1. Addy Company has two products: A and B. The annual production and sales of Product A is 2,350 units and of Product B is 1,750 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.7 direct labor-hours per unit. The total estimated overhead for next period is $106,000. The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools--Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:

Total	Estimated Overhead Costs		Expected Activity
			Product A	Product B	Total
Activity 1	$32,754		1,650	1,250	2,900
Activity 2	18,656		2,350	850	3,200
General Factory	54,590		940	1,225	2,165
Total	$106,000

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.)

The overhead cost per unit of Product B under the traditional costing system is closest to:

rev: 10_10_2012

$34.27

$19.05

$15.22

$14.69

2. (Ignore income taxes in this problem.) The management of Orebaugh Corporation is investigating automating a process by replacing old equipment by a new machine. The old equipment would be sold for scrap now for $16,200. The new machine would cost $463,000, would have a 5 year useful life, and would have no salvage value. By automating the process, the company would save $170,200 per year in cash operating costs.

Required:

Determine the simple rate of return on the investment. (Round your answer to 2 decimal places.)

Simple rate of return

%

3. (Ignore income taxes in this problem.) Gull Inc. is considering the acquisition of equipment that costs $640,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are:

	Incremental net cash flows
Year 1	$155,000
Year 2	$218,000
Year 3	$164,000
Year 4	$181,000
Year 5	$171,000
Year 6	$150,000

If the discount rate is 11%, the net present value of the investment is closest to: (Use Exhibit11b-1, Exhibit11b-2) rev: 12_14_2012, 12_21_2012, 01_14_2015_QC_CS-3712, 04_27_2015_QC_CS-14640, 05_02_2015_QC_CS-14640

$737,487

$301,513

$399,000

$97,487

4. (Ignore income taxes in this problem.) The Jackson Company has invested in a machine that cost $160,000, that has a useful life of ten years, and that has no salvage value at the end of its useful life. The machine is being depreciated by the straight-line method, based on its useful life. It will have a payback period of seven years. Given these data, the simple rate of return on the machine is closest to (Round your intermediate calculations to the nearest dollar amount):

2.86%

4.76%

4.29%

24.29%

5. (Ignore income taxes in this problem.) A newly developed device is being considered by Fairway Foods for use in processing and canning peaches. The device, which is available only on a royalty basis, is reported to be a great labor saver. Fairway's production manager has gathered the following data:

	Present labor method				Proposed royalty method
Per year:
Labor cost		$	54,000			$	6,900
Royalty cost			-			$	23,800
Initial startup costs associated with the new device			-			$	195,000

The new device must be obtained through a licensing arrangement with the developer. The license period lasts for only 7 years. Fairway Foods' required rate of return is 11%.

Required:
a.	By use of the incremental cost approach, compute the net present value of the proposed licensing of the new device. (Negative amount should be indicated by a minus sign. Round "PV Factor" to 3 decimal places. Round your other intermediate calculations and final answers to the nearest whole dollar.) (Use Exhibit 11B-2)

Net present value

$

b.

Should the company enter into a licensing arrangement to use the new device?

	Yes
	No