1.DiamondCompany is considering purchasing a machine that would cost $756,000 and have a useful life

of 8 years. The machine would reduce cash operating costs by $132,632 per year. The machine would have a salvage value of $151,200 at the end of the project.Compute:a.Net present valueb.Internal rate of returnc.Profitability indexd.Payback period e.Simplerate of return f.Should the company purchase the machine? Why or why not?

2.Explain how knowledge of managerial accounting can assist a manager with regard to the following concerns:

a.He is deciding whether to push through with a project.

b.He is determining whether a branch is profitableor not.

c.He is deciding whether to process a certain product further before selling.

d.He would like to show to the Board of Directors how the business is financially performing and how cash is being used.

e.He would like to plan for the year so that he will be prepared to deal with shortage of cash fund.

3. Pearl, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:

Product F

Product G

Product H

Selling price

................................

...

$50

$80

$70

Variable costs

................................

.

$40

$50

$55

Fixed costs

................................

.....

$15

$20

$12

Milling machine time (minutes)

....

4

2

5

Fixed costs are applied to the products on the basis of direct labor

hours.

Demand for the three products exceeds the company's productive capacity. The milling machine is the

constraint, with only 2,400 minutes of milling machine time available this week.

Required:

a.

Given the milling machine constraint, which produc

t should be emphasized? Support your answer

with appropriate calculations.

b.

Assuming that there is still unfilled demand for the product that the company should emphasize in

part (a) above, up to how much should the company be willing to pay for an addition

al hour of

milling machine time?

4.Emerald , Inc, produces a single product. The results of the company's operations for a typical month are summarized in contribution format as follows:

Sales

................................

..

$540,000

Variable expenses

..............

360,000

Contribution

margin

..........

180,000

Fixed expenses

..................

120,000

Net operating income

........

$

60,000

The company produced and sold 120,000 kilograms of product during the month. There

was no

beginning

or ending inventories.

Required:

a.

Given the present situation, compute

1)

T

he break

-

even sales in kilograms.

2)

The break

-

even sales in dollars.

3)

The sales in kilograms that would be required to produce net operating income of $90,000.

4)

The margin of safety in dollars.

b.

An important part of processing is performed by a machine that

is currently being leased f

or $20,000

per month. The company

has been offered an arrangement whereby it would pay $0.10 royalty per

kilogram processed by the machine rather than the monthly lease.

1)

Should the company choose the lease or the royalty plan?

2)

Un

der the royalty plan compute break

-

even point in kilograms.

3)

Under the royalty plan compute break

-

even point in dollars.

4)

Under the royalty plan determine the sales in kilograms that would be required to produce net

operating income of $90,000.

5. Selected data about Ruby Company's manufacturing operations at two levels of ctivity are given below:

Number of units produced

.............

10,000

15,000

Total manufacturing costs

.............

$157,000

$225,000

Direct material cost per unit

..........

$4

$4

Direct labor cost per unit

...............

$

6

$6

Required:

a.

Using the high

-

low method, estimate the cost formula for manufacturing overhead. Assume that

both direct material and direct labor are variable costs.

b.

What is the purpose of knowing the cost formula?

6.Jade Company manufactures and sells premium tomato juice by the gallon. The company just finished its first year of operations. The following data relates to this first year:

Number of gallons produced

................................

...........

75,000

Number of gallons sold

................................

...................

70,000

Sales price

................................

................................

.......

$3.00 per gallon

Unit p

roduct cost under variable costing

........................

$1.45 per gallon

Total contribution margin

................................

...............

$84,000

Total fixed manufacturing overhead cost

........................

$63,000

Total fixed selling

and

administrative expense

...............

$10,500

Required:

a.

Using the absorption costing m

ethod, prepar

e the c

ompany's income statement for the year.

b.

Using variable costing method, prepare the company's income statement for the year.

c.

For decision making purpose, which is the better method? Why?