the probability of A. b. If B is defined as the event that the initial asking price is under 150,000, estimate the probability of B. c. What is the probability of AB? d. Assuming that a contract was just signed to list a home with an initial asking price of less than 150,000, what is the probability that the home will take Cooper Realty more than 90 days to sell? e. Are events A and B independent?
You own a construction company and have recently received a contract with the local school district to refurbish one of its elementary schools. You are given an up-front payment from the school district in the amount of $5 million. The contract terms extend from years 2018 to 2020. When would you recognize revenue for this payment? What method of accounting would you use for this construction project and why? What would be the benefits and challenges with your method selection? Give an example of your distribution selection and associated costs of the project (you may estimate based on other industry competitors). What might be some benefits and challenges associated with the other method of construction revenue recognition?
Basuras Waste Disposal Company has a long-term contract with several large cities to collect garbage and trash from residential customers. To facilitate the collection, Basuras places a large plastic container with each household. Because of wear and tear, growth, and other factors, Basuras places about 200,000 new containers each year (about 20% of the total households). Several years ago, Basuras decided to manufacture its own containers as a cost-saving measure. A strategically located plant involved in this type of manufacturing was acquired. To help ensure cost efficiency, a standard cost system was installed in the plant. The following standards have been established for the products variable inputs: During the first week in January, Basuras had the following actual results: The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in January. Also, a new manufacturing process was implemented on a trial basis. The new process required a slightly higher level of skilled labor. The higher- quality material has no effect on labor utilization. However, the new manufacturing process was expected to reduce materials usage by 0.25 pound per container. Required: 1. CONCEPTUAL CONNECTION Compute the materials price and usage variances. Assume that the 0.25 pound per container reduction of materials occurred as expected and that the remaining effects are all attributable to the higher-quality material. Would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly. 2. CONCEPTUAL CONNECTION Compute the labor rate and efficiency variances. Assuming that the labor variances are attributable to the new manufacturing process, should it be continued or discontinued? In answering, consider the new processs materials reduction effect as well. Explain. 3. CONCEPTUAL CONNECTION Refer to Requirement 2. Suppose that the industrial engineer argued that the new process should not be evaluated after only one week. His reasoning was that it would take at least a week for the workers to become efficient with the new approach. Suppose that the production is the same the second week and that the actual labor hours were 9,000 and the labor cost was 99,000. Should the new process be adopted? Assume the variances are attributable to the new process. Assuming production of 6,000 units per week, what would be the projected annual savings? (Include the materials reduction effect.)
Ethics and professional conduct in business Erin Haywood was recently hired as a cost analyst by Wind River Medical Supplies Inc. Oneof Erin’s first assignments was to perform a net present value analysis for a new warehouse.Et-in performed the analysis and calculated a present value index of 0.8. The plant manager.ZuhairBarbat, is very intent on purchasing the warehouse because he believes that more storage space is needed. Zuhair asks Erín into his office and the following conversation takes place: ZubairErín, you’re new here, aren’t you? EHii: Yes, sir. Zubair: V.dl, Erin, let me tell you something. ¡m not at all pleased with the capital investment analysis that you performed on this new warehouse. T need that warehouse for my production. If I dont get it, where am I going to place our output? Erín: Hopefully with the customer, sir. Zithair: Now don’t get smart with me. Erín: No, really. I was being serious. My analysis does not support constructing a new ware- house. The numbers don’t lie: the warehouse does not meet our investment return targets. In fact, it seems to me that purchasing a warehouse dots not add much value to the business. We need to be producing product to satisfy customer orders, not to fill a warehouse. Zubair Listen, you need to understand sonwthing. The headquarters people will not allow mv to build the warehouse if the numbers dont add up. You know as well as I that many assump tions go into your net present value analysis. Why don’t you relax some of your assumptions so that the f́nancial savings will offset the cost? Erín: I’m willing to discuss my assumptions with you. Maybe I overlooked something. Zubafr Good. Here’s what I want you to do. 1 see in your analysis tha you don’t project greater sales as a result of the warehouse. It seems to me, if we can store more goxLs, then will have more to sell. Thus, logically, a larger warehouse translates into more sales. If you incorporate this into your analysis, I think you’ll see that the numbers will work out. Why don’t you work it through and come back with a new analysis? I’m really counting on you on this one. Let’s get off to a good start together and see if we can get this project accepted. What is your advice to Erin?
Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.
