2071 end of semester test

1.Smyth and Wessin is considering investing in a bullet-proof vest machine. The machine has an estimated cost of $150,000 and a $9,000 salvage value. The five year project has estimated net income of $10,800 each year. The required rate of return is 12% and the cost of capital is 10%. Hint, calculate depreciation expense and convert NI to CF. Make sure you remember how the salvage value affects cash flows.

What is the projects NPV? $______________ (round to the nearest dollar)

What is the projects IRR? _______________ (round to the nearest percent)

2. Aviance produces two products: hammers and screw drivers. Demand for both products is almost equal; however, the company has only 50 hours of machine time remaining in the month before the machine must be shut down for maintenance. Hammer sell for $10 and have variable costs of $6 per unit. Screw drivers sell for $8 and have variable cost per unit of $3. Allocated fixed costs are $2 per unit. It takes 2 hours to produce a hammer and 3 hours to produce a screw driver. Which product should Aviance produce?

_____Hammers _____Screwdrivers _______Either

3. Smith Company manufactures widgets. Richardson Company has approached Smith with a proposal to sell the company one of the components used to make widgets at a price of $100,000 for 50,000 units. Smith is currently making these components in its own factory. The following costs are associated with this part of the process when 50,000 units are produced:

Direct material 54,000 Direct labor 20,000

Manufacturing overhead 70,000

Total 144,000

The manufacturing overhead consists of $38,000 of costs that will be incurred regardless of whether the order is accepted or not. What is the total cost that Smith will incur if it buys the components from Richardson Company? Note, I am not asking how much Smith will pay Richardson. I am asking how much will it COST Smith if Smith buys.

 $_______________

4. Checks Experts sells checks and deposits slips to businesses. The companys history shows 40% of the sales are collected in the month of the sale, 30% the following month, 28% two months later and 2% is never collected. The company expects sales to be $500,000 (Jan), $450,000 (Feb), $425,000 (Mar), and $400,000 (Apr). How much are the budgeted cash receipts for March?

$______________________ How much are the budgeted cash receipts for the first quarter? $_________________

5. Edy's, Inc. wants to purchase of a new ice cream truck with a cost of $51,000. Edy's has a cost of capital of 7.4% and a required rate of return of 10.4%. Its income tax rate is 32%. The acquisition is proposed for January 1, 2011. Edy's expects it can sell the truck for $7,000 at end of its useful life of 4 years. Edy's estimates the following incremental amounts to be generated by the truck:

Year 1 Net income $4,200 Operating cash flows 15,200

Year 2 $5,600 16,600

Year 3 $6,100 17,100

Year 4 $5,800 16,800

How much is accounting rate of return?

A. 14.48% B. 56.64% C. 10.64% D. 18.71% E. Some other answer

6.Brett Favor has written a self improvement book that has the following cost characteristics when 10,000 books were sold:

Sales 160,000 Variable Production 40,000 Selling & administrative Fixed costs: 20,000

Production$88,000 per year Selling & administrative18,000 per year

How many units must be sold to break-even? ___________________ How much in sales dollars must Brett generate in order to earn a $50k profit? $______________

7.

2071 end of semester test

Sales (@ $50) 250,000

COGS 120,000 Gross Margin 130,000 Less selling & admin

Variable selling 75,000

Fixed selling 10,000

Fixed admin exp 15,000 100,000

Net Income 30,000

Watkins manufactures and distributes watches. In 2010, the company produced 6,000 watches. Annual fixed manufacturing overhead was $18,000. What is the value of ending inventoryusing variable costing? $___________________

How much is variable costing net income? $______________

8.Summer Reflections Beverage company reported the following for their bottled water division:

Sales 600,000 Operating expense 325,000

Depreciation 15,000

Interest expense 90,000

The tax rate is 30%. How much is the companys NOPAT? $_________________

9.Summer Reflections reported the following on its balance sheet:

*May 1, 2010

Raw material $15,000

WIP 8,000

FG 45,000

*April 1, 2010

RM $25,000

WIP 10,000

FG 38,000

If Summer Reflections had purchases of $40,000, how much was COGS at the end of April?

$_______________ How much were the COGMfd? $________________

10.Thefollowingareproductionandcostdatafortwoproducts,bucketsandpails.

Buckets Pails

Contributionmarginperunit $450 $280

Machineset-upsneededperunit20 14

Thecompanycanonlyperform14,000set-upseachperiodyetthereisunlimiteddemandforeachproduct.Whatisthetotalmaximumcontributionmarginfortheyearif14,000setupsaremade?(Hint,whenthereisaconstraintchoosetheproductwiththehigherCMperconstraint).

2. $315,000
3. $35,000
4. $280,000
5. $595,000
6. Someotheramount

6.