Edward Seymour is a financial consultant to Cornish Inc., a real estate syndicate. Cornish finances and develops commercial real estate (office buildings) projects. The completed projects are then sold as limited partnership interests to individual investors. The syndicate makes a profit on the sale of these partnership interests. Edward provides financial information for prospective investors in a document called the offering “prospectus.” This document discusses the financial and legal details of the limited partnership investment. One of the company’s current projects, called JEDI 2, has the partnership borrowing money from a local bank to build a commercial office building. The interest rate on the loan is 6.5% for the first four years. After four years, the interest rate jumps to 15% for the remaining 20 years of the loan. The interest expense is one of the major costs of this project and significantly affects the number of renters needed for the project to break even. In the prospectus, Edward has prominently reported that the break-even occupancy for the first four years is 65%. This is the amount of office space that must be leased to cover the interest and general upkeep costs during the first four years. The 65% break- even point is very low compared to similar projects and thus communicates a low risk to potential investors. Edward uses the 65% break-even rate as a major marketing tool in selling the limited partnership interests. Buried in the fine print of the prospectus is additional information that would allow an astute investor to determine that the break- even occupancy jumps to 95% after the fourth year when the interest rate on the loan increases to 15%. Edward believes prospective investors are adequately informed of the investment’s risk. Is Edward behaving ethically? Explain your answer.
> The condensed product-line income statement for Dish N’ Dat Company for the month of May is as follows: Fixed costs are 15% of the cost of goods sold and 30% of the selling and administrative expenses. Dish N’ Dat ass
> A condensed income statement by product line for Celestial Beverage Inc. indicated the following for Star Cola for the past year: Sales ……………………………………………………………. $390,000 Cost of goods sold …………………………………………… 184,000 Gross profit ……………………………………………………. $20
> D’Amato Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $315,000. The freight and installation costs for the equipment are $15,000. If purchased, annual repairs and maintenance are estimated to be $1
> Matrix Construction Company is considering selling excess machinery with a book value of $75,000 (original cost of $200,000 less accumulated depreciation of $125,000) for $60,000 less a 5% brokerage commission. Alternatively, the machinery can be leased
> Based on the data presented in Exercise 25-18, assume that Smart Stream Inc. uses the variable cost concept of applying the cost-plus approach to product pricing. Data from Exercise 25-18: Smart Stream Inc. uses the product cost concept of applying the
> How are investments in sustainability justified?
> Park City Mountain Resort, a Utah ski resort, recently announced a $415 million expansion of lodging properties, lifts, and terrain. Assume that this investment is estimated to produce $99 million in equal annual cash flows for each of the first 10 years
> Give an example of a qualitative factor that should be considered in a capital investment analysis related to acquiring automated factory equipment.
> What are the major advantages of leasing a fixed asset rather than purchasing it?
> Which account is used in the job order cost system to accumulate direct materials, direct labor, and factory overhead applied to production costs for individual jobs?
> Why would the cash payback method understate the attractiveness of a project with a large residual value?
> The following data relate to the direct materials cost for the production of 10,000 automobile tires: Actual: ……………………………………. 145,000 lb. at $2.80 Standard: ………………………………...150,000 lb. at $2.75 a. Determine the direct materials price variance, direct mat
> Your boss has suggested that a one-year payback period is the same as a 100% average rate of return. Do you agree? Explain.
> Discuss the principal limitations of the cash payback method for evaluating capital investment proposals.
> What are the principal objections to the use of the average rate of return method in evaluating capital investment proposals?
> What are the major disadvantages of the use of the net present value method of analyzing capital investment proposals?
> Two projects have an identical net present value of $9,000. Are both projects equal in desirability? Explain.
> The internal rate of return method is used by King Bros. Construction Co. in analyzing a capital expenditure proposal that involves an investment of $156,218 and annual net cash flows of $38,000 for each of the six years of
> A net present value analysis used to evaluate a pro- posed equipment acquisition indicated a $7,900 net present value. What is the meaning of the $7,900 as it relates to the desirability of the proposal?
> Why would the use of the cash payback period for analyzing the financial performance of theatrical releases from a motion picture production studio be supported over the net present value method?
> What kind of firm would use a job order cost system?
> What are the major disadvantages of the use of the internal rate of return method of analyzing capital investment proposals?
> The Commercial Division of Herring Company has income from operations of $420,000 and assets of $910,000. The minimum acceptable return on assets is 8%. What is the residual income for the division?
> Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: At the beginning of July, GBC management planned to produce 400,000 bottles. The actual number
> The Consumer Division of Galena Company has income from operations of $12,680,000 and assets of $74,500,000. The minimum acceptable return on assets is 12%. What is the residual income for the division?
> Briggs Company has income from operations of $36,000, invested assets of $180,000, and sales of $720,000. Use the DuPont formula to compute the return on investment and show (a) the profit margin, (b) the investment turnover, and (c) the return on inv
> Cash Company has income from operations of $112,500, invested assets of $750,000, and sales of $1,875,000. Use the DuPont formula to compute the return on investment and show (a) the profit margin, (b) the investment turnover, and (c) the return on in
> Weyerhaeuser developed a system that assigns service department expenses to user divisions on the basis of actual services consumed by the division. Here are a number of Weyerhaeuser’s activities in its central Financial Services Department: • Payro
> Using the data for Hardy Company from Practice Exercise 24-2B along with the following data, determine the divisional income from operations for the Retail Division and the Commercial Division:
> The centralized computer technology department of Hardy Company has expenses of $320,000. The department has provided a total of 4,000 hours of service for the period. The Retail Division has used 2,750 hours of computer technology service during the per
> The centralized employee travel department of Croce Company has expenses of $724,000. The department has serviced a total of 5,000 travel reservations for the period. The South Division has made 2,850 reservations during the period, and the West Division
> a. Name two principal types of cost accounting systems. b. Which system provides for a separate record of each particular quantity of product that passes through the factory? c. Which system accumulates the costs for each department o
> Conley Company’s costs were under budget by $198,000. The company is divided into North and South regions. The North Region’s costs were over budget by $52,000. Deter - mine the amount that the South Region’s costs were over or under budget.
> Caroline Company’s costs were over budget by $319,000. The company is divided into West and East regions. The East Region’s costs were under budget by $47,500. Determine the amount that the West Region’s costs were over or under budget.
> One of Danielle’s first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is intent on purchasing the warehouse beca
> Sana Rosa Furniture Company manufactures designer home furniture. Sana Rosa uses a standard cost system. The direct labor, direct materials, and factory overhead standards for an unfinished dining room table are as follows: a. Determine the standard cos
> Metro-Goldwyn-Mayer Studios Inc. (MGM) is a major producer and distributor of theatrical and television filmed entertainment. Regarding theatrical films, MGM states, “Our feature films are exploited through a series of sequential domest
> The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $1,400,000. The manager believes that the new investment will result in direct labor savings of $350,000 per ye
> The following are some selected quotes from senior executives: CEO, Worthington Industries (a high-technology steel company): “We try to find the best technology, stay ahead of the competition, and serve the customer. . . . We’ll make any investment tha
> A Masters of Accountancy degree at Central University costs $12,000 for an additional fifth year of education beyond the bachelor’s degree. Assume that all tuition is paid at the be- ginning of the year. A student considering this inves
> Global Electronics Inc. invested $1,000,000 to build a plant in a foreign country. The labor and materials used in production are purchased locally. The plant expansion was estimated to produce an internal rate of return of 20% in U.S. dollar terms. Due
> Divide your team into two groups. In one group, find a local business, such as a copy shop, that rents time on desktop computers for an hourly rate. Determine the hourly rate. In the other group, determine the price of a mid-range desktop computer at www
> Mainline Marine Company has total estimated factory overhead for the year of $2,090,000, divided into four activities: fabrication, $750,000; assembly, $240,000; setup, $600,000; and inspection, $500,000. Mainline manufactures two types of boats: a speed
> What is the appropriate measure of a product’s value when a firm is operating under production bottlenecks? Answer The proper measure of product value in a bottlenecked process is the contribution margin per bottleneck hour.
