1) The Hassan Corporation has an electric mixer division and an electric lamp division. Of a $20,000,000 bond issuance, the electric mixer division used $14,000,000 and the electric lamp division used $6,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year. Which corporate costs should be allocated to divisions? * Variable costs * Fixed costs * Neither fixed nor variable costs * Both fixed and variable costs 2) The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $400,000 in annual cash flows for a period of four years. The required rate of return is 12%. The old machine can be sold for $50,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. $119,550; Yes $314,800; Yes $1,019,550; Yes $69,550; No 3) Regal Products has a budget of $900,000 in 20X6 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 200,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories. How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures? $500,000 decrease $750,000 decrease $33,750 decrease $45,000 decrease 4) Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $80. There are no flag displays on hand but Liberty had scheduled 70 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous. If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is $1,800. $2,000. $1,600. $5,600. 5) Gardenia Company has the following projected account balances for June 30, 20X9: Accounts payable $ 60,000 Sales $ 800,000 Accounts receivable $ 100,000 Capital stock $ 400,000 Depreciation, factory $ 36,000 Retained earnings ? Inventories (5/31 & 6/30) $ 180,000 Cash $ 56,000 Direct materials used $ 200,000 Equipment, net $ 240,000 Office salaries $ 80,000 Buildings, net $ 400,000 Insurance, factory $ 4,000 Utilities, factory $ 16,000 Plant wages $ 140,000 Selling expenses $ 50,000 Bonds payable $ 160,000 Maintenance, factory $ 28,000 Prepare a budgeted income statement AND a budgeted balance sheet as of June 30, 20X9. 6) Jane's Medical Equipment Company manufactures hospital beds. Its most popular model, Deluxe, sells for $5,000. It has variable costs totaling $2,800 and fixed costs of $1,000 per unit, based on an average production run of 5,000 units. It normally has four production runs a year, with $700,000 in setup costs each time. Plant capacity can handle up to six runs a year for a total of 30,000 beds. 7) A competitor is introducing a new hospital bed similar to Deluxe that will sell for $4,000. Management believes it must lower the price to compete. Marketing believes that the new price will increase sales by 25% a year. The plant manager thinks that production can increase by 25% with the same level of fixed costs. The company sells all the Deluxe beds it can produce. Question 1: What is the annual operating income from Deluxe at the price of $5,000? Question 2: What is the annual operating income from Deluxe if the price is reduced to $4,000 and sales in units increase by 25%? 8) Grace Greeting Cards Incorporated is starting a new business venture and is in the process of evaluating its product lines. Information for one new product, traditional parchment grade cards, is as follows: ? For 16 times each year, a new card design will be put into production. Each new design will require $200 in setup costs. ? The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next four years. ? Direct costs of producing the designs average $0.50 each. ? Indirect manufacturing costs are estimated at $50,000 per year. ? Customer service expenses average $0.10 per card. ? Sales are expected to be 2,500 units of each card design. Each card sells for $3.50. ? Sales units equal production units each year. What is the total estimated life-cycle operating income? 9) Motormart Company manufactures automobiles. The red car division sells its red cars for $25,000 each to the general public. The red cars have manufacturing costs of $12,500 each for variable and $5,000 each for fixed costs. The division's total fixed manufacturing costs are $25,000,000 at the normal volume of 5,000 units. The blue car division has been unable to meet the demand for its cars this year. It has offered to buy 1,000 cars from the red car division at the full cost of $16,000. The red car division has excess capacity and the 1,000 units can be produced without interfering with the outside sales of 5,000. The 6,000 volume is within the division's relevant operating range. Explain whether the red car division should accept the offer. Support your decision showing all calculations. 10) For supply item LK, Boatman Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. The company has hired a new purchasing agent, who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information: Annual demand in units 250 Days used per year 250 Lead time, in days 13 Ordering costs $100 Annual unit carrying costs $20 Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs