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2.) Twyla Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per
2.) Twyla Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. Current Machine New Machine Original purchase cost $15,000 $25,000 Accumulated depreciation $ 6,000 Estimated annual operating costs $24,000 $18,000 Useful life 5 years 5 years If sold now, the current machine would have a salvage value of $5,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after five years. Instructions Should the current machine be replaced? Make incremental analysis concerning elimination of division. 3.) Pro Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2008, the company reported the following operating results while operating at 90% of plant capacity and producing 112,500 units. Amount Sales $4,500,000 Cost of goods sold 3,600,000 Selling and administrative expenses 450,000 Net income $ 450,000 Fixed costs for the period were: cost of goods sold $1,080,000, and selling and administrative expenses $225,000. In July, normally a slack manufacturing month, Pro Sports receives a special order for 10,000 basketballs at $28 each from the Italian Basketball Association (IBA). Acceptance of the order would increase variable selling and administrative expenses $0.50 per unit because of shipping costs but would not increase fixed costs and expenses. Instructions (a) NI increase $31,000 (a) Prepare an incremental analysis for the special order. (b) Should Pro Sports Inc. accept the special order? Explain your answer. (c) What is the minimum selling price on the special order to produce net income of $4.10 per ball? (d) What nonfinancial factors should management consider in making its decision? Make incremental analysis related to make or buy, consider opportunity cost, and identify nonfinancial factors
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