ACC 206 Entire Course Principles of Accounting II
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ACC 206 Entire Course
ACC 206 Entire Course Principles of Accounting II
ACC 206 Week 1 Assignment Chapter One Problems
Why are noncash transactions, such as the exchange of common
stock a building, included on a statement of cash flows? How are these noncash
transactions disclosed?
Chapter 1 Exercise 1:
1. Classification of activities
Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity.
Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity.
a. ________ Received $80,000 from
the sale of land.
b. ________ Received $3,200 from
cash sales.
c. ________ Paid a $5,000
dividend.
d. ________ Purchased $8,800 of
merchandise for cash.
e. ________ Received $100,000 from
the issuance of common stock.
f. ________ Paid $1,200 of
interest on a note payable.
g. ________ Acquired a new laser
printer by paying $650.
h. ________ Acquired a $400,000 building
by signing a $400,000 mortgage note.
Chapter 1 Exercise 4:
4. Overview of direct and indirect methods
Evaluate the comments that follow as being True or False. If the comment is false, briefly explain why.
4. Overview of direct and indirect methods
Evaluate the comments that follow as being True or False. If the comment is false, briefly explain why.
a. Both the direct
and indirect methods will produce the same cash flow from operating activities.
b.
Depreciation expense is added back to net income when the indirect method is
used.
c. One of the
advantages of using the direct method rather than the indirect method is that
larger cash flows from financing activities will be reported.
d. The cash paid to
suppliers is normally disclosed on the statement of cash flows when the
indirect method of statement preparation is employed.
e. The
dollar change in the Merchandise Inventory account appears on the statement of
cash flows only when the direct method of statement preparation is used.
Chapter 1 Exercise 6:
6. Equipment transaction and cash flow reporting
6. Equipment transaction and cash flow reporting
New equipment purchased during 20×4 totaled $280,000. The 20×4
income statement disclosed equipment depreciation expense of $41,000 and a
$9,000 loss on the sale of equipment.
a. Determine
the cost and accumulated depreciation of the equipment sold during 20X4.
b. Determine
the selling price of the equipment sold.
c. Show
how the sale of equipment would appear on a statement of cash flows prepared by
using the indirect method.
Chapter 1 Problem 3:
3. Cash flow information: Direct and indirect methods
The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company’s current accounts:
The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company’s current accounts:
Related Tutorials
ACC 206 Week 1 DQ1 Cash Flows Information
What information does the cash flow statement provide that you
cannot see in the other financial statements (income statement, balance sheet, owner’s
equity)? What elements of the cash flow statement do you think are most
important for company management to monitor and why? Is this different for
investors?
Guided Response:
Review your peers’ postings. Respond to at least two of
classmates, letting them know whether you agree with the use of the cash flow
statement and why. Additionally, share elements of the cash flow statement that
you see as being the greatest interest to investors (as opposed to internal
management) and why.
ACC 206 Week 1 DQ2 Apple’s Cash Flow
Go to http://finance.yahoo.com. Enter
in “AAPL” and click on the “get quote” button, and it will bring up information
on Apple. On the left hand side you’ll see a section on Financials. Within that
section, click on the cash flow. Review the cash flow statement for Apple. How
would you summarize Apple’s cash flow position and what does this statement
tell you about where the money is coming from and where it’s going? What would
you suggest Apple’s do to improve its cash position and why?
Guided Response:
Analyze several of your peers’ postings. Do you agree with the
posting? Let at least two of your peers know what you would add.
ACC 206 Week 2 Assignment Chapter Two and Three Problems
Please complete the following 7 exercises below in either Excel
or a word document (but must be single document). You must show your work where
appropriate (leaving the calculations within Excel cells is acceptable). Save
the document, and submit it in the appropriate week using the Assignment
Submission button.