> Product A is normally sold for $9.60 per unit. A special price of $7.20 is offered for the export market. The variable production cost is $5.00 per unit. An additional export tariff of 15% of revenue must be paid for all export products. Assume that ther
> Product AA is normally sold for $120 per unit. A special price of $112 is offered for the export market. The variable production cost is $80 per unit. An additional export tariff of 30% of revenue must be paid for all export products. Assume that there i
> Product D is produced for $24 per gallon. Product D can be sold without additional processing for $36 per gallon or processed further into Product E at an additional cost of $9 per gallon. Product E can be sold for $43 per gallon. Prepare a differential
> Product K is produced for $155 per pound. Product K can be sold without additional processing for $220 per pound or processed further into Product L at an additional cost of $28 per pound. Product L can be sold for $250 per pound. Prepare a differential
> Bi-Coastal Railroad Inc. is considering acquiring equipment at a cost of $520,000. The equipment has an estimated life of eight years and no residual value. It is expected to provide yearly net cash flows of $104,000. The company’s mini
> A machine with a book value of $80,000 has an estimated five-year life. A proposal is offered to sell the old machine for $50,500 and replace it with a new machine at a cost of $75,000. The new machine has a five-year life with no residual value. The new
> A machine with a book value of $250,000 has an estimated six-year life. A proposal is offered to sell the old machine for $320,000 and replace it with a new machine at a cost of $390,000. The new machine has a six-year life with no residual value. The ne
> A company manufactures various sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $67 per unit (100 bottles), including fixed costs of $22 per unit. A proposal is offered to purchase small bottles from an outside
> A restaurant bakes its own bread for a cost of $230 per unit (100 loaves), including fixed costs of $47 per unit. A proposal is offered to purchase bread from an outside source for $180 per unit, plus $18 per unit for delivery. Prepare a differential ana
> Product B has revenue of $39,500, variable cost of goods sold of $25,500, variable selling expenses of $16,500, and fixed costs of $15,000, creating a loss from operations of $17,500. Prepare a differential analysis as of May 9 to determine whether Produ
> Although the cost-plus approach to product pricing may be used by management as a general guideline, what are examples of other factors that managers should consider in setting product prices?
> Product Alpha has revenue of $545,000, variable cost of goods sold of $400,000, variable selling expenses of $65,000, and fixed costs of $90,000, creating a loss from operations of $10,000. Prepare a differential analysis as of December 10 to determine w
> Timberlake Company owns equipment with a cost of $165,000 and accumulated depreciation of $60,000 that can be sold for $82,000 less a 6% sales commission. Alternatively, Timberlake Company can lease the equipment to another company for five years for a t
> Duncan Company owns a machine with a cost of $75,000 and accumulated depreciation of $15,000 that can be sold for $54,000 less a 5% sales commission. Alternatively, Duncan Company can lease the machine to another company for three years for a total of $6
> Diamond & Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 150 baseballs per hour to sewing 290 per hour. The contribution margin per unit is $0.32 per baseball. Assume that any
> Casual Cuts Inc. has total estimated factory overhead for the year of $225,000, divided into four activities: cutting, $90,000; sewing, $22,500; setup, $80,000; and inspection, $32,500. Casual Cuts manufactures two types of men’s pants:
> Sales volume has been dropping at Mumford Industries. During this time, however, the Shipping Department manager has been under severe financial constraints. The manager knows that most of the Shipping Department’s effort is related to
> During May, Bergan Company accumulated 2,500 hours of direct labor costs on Job 200 and 3,000 hours on Job 305. The total direct labor was incurred at a rate of $28 per direct labor hour for Job 200 and $24 per direct labor hour for Job 305. Journalize
> A project is estimated to cost $362,672 and provide annual net cash flows of $76,000 for nine years. Determine the internal rate of return for this project, using Exhibit 5. EXHIBIT 5 Present Value of an Annulty of $1 at Compound Interest Year 6% 10
> Carnival Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Breeze, can hold up to 3,600 passengers, and it can cost $800 million to build. Assume the following additional inform
> A project is estimated to cost $90,045 and provide annual net cash flows of $14,500 for eight years. Determine the internal rate of return for this project, using Exhibit 5. EXHIBIT 5 Present Value of an Annulty of $1 at Compound Interest Year 6% 10
> A project has estimated annual net cash flows of $96,200 for four years and is estimated to cost $315,500. Assume a minimum acceptable rate of return of 10%. Using Exhibit 5, determine (1) the net present value of the project and (2) the present value
> A project has estimated annual net cash flows of $8,000 for five years and is estimated to cost $28,000. Assume a minimum acceptable rate of return of 12%. Using Exhibit 5, determine (1) the net present value of the project and (2) the present value in
> A project has estimated annual net cash flows of $9,300. It is estimated to cost $41,850. Determine the cash payback period. Round to one decimal place.
> The owner of Warwick Printing, a printing company, is planning direct labor needs for the upcoming year. The owner has provided you with the following information for next year’s plans: Each color on the banner must be printed one at
> Identify the following costs as direct materials (DM), direct labor (DL), or factory overhead (FO) for an automobile manufacturer: a. Wages of employees that operate painting equipment b. Wages of the plant supervisor c. Steel d. Oil used for assembl
> A project has estimated annual net cash flows of $95,200. It is estimated to cost $580,720. Determine the cash payback period. Round to one decimal place.
