REQUIREMENT 1: SOLVE THE FOLLOWING WITH SOLUTION

1.Delaware has computed the following unit costs for the year just ended:

Variable manufacturing cost

$85

Fixed manufacturing cost

20

Variable selling and administrative cost

18

Fixed selling and administrative cost

11

Which of the following choices correctly depicts the per-unit cost of inventory under variable costing and absorption costing?

a.Variable, $85; absorption, $105.

b.Variable, $85; absorption, $116.

c.Variable, $103; absorption, $105.

d.Variable, $103; absorption, $116.

e.Some other combination of figures not listed above.

2.Diliman Republic Publishers, Inc. is considering replacing an old press that cost P800,000 six years ago with a new one that would cost P2,250,000.Shipping and installation would cost an additional P200,000.The old press has a book value of P150,000 and could be sold currently for P50,000.The increased production of the new press would increase inventories by P40,000, accounts receivable by P160,000 and accounts payable by P140,000.Diliman Republic's net initial investment for analyzing the acquisition of the new press assuming a 35% income tax rate would be

a. P2,450,000

b. P2,425,000

c. P2,600,000

d. P2,250,000

3.Maxwell Company has an opportunity to acquire a new machine to replace one of its present machines.The new machine would cost $90,000, have a 5-year life, and no estimated salvage value.Variable operating costs would be $100,000 per year.The present machine has a book value of $50,000 and a remaining life of 5 years.Its disposal value now is $5,000, but it would be zero after 5 years.Variable operating costs would be $125,000 per year.Ignore income taxes.Considering the 5 years in total, what would be the difference in profit before income taxes by acquiring the new machine as opposed to retaining the present one?

a.$10,000 decrease

b.$15,000 decrease

c.$35,000 increase

d.$40,000 increase

4.Cramden Armored Car Co. is considering the acquisition of a new armored truck. The truck is expected to cost $300,000. The company's discount rate is 12 percent. The firm has determined that the truck generates a positive net present value of $17,022. However, the firm is uncertain as to whether it has determined a reasonable estimate of the salvage value of the truck. In computing the net present value, the company assumed that the truck would be salvaged at the end of the fifth year for $60,000. What expected salvage value for the truck would cause the investment to generate a net present value of $0? Ignore taxes.

a.$30,000

b.$0

c.$55,278

d.$42,978

Use the following to answer questions 5-6:

Indiana Company incurred the following costs during the past year when planned production and actual production each totaled 20,000 units:

Direct materials used

$280,000

Direct labor

120,000

Variable manufacturing overhead

160,000

Fixed manufacturing overhead

100,000

Variable selling and administrative costs

60,000

Fixed selling and administrative costs

90,000

5.If Indiana uses variable costing, the total inventoriable costs for the year would be:

a.$400,000.

b.$460,000.

c.$560,000.

d.$620,000.

e.$660,000.

6.The per-unit inventoriable cost under absorption costing is:

a.$9.50.

b.$25.00.

c.$28.00.

d.$33.00.

e.$40.50.

7.Acme is considering the sale of a machine with a book value of $80,000 and 3 years remaining in its useful life.Straight-line depreciation of $25,000 annually is available.The machine has a current market value of $100,000.What is the cash flow from selling the machine if the tax rate is 40%.

a. $25,000

b. $80,000

c. $92,000

d. $100,000

8.Hatchet Company is considering replacing a machine with a book value of $400,000, a remaining useful life of 5 years, and annual straight-line depreciation of $80,000.The existing machine has a current market value of $400,000.The replacement machine would cost $550,000, have a 5-year life, and save $75,000 per year in cash operating costs.If the replacement machine would be depreciated using the straight-line method and the tax rate is 40%, what would be the net investment required to replace the existing machine?

a. $90,000.

B. $150,000

c. $330,000

d. $550,000