Chapter 2 Exercise 1
1. Issuance of stock
Prepare journal entries to record the issuance of 100,000 shares
of common stock at $20 per share for each of the following independent cases:
a. Jackson Corporation has common
stock with a par value of $1 per share.
b. Royal Corporation has no-par
common with a stated value of $5 per share.
c. French Corporation has no-par
common; no stated value has been assigned
Chapter 2 Exercise 3
3. Analysis of stockholders’ equity
Star Corporation issued both common and preferred stock during
20X6. The stockholders’ equity sections of the company’s balance sheets at the
end of 20X6 and 20X5 follow.
|
20X6
|
20X5
|
|
|
Preferred
stock, $100 par value, 10%
|
$580,000
|
$500,000
|
|
Common
stock, $10 par value
|
2,350,000
|
1,750,000
|
|
Paid-in
capital in excess of par value
|
||
|
Preferred
|
24,000
|
—
|
|
Common
|
4,620,000
|
3,600,000
|
|
Retained
earnings
|
8,470,000
|
6,920,000
|
|
Total
stockholders’ equity
|
$16,044,000
|
$12,770,000
|
a. Compute
the number of preferred shares that were issued during 20X6.
b. Calculate
the average issue price of the common stock sold in 20X6.
c. By what
amount did the company’s paid-in capital increase during 20X6?
d. Did Star’s total
legal capital increase or decrease during 20X6? By what amount?
Chapter 2 Problem 1
1. Bond
computations: Straight-line amortization
Southlake Corporation issued $900,000 of 8% bonds on March 1,
20X1. The bonds pay interest on March 1 and September 1 and mature in 10 years.
Assume the independent cases that follow.
·Case A—The bonds
are issued at 100.
·Case B—The bonds
are issued at 96.
·Case C—The bonds
are issued at 105.
Southlake uses the straight-line method of amortization.
Instructions:
|
Complete the following table:
|
|||
|
Case A
|
Case B
|
Case C
|
|
|
1.
Cash
inflow on the issuance date
|
_______
|
_______
|
_______
|
|
2.
Total cash
outflow through maturity
|
_______
|
_______
|
_______
|
|
3.
Total borrowing
cost over the life of the bond issue
|
_______
|
_______
|
_______
|
|
4.
Interest expense
for the year ended December 31, 20X1
|
_______
|
_______
|
_______
|
|
5.
Amortization for
the year ended December 31, 20X1
|
_______
|
_______
|
_______
|
|
6.
Unamortized
premium as of December 31, 20X1
|
_______
|
_______
|
_______
|
|
7.
Unamortized
discount as of December 31, 20X1
|
_______
|
_______
|
_______
|
|
8.
Bond carrying
value as of December 31, 20X1
|
_______
|
_______
|
_______
|
Chapter 3 Exercise 1
1. Product
costs and period costs
The costs that follow were extracted from the accounting records
of several different manufacturers:
1. Weekly wages of an
equipment maintenance worker
2. Marketing costs
of a soft drink bottler
3. Cost of sheet
metal in a Honda automobile
4. Cost of
president’s subscription to Fortune
magazine
5. Monthly
operating costs of pollution control equipment used in a steel mill
6. Weekly wages of
a seamstress employed by a jeans maker
7. Cost of compact discs
(CDs) for newly recorded releases of Rush, Billy Joel, and Bryan Adams
a. Determine which
of these costs are product costs and which are period costs.
b. For the product
costs only, determine those that are easily traced to the finished product and
those that are not.
Chapter 3 Exercise 2
2. Definitions of manufacturing concepts
Interstate Manufacturing produces brass fasteners and incurred the following costs for the year just ended:
Interstate Manufacturing produces brass fasteners and incurred the following costs for the year just ended:
Materials and supplies used
Brass
$75,000
Repair
parts
16,000
Machine lubricants
9,000
Wages and salaries Machine operators
128,000
Production supervisors
64,000
Maintenance personnel
41,000
Other factory overhead Variable
35,000
Fixed
46,000
Sales
commissions
20,000
Compute:
a. Total
direct materials consumed
b. Total
direct labor
c. Total
prime cost
d. Total conversion
cost
Chapter 3 Exercise 5
5. Schedule of cost of goods manufactured, income statement
The following information was taken from the ledger of Jefferson
Industries, Inc.:
|
Direct labor
|
$85,000
|
Administrative
expenses
|
$59,000
|
|
|
Selling
expenses
|
34,000
|
Work in.
process
|
||
|
Sales
|
300,000
|
Jan. 1
|
29,000
|
|
|
Finished
goods
|
Dec. 31
|
21,000
|
||
|
Jan. 1
|
115,000
|
Direct
material purchases
|
88,000
|
|
|
Dec. 31
|
131,000
|
Depreciation:
factory
|
18,000
|
|
|
Raw
(direct) materials on hand
|
Indirect materials
used
|
10,000
|
||
|
Jan. 1
|
31,000
|
Indirect
labor
|
24,000
|
|
|
Dec. 31
|
40,000
|
Factory
taxes
|
8,000
|
|
|
Factory
utilities
|
11,000
|
|||
Prepare the following:
a. A schedule of cost of goods
manufactured for the year ended December 31.
b. An income statement for the
year ended December 31.
Chapter 3 Problem 3
3. Manufacturing statements and cost behavior
3. Manufacturing statements and cost behavior
Tampa Foundry began operations during the current year,
manufacturing various products for industrial use. One such product is
light-gauge aluminum, which the company sells for $36 per roll. Cost
information for the year just ended follows.
|
Per Unit
|
Variable Cost
|
Fixed Cost
|
|
Direct materials
|
$4.50
|
$ —
|
|
Direct labor
|
6.5
|
—
|
|
Factory overhead
|
9
|
50,000
|
|
Selling
|
—
|
70,000
|
|
Administrative
|
—
|
135,000
|
Production and sales totaled 20,000 rolls and 17,000 rolls,
respectively There is no work in process. Tampa carries its finished goods
inventory at the average unit cost of production.
Instructions:
a. Determine the cost of the finished
goods inventory of light-gauge aluminum.
b. Prepare an income statement for
the current year ended December 31
c. On the basis of the information
presented:
1. Does it appear that the company
pays commissions to its sales staff? Explain.
2. What is the likely effect on
the $4.50 unit cost of direct materials if next year’s production increases?
Why?
ACC 206 Week 2 DQ1 Stock Features
1. What is callable
preferred stock? Why do corporations issue such stock? Given the
different features that are associated with stock (callable, cumulative,
preferred, etc.), what type of stock would you want to buy personally and why?
Guided Response :
Review your peers’ posts. Respond to at least two of your
classmates, letting them know if you agree with their type of desired stock and
whether your answer would change (and why) based on:
a. Different economic conditions
b. State of the company (if the company is in a growth phase versus a mature state).
b. State of the company (if the company is in a growth phase versus a mature state).
ACC 206 Week 2 DQ2 Role of Management Accounting
Review the roles of management accounting within a company. What
is the most important role of management accounting? How is that different than
financial accounting?
Guided Response:
Review your peer’s responses. Respond to at least two of your
peers, adding at least two additional areas that management accountants focus
on that the author didn’t include
ACC 206 Week 2 Journal Institute of Management Accounting
While there are many instances of overlap between financial
accounting and management accounting, each group’s primary focus is
different. Review the Institute of Management Accounting’s (IMA) website,
specifically the “About IMA” and the “Resources and Publications” sections of
the website. Are you surprised by the topics that management accountants are
focusing on? Why or why not? What interests you more, financial accounting or
management accounting?
Carefully review the Grading Rubric for the criteria that will be
used to evaluate your journal entry.
ACC 206 Week 3 Assignment Chapter Four and Five Problems
Please complete the following 7 exercises below in either Excel
or a word document (but must be single document). You must show your work where
appropriate (leaving the calculations within Excel cells is acceptable). Save
the document, and submit it in the appropriate week using the Assignment
Submission button.
Chapter 4 Exercise 3
3. Cost flows and overhead application
Cleveland Metals uses a job cost system and applies factory overhead to production at a predetermined rate of 180% of direct labor cost. Data pertaining to recent operations follow.
3. Cost flows and overhead application
Cleveland Metals uses a job cost system and applies factory overhead to production at a predetermined rate of 180% of direct labor cost. Data pertaining to recent operations follow.
Job no. 636 was the only job in process on January 1 of the
current year. The Work in Process account contained a $24,600 balance on this
date. ·
Jobs no. 637, 638, and 639 were started during January. ·
Total direct material requisitions and directlabor incurred
during January amounted to $89,200 and $114,500, respectively. ·
The only job that remained in process on January 31 was job no.
638, with costs of $15,000 for direct materials and $20,000 for direct labor. ·
a. Compute the total cost of the
work in process inventory on January 31.
b. Compute the cost of jobs
completed during January, and present the proper journal entry to reflect job
completion.
Chapter 4 Exercise 7
7. Overhead application: Working backward
The Towson Manufacturing Corporation applies overhead on the basis of machine hours. The following divisional information is presented for your review:
7. Overhead application: Working backward
The Towson Manufacturing Corporation applies overhead on the basis of machine hours. The following divisional information is presented for your review:
|
Division A
|
Division B
|
|
|
Actual machine hours
|
22,500
|
?
|
|
Estimated
machine hours
|
20,000
|
?
|
|
Overhead
application rate
|
$4.50
|
$5.00
|
|
Actual
overhead
|
$110,000
|
?
|
|
Estimated
overhead
|
?
|
$90,000
|
|
Applied
overhead
|
?
|
$86,000
|
|
Over-
(under-) applied overhead
|
?
|
$6,500
|
Find the
unknowns for each of the divisions.
Chapter 4 Problem 2
2. Computations using a job order system
General Corporation employs a job order cost system. On May 1 the following balances were extracted from the general ledger;
2. Computations using a job order system
General Corporation employs a job order cost system. On May 1 the following balances were extracted from the general ledger;
Work in process
$ 35,200
Finished goods
86,900
Cost of goods sold 128,700
Work in Process consisted of two jobs, no. 101 ($20,400) and no.
103 ($14,800). During May, direct materials requisitioned from the storeroom
amounted to $96,500, and direct labor incurred totaled $114,500. These figures
are subdivided as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Job no. 115 was the only job in process at the end of the month.
Job no. 101 and three “other” jobs were sold during May at a profit of 20% of
cost. The “other” jobs contained material and labor charges of $21,000 and
$17,400, respectively.
General applies overhead daily at the rate of 150% of direct
labor cost as labor summaries are posted to job orders. The firm’s fiscal year
ends on May 31.
Instructions:
a. Compute the total overhead
applied to production during May.
b. Compute the cost of the ending
work in process inventory.
c. Compute the cost of jobs
completed during May.
d. Compute the cost of goods sold
for the year ended May 31.
Chapter 5 Exercise 1
1. High-low method
The following cost data pertain to 20X6 operations of Heritage Products:
1. High-low method
The following cost data pertain to 20X6 operations of Heritage Products:
|
Quarter 1
|
Quarter 2
|
Quarter 3
|
Quarter 4
|
|
|
Shipping costs
|
$58,200
|
$58,620
|
$60,125
|
$59,400
|
|
Orders
shipped
|
120
|
140
|
175
|
150
|
The company uses the high-low method to analyze costs.
a. Determine the variable cost per
order shipped.
b. Determine the fixed shipping
costs per quarter.
c. If present cost behavior
patterns continue, determine total shipping costs for 20X7 if activity amounts
to 570 orders.
Chapter 5 Exercise 2
The treasurer anticipates the following costs for the event,
which will be held at the Regency Hotel:
Room rental
$300
Dinner cost (per person) 25
Chartered buses 500
Favors and souvenirs (per person) 5
Band 900
Each person would pay $40 to attend; 200 attendees are expected.
Dinner cost (per person) 25
Chartered buses 500
Favors and souvenirs (per person) 5
Band 900
Each person would pay $40 to attend; 200 attendees are expected.
a. Will the event be profitable
for the sorority? Show computations.
b. How many people must attend for
the sorority to break even?
c. Suppose the sorority encouraged
its members to drive to the hotel and did not charter the buses. Further, a
planned menu change will reduce the cost per meal by $2. If each member will
still be charged $40, compute the contribution margin per person.
Chapter 5 Exercise 3
3. Break-even and other CVP relationships
Cedars Hospital has average revenue of $180 per patient day. Variable costs are $45 per patient day; fixed costs total $4,320,000 per year.
3. Break-even and other CVP relationships
Cedars Hospital has average revenue of $180 per patient day. Variable costs are $45 per patient day; fixed costs total $4,320,000 per year.
a. How many patient days does the
hospital need to break even?
b. What level of revenue is needed
to earn a target income of $540,000?
c. If variable costs drop to $36
per patient day, what increase in fixed costs can be tolerated without changing
the break-even point as determined in part (a)?
Chapter 5 Problem 6
6. Direct and absorption costing
The information that follows pertains to Consumer Products for the year ended December 31, 20X6.
6. Direct and absorption costing
The information that follows pertains to Consumer Products for the year ended December 31, 20X6.
|
Inventory, 1/1/X6
|
24,000 units
|
|
Units manufactured
|
80,000
|
|
Units sold
|
82,000
|
|
Inventory, 12/31/X6
|
? units
|
|
Manufacturing costs:
|
|
|
Direct materials
|
$3 per unit
|
|
Direct labor
|
$5 per unit
|
|
Variable factory overhead
|
$9 per unit
|
|
Fixed factory overhead
|
$280,000
|
|
Selling & administrative expenses:
|
|
|
Variable
|
$2 per unit
|
|
Fixed
|
$136,000
|
The unit selling price is $26. Assume that costs have been
stable in recent years.
Instructions:
a. Compute the number of units in
the ending inventory.
b. Calculate the cost of a unit
assuming use of:
1. Direct costing.
2. Absorption costing.
c. Prepare an income statement for
the year ended December 31, 20X6, by using direct costing.
d. Prepare an income statement for
the year ended December 31, 20X6, by using absorption costing.
ACC 206 Week 3 DQ1 Issues in Costing
ACC 206 Week 3 DQ2 CVP and the Airline Industry
ACC 206 Week 3 Journal Hershey Company
ACC 206 Week 4 Assignment Chapter Six and Seven Problems
Please complete the following 8 exercises below in either Excel
or a word document (but must be single document). You must show your work where
appropriate (leaving the calculations within Excel cells is acceptable). Save
the document, and submit it in the appropriate week using the Assignment
Submission button.
Chapter 6 Exercise 2
2. Schedule of cash collections
Sugarland Company sells a single product and anticipates opening a new facility in Charlotte on May 1 of the current year. Expected sales during the first three months of activity are: May, $60,000; June, $80,000; and July, $85,000. Thirty percent of all sales are for cash; the remaining 70% are on account. Credit sales have the following collection pattern:
Sugarland Company sells a single product and anticipates opening a new facility in Charlotte on May 1 of the current year. Expected sales during the first three months of activity are: May, $60,000; June, $80,000; and July, $85,000. Thirty percent of all sales are for cash; the remaining 70% are on account. Credit sales have the following collection pattern:
Chapter 6 Exercise 4
4. Production and cash-outlay computations
RPR, Inc., anticipates that 120,000 units of product K will be
sold during May. Each unit of product K requires four units of raw material A.
Actual inventories as of May 1 and budgeted inventories as of May 31 follow.
Chapter 6 Exercise 5
5. Abbreviated cash budget; financing emphasis
An abbreviated cash budget for Big Chuck Enterprises follows.
Chapter 6 Problem 3
Chapter 6 Problem 3
3. Comprehensive budgeting
The balance sheet of Watson Company as of December 31, 20X1,
follows.
Chapter 7 Exercise 3
3. Variances for direct materials and direct labor
Banner Company manufactures flags of various countries. Each
flag has a standard of eight square feet of fabric and three hours of direct
labor time. Information about recent production activity follows.