> Determine the average rate of return for a project that is estimated to yield total income of $36,000 over three years, has a cost of $70,000, and has a $10,000 residual value.
> In the long run, the normal selling price must be set high enough to cover what factors?
> Determine the average rate of return for a project that is estimated to yield total income of $180,000 over five years, has a cost of $400,000, and has a $50,000 residual value.
> Project 1 requires an original investment of $55,000. The project will yield cash flows of $15,000 per year for seven years. Project 2 has a calculated net present value of $5,000 over a four-year life. Project 1 could be sold at the end of four years fo
> If you are not familiar with Priceline.com Inc. , go to its website. Assume that an individual “names a price” of $85 on Priceline.com for a room in Nashville, Tennessee, on August 22. Assume that August 22 is a Saturd
> A manager of Varden Sporting Goods Company is considering accepting an order from an overseas customer. This customer has requested an order for 20,000 dozen golf balls at a price of $22 per dozen. The variable cost to manufacture a dozen golf balls is $
> The following conversation took place between Juanita Jackson, vice president of marketing, and Les Miles, controller of Diamond Computer Company: Juanita: I am really excited about our new computer coming out. I think it will be a real market success.
> Peachtree Beverage Company manufactures soft drinks. Information about two products is as follows: It is known that both products have the same direct materials and direct labor costs per case. Peachtree Beverage allocates factory overhead to products
> One item is omitted from each of the following computations of the return on investment: Determine the missing items, identifying each by the appropriate letter. Return on Investment = Profit Marglin x Imwestment Turnover 13.2% 696 (a) = b) 10%% 1.
> Somerset Inc. has finished a new video game, Snowboard Challenge. Management is now considering its marketing strategies. The following information is available: Two managers, James Hamilton and Thomas Seymour, had the following discussion of ways to i
> Based on the data in Exercise 24-10, assume that management has established a 9% minimum acceptable return for invested assets. a. Determine the residual income for each division. b. Which division has the most residual income?
> A chemical company has commodity-grade and premium-grade products. Why might the company elect to process the commodity-grade product further to the premium-grade product?
> Briggs Excavation Company is planning an investment of $132,000 for a bulldozer. The bulldozer is expected to operate for 1,500 hours per year for five years. Customers will be charged $110 per hour for bulldozer work. The bulldozer operator costs $28 pe
> Why should the production requirements set forth in the production budget be carefully coordinated with the sales budget?
> On August 4, Rothchild Company purchased on account 12,000 units of raw materials at $14 per unit. During August, raw materials were requisitioned for production as follows: 5,000 units for Job 40 at $8 per unit and 6,200 units for Job 42 at $14 per u
> Give an example of how the capital expenditures budget affects other operating budgets.
> a. Discuss the purpose of the cash budget. b. If the cash for the first quarter of the fiscal year indicates excess cash at the end of each of the first two months, how might the excess cash be used?
> Why should the timing of direct materials purchases be closely coordinated with the production budget?
> How do computerized budgeting systems aid firms in the budgeting process?
> What behavioral problems are associated with establishing conflicting goals within the budget?
> What behavioral problems are associated with setting a budget too loosely?
> Briefly describe the type of human behavior problems that might arise if budget goals are set too tightly.
> On May 7, Bergan Company purchased on account 10,000 units of raw materials at $8 per unit. During May, raw materials were requisitioned for production as follows: 7,500 units for Job 200 at $8 per unit and 1,480 units for Job 305 at $5 per unit. Journal
> Three phases of the management process are planning, directing, and controlling. Match the following descriptions to the proper phase: Phase of management process Planning Directing Description a. Developing long-range courses of action to achieve
> What are the three major objectives of budgeting?
> a. Under what conditions is the use of the straight- line depreciation method most appropriate? b. Under what conditions is the use of the units-of-activity depreciation method most ap- propriate? c. Under what conditions is the use of the dou
> The budget director of Gold Medal Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for March: a. Estimated sales fo
> The budget director of Royal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for February is summarized as follows
> Sentinel Systems Inc. prepared the following sales budget for 20Y8: At the end of December 20Y8, the following unit sales data were reported for the year: For the year ending December 31, 20Y9, unit sales are expected to follow the pat- terns establishe
