Last year, Hever Inc. had sales of $500,000, based ona unit selling price of $250. The variable cost per unitwas $175, and fixed costs were $75,000. Themaximum sales within Hever Inc.'s relevant rangeare 2,500 units. Hever Inc. is considering a proposalto spend an additional $33,750 on billboardadvertising during the current year in an attempt toincrease sales and utilize unused capacity.Construct a cost-volume-profit chart indicating thebreak-even sales for last year.Break-even sales (dollars):Break-even sales (units):

To construct a cost-volume-profit (CVP) chart and determine the break-even sales for Hever Inc. from…

Answered: Last year, Hever Inc. had sales of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Your company has been doing well, reaching $1.02 million in earnings, and is considering launching a new product. Designing the new product has already cost $510,000. The company estimates that it will sell 773,000 units per year for $3.05 per unit and variable non-labor costs will be $1.09 per unit. Production will end after year 3. New equipment costing $1.01 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $302,000. The new product will require the working capital to increase to a level of $387,000 immediately, then to $399,000 in year 1, in year 2 the level will be $341,000, and finally in year 3 the level will return to $302,000. Your tax rate is 21%. The discount rate for this project is 9.7%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year…
In 2019, Reyes Company provided the following data: Sales price per unit P100; Variable cost per unit P60; Total fixed cost at P1,500,000. For 2020, Papa Company is planning to buy a machine that will reduce the production workers and cut the sales price of the product at the same time. The new machine will increase the fixed cost by P500,000 due to depreciation; variable cost per unit will decrease by 25% due to reduction of direct workers; and the sales price will be reduced by 10%. What is the profit (before tax) if the company produces and sells 45,000 units in 2020? a.28,000 b.25,000 c.27,000 d.26,000 What is the break-even units in 2020? a.37.500 b.50,000 c.44,444 d.45,000 What is the profit if the company operates at 45,000-unit volume? a.P600,000 b.P300,000 c.P 45,000 d.None of the above
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In 2021, Roger sold 1,500 units at P500 each. Variable expenses were P300 per unit, and fixed expenses were P160,000. The same selling price is expected for 2022. Roger's variable cost per unit will rise by 10% in 2022 due to increasing material costs, so they are tentatively planning to cut fixed costs by P10,000. Logan must sell in 2022 to maintain the same income level as 2021 would be units (nearest whole number)
A new product will cost $750,000 to design, test prototypes, and set up for production. Net revenue the first year is projected to be $225,000. Marketing is unsure whether future year revenues will (a) increase by $25,000 per year as the product’s advantages become more widely known or (b) decrease by 10% per year due to competition. A third pattern of increasing by $25,000 for one year and then decreasing by 10% per year has been suggested as being more realistic. The firm evaluates projects with a 12% interest rate, and it believes that this product will have a 5-year life. Calculate the present worth and rate of return for each scenario.
A study has been conducted to determine if Product A should be dropped. Sales of the product total $500,000; variable expenses total $340,000. Fixed expenses charged to the product total $210,000. The company estimates that $60,000 of these fixed expenses are not avoidable even if the product is dropped. If Product A is dropped, the annual financial advantage (disadvantage) for the company of eliminating this product should be: Multiple Choice ($10,000) $10,000 ($50,000) $50,000 Next
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The ABC Corporation is considering opening an office in a new market area that would allow it to increase its annual sales by $2.5 million. The cost of goods sold is estimated to be 40 percent of sales, and corporate overhead would increase by $303,000, not including the cost of either acquiring or leasing office space. The corporation will have to invest $2.5 million in office furniture, office equipment, and other up-front costs associated with opening the new office before considering the costs of owning or leasing the office space. A small office building could be purchased for sole use by the corporation at a total price of $5.1 million, of which $900,000 of the purchase price would represent land value, and $4.2 million would represent building value. The cost of the building would be depreciated over 39 years. The corporation is in a 21 percent tax bracket. An investor is willing to purchase the same building and lease it to the corporation for $540,000 per year for a term of…
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Bulla Dairy Foods is evaluating acquiring a new production line to manufacture a flavoured thick cream. The cost of purchasing and installing the equipment is estimated to be $1,500,000 today, with an additional $10,000 required for maintenance in the third year of operation. The projected revenue for the first year of operation is $500,000, although it is expected to decline at 5% per annum due to market competition. The annual operating costs are estimated at 20% of the annual revenue. The machine has a lifespan of 5 years, after which it is expected to be sold for 10% of its original cost. The purchase of the production line will be financed 60% through debt, which carries an interest rate of 6% per annum, while shareholders expect a return that is 3% higher than creditors. a) Draw the timeline and set out net cash flows by year. b) Calculate the weighted average cost of capital (WACC) of this project. c) Calculate the Net Present Value (NPV) of this project. Explain if the project…
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