Chapter 7 Exercise 5
5. Overhead
variances
Nova Manufacturing applies factory overhead to products on the
basis of direct labor hours. At the beginning of the current year, the
company’s accountant made the following estimates for the forthcoming period:
· Estimated variable
overhead: $500,000
· Estimated fixed
overhead: $400,000
· Estimated direct
labor hours: 40,000
It is now 12 months later. Actual total overhead incurred in the
manufacture of 7,900 units amounted to $895,100. Actual labor hours totaled
39,800. Assuming a direct labor standard of five hours per finished unit,
calculate the following:
a. Variable overhead efficiency
variance
b. Fixed overhead volume variance
c. Overhead spending variance
Chapter 7 Problem 1
1. P26-A1
Basic flexible budgeting (L.O. 2)
Centron, Inc., has the following budgeted production costs:
Centron, Inc., has the following budgeted production costs:
|
Direct materials
|
$0.40 per unit
|
|
Direct labor
|
1.80 per unit
|
|
Variable factory overhead
|
2.20 per unit
|
|
Fixed factory overhead
|
|
|
Supervision
|
$24,000
|
|
Maintenance
|
18,000
|
|
Other
|
12,000
|
The company normally manufactures between 20,000 and 25,000
units each quarter. Should output exceed 25,000 units, maintenance and other
fixed costs are expected to increase by $6,000 and $4,500, respectively.
During the recent quarter ended March 31, Centron produced
25,500 units and incurred the following costs:
|
Direct Materials
|
$10,710
|
||
|
Direct Labor
|
47,175
|
||
|
Variable factory overhead
|
51,940
|
||
|
Fixed factory overhead
|
|||
|
Supervision
|
24,500
|
||
|
Maintenance
|
23,700
|
||
|
Other
|
16,800
|
||
|
Total production costs
|
$174,825
|
||
Instructions:
a. Prepare a flexible budget for
20,000, 22,500, and 25,000 units of activity.
b. Was Centron’s experience in the
quarter cited better or worse than anticipated? Prepare an appropriate
performance report and explain your answer.
c. Explain the benefit of using
flexible budgets (as opposed to static budgets) in the measurement of
performance.
Chapter 7 Problem 5
5. P26-B3
Straightforward variance analysis (L.O. 5)
Arrow Enterprises uses a standard costing system. The standard
cost sheet for product no. 549 follows.
ACC 206 Week 4 DQ1 Issues in Standard Costs and Budgeting
ACC 206 Week 4 DQ2 Flexible Budgets
ACC 206 Week 5 Assignment Chapter Eight Problems
Please complete the following 5 exercises below in either Excel
or a word document (but must be single document). You must show your work where
appropriate (leaving the calculations within Excel cells is acceptable). Save
the document, and submit it in the appropriate week using the Assignment
Submission button.
Chapter 8 Exercise 1:
1. Basic
present value calculations
Calculate the present value of the following cash flows,
rounding to the nearest dollar:
a. A single cash inflow of $12,000
in five years, discounted at a 12% rate of return.
b. An annual receipt of $16,000
over the next 12 years, discounted at a 12% rate of return.
c. A single receipt of $15,000 at
the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3.
The company has a 10% rate of return.
d. An annual receipt of $8,000 for
three years followed by a single receipt of $10,000 at the end of Year 4. The
company has a 12% rate of return.
Chapter 8 Exercise 4:
4. Cash
flow calculationsand net present value
On January 2, 20X1, Bruce Greene invested $10,000 in the stock
market and purchased 500 shares of Heartland Development, Inc. Heartland paid
cash dividends of $2.60 per share in 20X1 and 20X2; the dividend was raised to
$3.10 per share in 20X3. On December 31, 20X3, Greene sold his holdings and
generated proceeds of $13,000. Greene uses the net-present- value method and
desires a 16% return on investments.
a. Prepare a chronological list of
the investment’s cash flows. Note: Greene
is entitled to the 20X3 dividend.
b. Compute the investment’s net
present value, rounding calculations to the nearest dollar.
c. Given the results of part (b),
should Greene have acquired the Heartland stock? Briefly explain.
Chapter 8 exercise 5:
5. Straightforwardnet
present value and internal rate of return
The City of Bedford is studying a 600-acre site on Route 356 for
a new landfill. The startup cost has been calculated as follows:
Purchase cost: $450 per acre
Site preparation: $175,000
The site can be used for 20 years before it reaches capacity.
