Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 11, Problem 1PB
1.
To determine
Prepare the differential analysis of Company CD as on July 1, for given alternatives.
2.
To determine
State whether the proposal to be accepted on the basis of differential analysis.
3.
To determine
Calculate the total estimated income from the operation of warehouse for 14 years.
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Differential analysis involving opportunity cost
Differential Analysis Involving Opportunity Costs
On July 1, Campus Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $1,500,000 of 2% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled:
Line Item Description
Amount
Cost of store equipment
$1,500,000
Life of store equipment
15 years
Estimated residual value of store equipment
$75,000
Yearly costs to operate the store, excludingdepreciation of store equipment
$320,000
Yearly expected revenues—years 1-6
$400,000
Yearly expected revenues—years 7-15
$600,000
Required:
Question Content Area
1. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If…
Differential Analysis Involving Opportunity Costs
On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $148,600 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:
Cost of store equipment
$148,600
Life of store equipment
16 years
Estimated residual value of store equipment
$18,300
Yearly costs to operate the warehouse, excluding depreciation of equipment
$55,900
Yearly expected revenues—years 1-8
75,300
Yearly expected revenues—years 9-16
69,800
Required:
1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.…
Chapter 11 Solutions
Managerial Accounting
Ch. 11 - Explain the meaning of (A) differential revenue,...Ch. 11 - A company could sell a building for 250,000 or...Ch. 11 - A chemical company has a commodity-grade and...Ch. 11 - A company accepts incremental business at a...Ch. 11 - Prob. 5DQCh. 11 - Prob. 6DQCh. 11 - Prob. 7DQCh. 11 - Although the cost-plus approach to product pricing...Ch. 11 - How does the target cost method differ from...Ch. 11 - Prob. 10DQ
Ch. 11 - Lease or sell Plymouth Company owns equipment with...Ch. 11 - Prob. 2BECh. 11 - Make or buy A company manufactures various-sized...Ch. 11 - Replace equipment A machine with a book value of...Ch. 11 - Prob. 5BECh. 11 - Prob. 6BECh. 11 - Prob. 7BECh. 11 - Prob. 8BECh. 11 - Differential analysis for a lease or sell decision...Ch. 11 - Prob. 2ECh. 11 - Differential analysis for a discontinued product A...Ch. 11 - Differential analysis for a discontinued product...Ch. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Make-or-buy decision Somerset Computer Company has...Ch. 11 - Prob. 8ECh. 11 - Machine replacement decision A company is...Ch. 11 - Differential analysis for machine replacement...Ch. 11 - Sell or process further Calgary Lumber Company...Ch. 11 - Sell or process further Dakota Coffee Company...Ch. 11 - Prob. 13ECh. 11 - Accepting business at a special price Box Elder...Ch. 11 - Prob. 15ECh. 11 - Prob. 16ECh. 11 - Product cost method of product costing Smart...Ch. 11 - Target costing Toyota Motor Corporation (TM) uses...Ch. 11 - Prob. 19ECh. 11 - Prob. 20ECh. 11 - Prob. 21ECh. 11 - Total cost method of product pricing Based on the...Ch. 11 - Variable cost method of product pricing Based on...Ch. 11 - Differential analysis involving opportunity costs...Ch. 11 - Differential analysis for machine replacement...Ch. 11 - Differential analysis for sales promotion proposal...Ch. 11 - Prob. 4PACh. 11 - Product pricing and profit analysis with...Ch. 11 - Product pricing using the cost-plus approach...Ch. 11 - Prob. 1PBCh. 11 - Differential analysis for machine replacement...Ch. 11 - Prob. 3PBCh. 11 - Prob. 4PBCh. 11 - Prob. 5PBCh. 11 - Prob. 6PBCh. 11 - Analyze Pacific Airways Pacific Airways provides...Ch. 11 - Service yield pricing and differential equations...Ch. 11 - Prob. 3MADCh. 11 - Prob. 4MADCh. 11 - Aaron McKinney is a cost accountant for Majik...Ch. 11 - Prob. 3TIFCh. 11 - Decision on accepting additional business A...Ch. 11 - Accepting service business at a special price If...Ch. 11 - Identifying product cost distortion Peachtree...Ch. 11 - Prob. 1CMACh. 11 - Prob. 2CMACh. 11 - Aril Industries is a multiproduct company that...Ch. 11 - Oakes Inc. manufactured 40,000 gallons of Mononate...
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- Differential analysis involving opportunity costs On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in 1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Instructions 1. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? 3. If the proposal is accepted, what would be the total estimated operating income of the store for the 15 years?arrow_forwardDifferential Analysis Involving Opportunity Costs On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $149,800 Life of store equipment 16 years Estimated residual value of store equipment $17,600 Yearly costs to operate the warehouse, excluding depreciation of equipment $56,100 Yearly expected revenues-years 1-8 76,000 Yearly expected revenues-years 9-16 70,400 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.arrow_forwardDifferential Analysis Involving Opportunity Costs On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $149,800 Life of store equipment 16 years Estimated residual value of store equipment $17,800 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,600 Yearly expected revenues—years 1-8 74,600 Yearly expected revenues—years 9-16 70,200 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.…arrow_forward
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