Emery Manufacturing Company produces component parts for the farm equipment industry and has recently undergone a major computer system conversion. Jake Murray, the controller, has established a troubleshooting team to alleviate accounting problems that have occurred since the conversion. Jake has chosen Gus Swanson, assistant controller, to head the team that will include Linda Wheeler, cost accountant; Cindy Madsen, financial analyst; Randy Lewis, general accounting supervisor; and Max Crandall, financial accountant. The team has been meeting weekly for the last month. Gus insists on being part of all the team conversations in order to gather information, to make the final decision on any ideas or actions that the team develops, and to prepare a weekly report for Jake. He has also used this team as a forum to discuss issues and disputes about him and other members of Emerys top management team. At last weeks meeting, Gus told the team that he thought a competitor might purchase the common stock of Emery, because he had overheard Jake talking about this on the telephone. As a result, most of Emerys employees now informally discuss the sale of Emerys common stock and how it will affect their jobs. Required: Is Gus Swansons discussion with the team about the prospective sale of Emery unethical? Discuss, citing specific standards from the code of ethical conduct to support your position. (CMA adapted)
Malone Industries has been in business for five years and has been very successful. In the past year, it expanded operations by buying Hot Metal Manufacturing for a price greater than the value of the net assets purchased. In the past year, the customer base has expanded much more than expected, and the companys owners want to increase the goodwill account. Your CPA firm has been hired to help Malone prepare year-end financial statements, and your boss has asked you to talk to Malones managers about goodwill and whether an adjustment can be made to the goodwill account. How do you respond to the owners and managers?
Keith Golding has decided to purchase a personal computer. He has narrowed his choices to two: Brand A and Brand B. Both brands have the same processing speed, hard disk capacity, RAM, graphics card memory, and basic software support package. Both come from companies with good reputations. The selling price for each is identical. After some review, Keith discovers that the cost of operating and maintaining Brand A over a three-year period is estimated to be 200. For Brand B, the operating and maintenance cost is 600. The sales agent for Brand A emphasized the lower operating and maintenance cost. She claimed that it was lower than any other PC brand. The sales agent for Brand B, however, emphasized the service reputation of the product. She provided Keith with a copy of an article appearing in a PC magazine that rated service performance of various PC brands. Brand B was rated number one. Based on all the information, Keith decided to buy Brand B. Required: 1. What is the total product purchased by Keith? 2. Is the Brand A company pursuing a cost leadership or differentiation strategy? The Brand B company? Explain. 3. When asked why he purchased Brand B, Keith replied, I think Brand B offered more value than Brand A. What are the possible sources of this greater value? If Keiths reaction represents the majority opinion, what suggestions could you offer to help improve the strategic position of Brand A?
Sunny Nights Inc. is completely powered by the city power grid, but management is considering switching fuel sources in an effort to improve the publics perception of the companys corporate social responsibility. Within the next five years, management wants the company to be completely solar powered and to market this change through company advertising. Upon consulting with Sunny Nights, you have determined that an appropriate course of action is to include this CSR activity as a strategic objective on the companys current balanced scorecard. a. Determine the appropriate performance perspective for the CSR strategic objective. b. Suggest one possible performance metric for the objective. c. Determine an appropriate yearly performance target for the performance metric.
Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industries doesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000 is anticipated; the cost if major or total destruction occurs is $200,000. The costs, including the state-of-nature probabilities, are as follows: Using the expected value approach, what decision do you recommend? What lottery would you use to assess utilities? (Note: Because the data are costs, the best payoff is $0.) Assume that you found the following indifference probabilities for the lottery defined in part (b). What decision would you recommend? Do you favor using expected value or expected utility for this decision problem? Why?
The following is a list of costs that were incurred in the production and sale of large commercial airplanes: a. Annual bonus paid to the chief operating officer of the company b. Annual fee to a celebrity to promote the aircraft c. Cost of electronic guidance system installed in the airplane cockpit d. Cost of electrical wiring throughout the airplane e. Cost of miniature replicas of the airplane used to promote and market the airplane f. Cost of normal scrap from production of airplane body g. Cost of paving the headquarters employee parking lot h. Decals for cockpit door, the cost of which is immaterial to the cost of the final product i. Depreciation on factory equipment j. Hourly wages of employees that assemble the airplane k. Hydraulic pumps used in the airplanes flight control system l. Instrument panel installed in the airplane cockpit m. Interior trim material used throughout the airplane cabin n. Masks for use by painters in painting the airplane body o. Metal used for producing the airplane body p. Oil to lubricate factory equipment q. Power used by painting equipment r. Prebuilt leather seats installed in the first-class cabin s. Production Quality Control Department costs for the year t. Salaries of Marketing Department personnel u. Salaries of test pilots v. Salary of chief financial officer w. Salary of plant manager x. Special advertising campaign in Aviation World magazine y. Turbo-charged airplane engine z. Yearly cost of the maintenance contract for robotic equipment Instructions Classify each cost as either a product cost or a period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for your answer, placing an X in the appropriate column:
Pocket Umbrella, Inc. is considering producing a new type of umbrella. This new pocket-sized umbrella would fit into a coat pocket or purse. Classify the following costs of this new product as direct materials, direct labor, manufacturing overhead, or selling and administrative. Cost of advertising the product Fabric used to make the umbrellas Maintenance of cutting machines used to cut the umbrella fabric so it will fit the umbrella frame Wages of workers who assemble the product Presidents salary The salary of the supervisor of the people who assemble the product Wages of the product tester who stands in a shower to make sure the umbrellas do not leak Cost of market research survey Salary of the companys sales managers Depreciation of administrative office building

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