Bedford, which shares a facility in Bath Township with other municipalities,
estimates that the new location will save $40,000 in annual operating costs.
a. Should the landfill be acquired
if Bedford desires an 8% return on its investment? Use the net-present-value
method to determine your answer.
Chapter 8 Problem 1:
1. Straightforward
net-present-value and payback computations
STL Entertainment is considering the acquisition of a
sight-seeing boat for summer tours along the Mississippi River. The following
information is available:
|
Cost of boat
|
$500,000
|
|
Service life
|
10 summer seasons
|
|
Disposal value at the end of 10 seasons
|
$100,000
|
|
Capacity per trip
|
300 passengers
|
|
Fixed operating costs per season (including straight-line
depreciation)
|
$160,000
|
|
Variable operating costs per trip
|
$1,000
|
|
Ticket price
|
$5 per passenger
|
All operating costs, except depreciation, require cash outlays.
On the basis of similar operations in other parts of the country, management
anticipates that each trip will be sold out and that 120,000 passengers will be
carried each season. Ignore income taxes.
Instructions:
By using the net-present-value method, determine whether STL
Entertainment should acquire the boat. Assume a 14% desired return on all
investments,- round calculations to the nearest dollar.
Chapter 8 Problem 4:
4. Equipment
replacement decision
Columbia Enterprises is studying the replacement of some
equipment that originally cost $74,000. The equipment is expected to provide
six more years of service if $8,700 of major repairs are performed in two
years. Annual cash operating costs total $27,200. Columbia can sell the
equipment now for $36,000; the estimated residual value in six years is $5,000.
New equipment is available that will reduce annual cash
operating costs to $21,000. The equipment costs $103,000, has a service life of
six years, and has an estimated residual value of $13,000. Company sales will
total $430,000 per year with either the existing or the new equipment. Columbia
has a minimum desired return of 12% and depreciates all equipment by the
straight-line method.
Instructions:
a. By using the net-present-value
method, determine whether Columbia should keep its present equipment or acquire
the new equipment. Round all calculations to the nearest dollar, and ignore
income taxes.
b. Columbia’s management feels
that the time value of money should be considered in all long-term decisions.
Briefly discuss the rationale that underlies management’s belief.
ACC 206 Week 5 DQ1 Long-term Decision Making
ACC 206 Week 5 DQ2 Responsibilities in Management Accounting
ACC 206 Week 5 Final paper
Focus of the Final Paper
You’ve just been hired onto ABC Company as the corporate
controller. ABC Company is a manufacturing firm that specializes in making
cedar roofing and siding shingles. The company currently has annual sales of
around $1.2 million, a 25% increase from the previous year. The company has an
aggressive growth target of reaching $3 million annual sales within the
next 3 years. The CEO has been trying to find additional products that can
leverage the current ABC employee skillset as well as the manufacturing
facilities.
As the controller of ABC Company, the CEO has come to you with a
new opportunity that he’s been working on. The CEO would like to use the some
of the shingle scrap materials to build cedar dollhouses. While this new
product line would add additional raw materials and be more time-intensive to
manufacture than the cedar shingles, this new product line will be able to
leverage ABC’s existing manufacturing facilities as well as the current staff.
Although this product line will require added expenses, it will provide
additional revenue and gross profit to help reach the growth targets. The CEO
is relying on you to help decide how this project can be afforded Provide
details about the estimated product costs, what is needed to break even on the
project, and what level of return this product is expected to provide.
In order to help out the CEO, you need to prepare a six- to
eight-page report that will contain the following information (including
exhibits, but excluding your references and title page). Refer to the
accompanying Excel spreadsheet (available through your online course) for some
specific cost and profit information to complete the calculations.
I. An overall risk profile of the company based on current
economic and industry issues that it may be facing.
