Question 1 (1 point)

Xenon Company manufactures 10,000 special gears for use in its annual production activities. The following costs are reported:

Direct materials, $3/gear

Direct labor, $4/gear

Variable Factory Overhead, $4.5/gear

Fixed Factory Overhead, $70,000

Parts Plus has offered to sell Xenon 10,000 of these gears for $17 per unit. If Xenon accepts the offer, $40,000 of the fixed factory overhead to special gears would be totally eliminated. What would be the effect on Xenon's income of accepting Parts Plus's offer?

Question 2 (1 point)

Zurich Inc. has determined the following cost data:

Variable Manufacturing, $15/unit

Fixed Manufacturing,$36,000

Variable Selling, $ 1/unit

Fixed Selling & Administrative, $18,000

The normal selling price is $25 per unit. The company has an opportunity to bid on a one-time only sale of 1,000 units. The variable selling costs would be replaced by a bulk shipping charge of $500. If excess capacity exists, and this order would not disturb regular sales, what would be the company's incremental cost per unit of accepting this special offer?

Question 3 (2 points)

Hardware Corp. is planning to buy production machinery. This machinery's expected useful life is 5 years, with a $10,000 residual value. They require a minimum rate of return of 12%, and have calculated the following data pertaining to the purchase and operation of this machinery:

Year	Estimated Annual Cash Inflow	Estimated Annual Cash Outflow	Depreciation
1	$60,000	$10,000	$30,000
2	$80,000	$20,000	$30,000
3	$95,000	$25,000	$30,000
4	$115,000	$35,000	$30,000
5	$140,000	$50,000	$30,000

Determine the payback period, the accounting rate of return, and the net present value for this investment. (Ignore taxes & indicate answers to 2 decimal places)

Question 4 (2 points)

Norwest is planning on purchasing a welding machine. The expected cost of this machine is $60,000, and it is expected to have a useful life of 7 years with an estimated salvage value of $4,000. The machine is expected to produce cash savings of $20,000 per year in reduced labor costs and the cash operating costs to run this machine are estimated to be $6,000 per year. Assuming Norwest is in the 34% tax bracket and has a minimum desired rate of return of 14% on this investment. Determine the payback period, the accounting rate of return, and the net present value for this investment. (Indicate answers to 2 decimal places)