Chapter 9, Problem 1UJ

Sunnydale Industries is considering investing in an automated packaging system. If the project is accepted, labor costs will decrease by $120,000 per year. However, other cash operating expenses will increase by $45,000 per year. The equipment will cost $180,000 and is depreciable over 8 years using straight-line depreciation. The required net working capital for the project is $6,000, and the marginal tax rate is 30%. Calculate the firm's annual cash flows associated with the new project.

Krause Equipment Ltd. had fixed assets of $22,000 at the beginning of the year and $27,000 at the end of the year. You also know that the firm sold $6,500 in fixed assets during the year. How much in fixed assets must Krause have purchased?

Which of the following amounts represents the variable overhead spending variance?