II. Current company cash flow
a. You need to complete a cash flow statement for the company
using the direct method.
b. Once you’ve completed the cash flow statement, answer the following questions:
b. Once you’ve completed the cash flow statement, answer the following questions:
i. What does this statement of cash flow tell you about the
sources and uses of the company?
ii. Is there anything ABC Company can do to improve the cash flow?
iii. Can this project be financed with current cash flow from the company? Why or why not?
iv. If the company needs additional financing beyond what ABC Company can provide internally (either now or sometime throughout the life of the project), how would you suggest the company obtain the additional financing, equity or corporate debt, and why?
ii. Is there anything ABC Company can do to improve the cash flow?
iii. Can this project be financed with current cash flow from the company? Why or why not?
iv. If the company needs additional financing beyond what ABC Company can provide internally (either now or sometime throughout the life of the project), how would you suggest the company obtain the additional financing, equity or corporate debt, and why?
III. Product cost: ABC Company believes that it has an
additional 5,000 machine hours available in the current facility before it
would need to expand. ABC Company uses machine hours to allocate the fixed
factory overhead, and units sold to allocate the fixed sales expenses. ABC Company
expects that it will take twice as long to produce the expansion product as it
currently takes to produce its existing product.
a. What is the product cost for the expansion product?
b. By adding this new expansion product, it helps to absorb the fixed factory and sales expenses. How much cheaper does this expansion make the existing product?
c. Assuming ABC Company wants a 40% gross margin for the new product, what selling price should it set for the expansion product?
d. Assuming the same sales mix of these two products, what are the contribution margins and break-even points by product?
b. By adding this new expansion product, it helps to absorb the fixed factory and sales expenses. How much cheaper does this expansion make the existing product?
c. Assuming ABC Company wants a 40% gross margin for the new product, what selling price should it set for the expansion product?
d. Assuming the same sales mix of these two products, what are the contribution margins and break-even points by product?
IV. Potential investments to accelerate profit: ABC company has
the option to purchase additional equipment that will cost about $42,000, and
this new equipment will produce the following savings in factory overhead costs
over the next five years:
Year 1, $15,000
Year 2, $13,000
Year 3, $10,000
Year 4, $10,000
Year 5, $6,000
Year 2, $13,000
Year 3, $10,000
Year 4, $10,000
Year 5, $6,000
ABC Company uses the net-present-value method to analyze
investments and desires a minimum rate of return of 12% on the equipment.
a. What is the net present value of the proposed investment
ignore income taxes and depreciation?
b. Assuming a 5-year straight-line depreciation, how will this impact the factory’s fixed costs for each of the 5 years (and the implied product costs)? What about cash flow?
c. Considering the cash flow impact of the equipment as well as the time-value of money, would you recommend that ABC Company purchases the equipment? Why or why not?
b. Assuming a 5-year straight-line depreciation, how will this impact the factory’s fixed costs for each of the 5 years (and the implied product costs)? What about cash flow?
c. Considering the cash flow impact of the equipment as well as the time-value of money, would you recommend that ABC Company purchases the equipment? Why or why not?
V. Conclusion:
a. What are the major risk factors that you see in this project?
b. As the controller and a management accountant, what is your responsibility to this project?
c. What do you recommend the CEO do?
b. As the controller and a management accountant, what is your responsibility to this project?
c. What do you recommend the CEO do?
Writing the Final Paper
1. Must be six to eight double-spaced pages in
length, and formatted according to APA style as outlined in the Ashford Writing
Center.
2. Must include a title page with the following:
2. Must include a title page with the following:
a. Title of paper
b. Student’s name
c. Course name and number
d. Instructor’s name
e. Date submitted
b. Student’s name
c. Course name and number
d. Instructor’s name
e. Date submitted
3. Must begin with an introductory paragraph
that has a succinct thesis statement.
4. Must address the topic of the paper with critical thought.
5. Must end with a conclusion that reaffirms your thesis.
6. Must document all sources in APA style, as outlined in the Ashford Writing Center.
7. Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center.
4. Must address the topic of the paper with critical thought.
5. Must end with a conclusion that reaffirms your thesis.
6. Must document all sources in APA style, as outlined in the Ashford Writing Center.
7. Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center.
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