Mickey's Boats will produce a new line of speed boats. It has a choice of larger production facility with a less laborers orsmaller production facility with more laborers. Each boat will be sold for $80,000. If the large production facility ischosen, the cost to produce each boat will be $50,000, while the cost per boat will be $64, 000 at the smaller productionfacility. The large production facility would have fixed costs of $10 million and a depreciation expense of $1,600,000,while those expenses would be $4 million and $600,000 for the smaller production facility. Calculate the number ofspeed boats for which the accounting operating profit is the same regardless of the production facility choice? a. 500boats b. 1,000 boats c. 429 boats d. 215 boats

Operating profit is the profit earned through core business operations. While calculating operating…

Answered: Mickey's Boats will produce a new line…

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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A distributor of fasteners is opening a new plant and considering whether to use a mechanized process or a manual process to package the product. The manual process will have a fixed cost of $36,234 and a variable cost of $2.14 per bag. The mechanized process would have a fixed cost of $84,420 and a variable cost of $1.85 per bag. The company expects to sell each bag of fasteners for $2.75. a) What is the break-even point for the manual process (in units)? b) What is the break-even point for the mechanized process (in units)? c) A point of indifference for two processes is quantity at which each process generates the same amount of profit (review video). What is the point of indifference for the two processes? (Hint: 1) Use equations to set profit of manual process equal to mechanized process and solve for quantity; 2) (Excel) If you have a break-even for each process - have only one cell that represents quantity that be used to calculates costs/revenues for each process and use Goal…
You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $490 per unit and sales volume to be 1,200 units in year 1; 1,125 units in year 2; and 1,000 units in year 3. The project has a 3-year life. Variable costs amount to $270 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $138,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $26,000. NWC requirements at the beginning of each year will be approximately 30 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 11 percent. What is the operating cash flow for the project in year 2? Note: Enter your answer as a whole number. Operating cash flow
What is the OCF?
You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $400 per unit and sales volume to be 1,000 units in year 1; 1,500 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $35,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 10 percent. What change in NWC occurs at the end of year 1?
You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $450 per unit and sales volume to be 1,200 units in year 1; 1,325 units in year 2; and 1,000 units in year 3. The project has a 3-year life. Variable costs amount to $250 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $150,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $30,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 10 percent. What is the operating cash flow for the project in year 2? Note: Enter your answer as a whole number. Operating cash flow
Middle Industries produces a sensor for use in manufacturing. It produces the sensor in a plant with an annual practical capacity of 75,000 units. The variable cost of the sensor is $185.00 per unit, and the fixed costs of the plant are $12,375,000 annually. Current annual demand is 55,000 sensors. Middle Industries bought the plant because it was close to its other manufacturing facilities and was available for sale when they were searching for a location. Required: What cost per sensor should the cost system report to facilitate management decision making? What is the cost of excess capacity? What cost per sensor would the cost system report if the smallest manufacturing plant that could be built was able to produce 75,000 sensors? What would be the cost of excess capacity?
Mighty Safe Fire Alarm is currently buying 57,000 motherboards from MotherBoard, Inc., at a price of $63 per board. Mighty Safe is considering making its own boards. The costs to make the board are as follows: direct materials, $33 per unit; direct labor, $12 per unit; and variable factory overhead, $15 per unit. Fixed costs for the plant would increase by $90,000. Which option should be selected and why? Oa. a. buy, $90,000 increase in profits Ob. make, $80,940 increase in profits c. make, $171,000 increase in profits Od. buy, $80,940 increase in profits
The new machine would require two skilled operators (one per shift), each receiving $24.00 an hour (including benefits), and contract maintenance of $110,000 a year, and would incur power costs of $37,000 yearly. In addition, the automatic machine was expected to save at least $40,000 yearly through improved labor efficiency in other areas of the production. Certain aspects of the Viva purchase decision were difficult to quantify. First, Steven was unsure whether the tough collective-bargaining agreement his company had with the employees' union would allow him to lay off the 24 operators of the semiautomated machines. Reassigning the workers to other jobs might be easier, but the only positions needing to be filled were unskilled jobs, which paid $12.00 an hour. The extent of any labor savings would depend on negotiations with the union. Second, Steven believed that the Viva would result in even higher levels of product quality and lower defect rates than the company was now boasting.…
Trader Bubba Industries must choose between solar and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The solar truck will cost more but will be less expensive to operate; it will cost $70,000, whereas the electric-powered truck will cost $60,000. The life for both types of truck is estimated to be 8 years, during which time the net cash flows for the solar-powered truck will be $20,000 per year and those for the electric-powered truck will be $12,000 per year. Trader Bubba Industries’ assets are $400 million, financed through bank loans, bonds, preferred stocks, and common stocks. The amounts are as follows: Bank loans: $50 million borrowed at 6% Bonds: $200 million, paying 8% coupon with semi-annual payments, and maturity of 10 years. Trader Bubba sold its $1,000 par-value bonds for $1020 and had to incur $20 flotation cost per bond.…
The Fleming Company, a food distributor, is considering replacing a filling line at its Oklahoma City warehouse. The existing line was purchased several years ago for $3,600,000. The line’s book value is $445,000, and Fleming's management feels it could be sold at this time for $350,000. A new, increased capacity line can be purchased for $2,575,000 and will require and increase in NWC of $55,000. Delivery and installation of the new line are expected to cost $50,000 and 215,000 respectively. Assuming Fleming’s marginal tax rate is 35%, calculate the net investment for the new line.
Jason is interested in finding the breakeven point for a new pump it plans to produce. The price of the pump is $250 and the variable cost ratio is 50% of the price. Jason calculated that the fixed costs will be about $400,000. What is the breakeven point of operations?
Management of the Crane Company would like the Food Division to transfer 11000 cans of its final product to the Restaurant Division for $40. The Food Division sells the product to customers for $80 per unit. The Food Division’s variable cost per unit is $43 and its fixed cost per unit is $9.If the Food Division has 11000 units available capacity, what is the minimum transfer price the Food Division should accept?

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