Current Designs 25 a-d (Part Level Submission) A company that manufactures recreational pedal boats has approached Mike Cichanowski to ask if he would be interested in using Current Designs' rotomold expertise and equipment to produce some of the pedal boat components. Mike is intrigued by the idea and thinks it would be an interesting way of complementing the present product line. One of Mike's hesitations about the proposal is that the pedal boats are a different shape than the kayaks that Current Designs produces. As a result, the company would need to buy an additional rotomold oven in order to produce the pedal boat components. This project clearly involves risks, and Mike wants to make sure that the returns justify the risks. In this case, since this is a new venture, Mike thinks that a 15% discount rate is appropriate to use to evaluate the project. As an intern at Current Designs, Mike has asked you to prepare an initial evaluation of this proposal. To aid in your analysis, he has provided the following information and assumptions. 1. The new rotomold oven will have a cost of $302,000, a salvage value of $0, and an 8-year useful life. Straight-line depreciation will be used. 2. The projected revenues, costs, and results for each of the 8 years of this project are as follows. Sales Less: Manufacturing costs Depreciation Shipping and administrative costs Income before income taxes Income tax expense Net income Click here to view PV table. (e) $225,400 $142,800 39,200 18,000 200,000 25,400 11,400 $14,000 Your answer is incorrect. Try again. Compute the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.) Annual rate of return 5.82 Click if you would like to Show Work for this question: Open Show Work Current Designs 20-01 (Part 1) a Your answer is partially correct. Try again. Current Designs faces a number of important decisions that require incremental analysis. Recently, Mike Cichanowski, owner and CEO of Current Designs, received a phone call from the president of a brewing company. He was calling to inquire about the possibility of Current Designs producing "floating coolers" for a promotion his company was planning. These coolers resemble a kayak but are about one-third the size. They are used to float food and beverages while paddling down the river on a weekend leisure trip. The company would be interested in purchasing 100 coolers for the upcoming summer. It is willing to pay $260 per cooler. The brewing company would pick up the coolers upon completion of the order. Mike met with Diane Buswell, controller, to identify how much it would cost Current Designs to produce the coolers. After careful analysis, the following costs were identified. Direct materials Direct labor $85/unit $57/unit Fixed overhead Variable overhead $25/unit $1,000 Current Designs would be able to modify an existing mold to produce the coolers. The cost of these modifications would be approximately $2,100. (a) Prepare an incremental analysis to determine whether Current Designs should accept this special order to produce the coolers. (Enter decrease in net income then enter with a negative sign preceding the number or parenthesis, e.g. -15,000 or (15,000).) Net Income Reject Order Accept Order Increase (Decrease) Revenues 26000 26000 Costs Net Income 18800 18800 44800 7200 Current Designs should accept the order based on the incremental analysis. Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT LINK TO TEXT LINK TO TEXT Current Designs 22 a-e (Part Level Submission) Diane Buswell is preparing the 2020 budget for one of Current Designs' rotomolded kayaks. Extensive meetings with members of the sales department and executive team have resulted in the following unit sales projections for 2020. Quarter 1 Quarter 2 Quarter 3 Quarter 4 1,300 kayaks 2,100 kayaks 900 kayaks 900 kayaks Current Designs' policy is to have finished goods ending inventory in a quarter equal to 30% of the next quarter's anticipated sales. Preliminary sales projections for 2021 are 1,100 units for the first quarter and 2,100 units for the second quarter. Ending inventory of finished goods at December 31, 2019, will be 390 rotomolded kayaks. Production of each kayak requires 60 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). Company policy is that the ending inventory of polyethylene powder should be 20% of the amount needed for production in the next quarter. Assume that the ending inventory of polyethylene powder on December 31, 2019, is 20,800 pounds. The finishing kits can be assembled as they are needed. As a result, Current Designs does not maintain a significant inventory of the finishing kits. The polyethylene powder used in these kayaks costs $1.20 per pound, and the finishing kits cost $160 each. Production of a single kayak requires 2 hours of time by more experienced, type I employees and 3 hours of finishing time by type II employees. The type I employees are paid $19 per hour, and the type II employees are paid $16 per hour. Selling and administrative expenses for this line are expected to be $46 per unit sold plus $8,900 per quarter. Manufacturing overhead is assigned at 150% of labor costs. (a) Your answer is correct. Prepare the production budget for this product line by quarter and in total for 2020. CURRENT DESIGNS Production Budget For the Year Ending December 31, 2020 Q1 Q2 Q3 Q4 Total Expected Unit Sales 1300 2100 900 900 Add V Desired Ending Finished Goods Unit v 630 270 270 330 Total Required Units 1930 2370 1170 1230 Less V Beginning Finished Goods Unit -3901 630 -270 -270 EF Required Production Units 1540 1740 900 960 5140 Click if you would like to Show Work for this question: Open Show Work SHOW SOLUTION LINK TO TEXT LINK TO TEXT (b) Your answer is partially correct. Try again. Prepare the direct materials budget for this product line by quarter and in total for 2020. (Round cost per pound to 2 decimal places, e.g. 1.25 and other answers to 0 decimal places, e.g. 125.) CURRENT DESIGNS Direct Materials Budget-Polyethylene Powder For the Year Ending December 31, 2020 Units to be Produced Pounds of Polyethylene Powder Per Unit Total Pounds Needed for Production Quarter Q1 Q2 Q3 Q4 Total 1540 1740 900 960 12 E 60 60 60 60 P 92400 104400 54000 57600 Add Desired Ending Inventory of Powder 20880 10800 11520 16800 Total Pounds of Powder Required 113280 115200 65520 74400 Less Beginning Inventory of Powder 18480 20880 10800 11520 2 Pounds of Polyethylene Powder to be Purchased 94800 94320 54720 62880 E 11 132 Cost Per Pound 1.2 1.2 1.2 1.2 $ $ Cost of Polyethylene Powder to be Purchased 113760 Cost of Required Finishing Kits 113184 65664 75456 246400 278400 144000 153600 360,160 391584 209664 229056 1190464 Total Costs for Direct Materials Click if you would like to Show Work for this question: Open Show Work (c) Prepare the direct labor budget for this product line by quarter and in total for 2020. More skilled labor CURRENT DESIGNS Direct labor Budget Q1 Q2 Q3 Q4 TOTAL Less skilled labor Q1 Q2 Q3 Q4 TOTAL Click if you would like to Show Work for this question: Open Show Work