Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please provide following steps about how to solve these questions. Dennis Deisel, majority stockholder and president of Deisel, Inc., is working with his top managers
Please provide following steps about how to solve these questions.
Dennis Deisel, majority stockholder and president of Deisel, Inc., is working with his top managers on future plans for the company. As the company's managerial accountant, you've been asked to analyze the following situations and make recommendations to the management team. Read the requirements. Requirement 1. Division A of Deisel, Inc. has $4,700,000 in assets. Its yearly fixed costs are $645,000, and the variable costs of its product line are $1.70 per unit. The division's volume is currently 480,000 units. Competitors offer a similar product, at the same quality, to retailers for $4.00 each. Deisel's management team wants to earn a 10% return on investment on the division's assets. 1a. What is Division A's target full product cost? Less: Target full product cost 0 Requirements X A Data Table Division B of Deisel, Inc. Income Statement For the Year Ended December 31, 2018 Product Line T205 B179 Total $ 350,000 $ 400.000 $ 750,000 Net Sales Revenue Cost of Goods Sold: Variable 43,000 69.000 73,000 349,000 Fixed 1. Division A of Deisel, Inc. has $4.700,000 in assets. Its yearly fixed costs are $645,000, and the variable costs of its product line are $1.70 per unit. The division's volume is currently 480,000 units. Competitors offer a similar product, at the same quality, to retailers for $4.00 each. Deisel's management team wants to eam a 10% return on investment on the division's assets. a. What is Division A's target full product cost? b. Given the division's current costs, will Division A be able to achieve its target profit? c. Assume Division A has identified ways to cut its variable costs to $1.55 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the division to achieve its target profit? d. Division A is considering an aggressive advertising campaign strategy to differentiate its product from its corripetitors. The division does not expect volume to be affected, but it hopes to gain more control over pricing. If Division A has to spend $135,000 next year to advertise and its variable costs continue to be $1.55 per unit, what will its cost-plus price be? Do you think Division A will be able to sell its product at the cost-plus price? Why or why not? 2. The division manager of Division B received the following operating income data for the past yoar: (Click the icon to view the Division B operating income data.) The manager of the division is surprised that the T205 product line is not profitable. The division Bocountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $32,000 and decrease fixed selling and administrative expenses by $9,000. a. Prepare a differential analysis to show whether Division B should drop the T205 product line. b. What is your recommendation to the manager of Division B? 3. Division C also produces two product lines. Because the division can sell all of the product it can produce, Deisel is expanding the plant and needs to decide which product line to emphasize. To make this decision, the division accountant assembled the following data: (Click the icon to view the Division C product data) After expansion, the factory will have a production capacity of 4,200 machine hours per month. The plant can manufacture either 25 units of K707s or 65 units of G582s per machine hour. 30,000 280,000 310,000 40,000 112.000 422,000 288.000 328,000 Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses: Variable 70,000 40,000 73.000 23.000 143,000 63,000 Fixed Total Selling and Administrative Expenses 110,000 (70,000) S 98.000 206,000 192,000 S 122,000 $ Operating Income (Loss) Print Done Requirements i Data Table - X G582 Sales price Variable costs Per Unit K707 80 $ 30 50 $ 48 15 33 $ ICICK the icon to view the UIVISION B operaung income ta.) The manager of the division is surprised that the T205 product line is not profitable. The division accountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $82,000 and decrease fixed selling and administrative expenses by $9,000. a. Prepare a differential analysis to show whether Division B should drop the T205 product line. b. What is your recommendation to the manager of Division B? 3. Division C also produces two product lines. Because the division can sell all of the product it can produce, Deisel is expanding the plant and needs to decide which product line to emphasize. To make this decision, the division accountant assembled the following data: (Click the icon to view the Division C product data.) After expansion, the factory will have a production capacity of 4,200 machine hours per month. The plant can manufacture either 25 units of K707s or 65 units of G582s per machine hour. a. Identify the constraining factor for Division C. b. Prepare an analysis to show which product line to emphasize. 4. Division D is considering two possible expansion plans. Plan A would expand a current product line at a cost of $8,500,000. Expected annual net cash inflows are $1,625,000, with zero residual value at the end of 10 years. Under Plan B. Division D would begin producing a new product at a cost of $8,300,000. This plan is expected to generate net cash inflows of S1,080,000 per year for 10 years, the estimated useful life of the product line. Estimated residual value for Plan B is $1,000,000. Division D uses straight-line depreciation and requires an annual return of 8%. a. Compute the payback, the ARR, the NPV, and the profitability index for both plans. b. Compute the estimated IRR of Plan A. c. Use Excel to verify the NPV calculations in Requirement 4(a) and the actual IRR for the two plans. How does the IRR of each plan compare with the company's required rate of return? d. Division D must rank the plans and make a recommendation to Deise's top management team for the best plan. Which expansion plan should Division D choose? Why? Contribution margin Contribution margin ratio 62.5% 68.8% Print DoneStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started