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An internet caf is considering investing in a new photocopying machine to maximize its productive capacity for photocopying documents. The purchase price of the new
An internet caf is considering investing in a new photocopying machine to maximize its productive capacity for photocopying documents. The purchase price of the new machine is $ which will have an economic life of five years. There is installation and commissioning cost of $ and $ respectively. It is estimated that a market exists for bottles of sugar wax locally per annum.
Each bottle of sugar wax will be sold for $ and will cost $ to produce. A previous market research has indicated that the small business could gain of the market in the first three years and in the final two years.
Other relevant information are as follows:
Variable distribution cost of $ each
Annual promotion cost of of sales revenue
Use the straightline method for depreciation. There is a scrap value of $
The required rate of return on debt is and return on equity is
Currently the assets of the company are funded by debt and equity
Corporation tax rate is
Depreciation is an allowable deduction for tax purposes.
Required:
a The annual operating income after tax and the operating cash flows of the project and the net present value NPV
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b Internal Rate of Return and Profitability index of the project.
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c A Recommendation to the management team to accept or reject the project. marks
Question # marks
A company operates using a standard marginal costing system and manufactures one product and management is trying to assess its operations. Standard revenue and cost data is provided for Cinco.
Selling price $
Direct material at $ per kg
Direct material B at $ per kg
Direct labour hrs at $ per hour
Actual data for the twelvemonth period was as follows:
Sales and production units of the blaster were produced and sold for $
Direct material A were used at a cost of $
Direct material B were used at a cost of $
Direct labour Employees worked for hours, but hours were paid at a cost of $
Budgeted sales for the period were units of Product Blaster. A recession last year meant that the market for the product declined by
Required:
a Calculate the following variances.
i Sales volume variance.
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ii Planning and operational variances for sales volume.
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iii Price, mix and yield variances for each material.
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b Suggest two possible explanations for the material price and yield variances calculated in part a
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