ACCT 550 Week 7 Homework Chapter 11: E11-4, E11-9, E11-11, E11-17 E11-4 (Depreciation Computations—Five Methods) Wenner Furnace Corp. purchased machinery for $279,000 on May 1, 2012. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2013, Wenner Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units. Instructions From the information given, compute the depreciation charge for 2013 under each of the following methods. (Round to the nearest dollar.)
DSO = Receivables / Ave. sales per day Receivables= DSO * Ave. sales per day = 20 * 20,000 Receivables= $400,000 (3-2) Debt Ratio: Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Debt ratio = 1 – (1 / Equity multiplier) Debt ratio = 1 – (1/2.5) = 1 - .40 = .60 Debt ratio = 60% (3-3) Market/Book Ratio: Winston Washers’s stock price is $75 per share. Winston has $10 billion in total assets.
Q= 4 weeks supply = 1600 units R= 400 units a week= 20000 units/ year C= purchase cost per unit= $1250 X (1-.20)= 1,000 H= holding cost= rC= $200 per unit / year S= setup cost= 2000 + 93.75 = $2,093.75 Setups per year= R/Q= 20000/1600= 12.5 Annual setup cost= (R/Q)(S)=12.5X $2,093.75= $26,172 Annual Holding cost= (q/2)(H)= (1600 /2)X $200= $160,000 Total Annual Cost= Annual Setup Cost+ Annual Holding Cost Total Annual Cost= 26,172+160,000 BIM’S Total Annual Cost= $186,172 (b) Compute the economic batch size and the resulting cost savings. Qo= √2RS/H= √(2(20000)(2093.75)/200) = 647 Economic Batch size= 647 Annnual setup cost= (R/Q)(S)= (20000/647) X 2093.75= $64,722 Annual Holding Cost= (Q/2)H= (647/2)X $200= 64,700 Total Annual Cost= Annual setup cost+ Annual Holding Cost Total Annual Cost= $64,722+ $64,700 = $129,422 Cost savings= $186,172- $129,422= $56,750 Cost savings= $56,750 Question 3 (a) Compute Victor’s total annual cost of ordering and carrying inventory. Assumption= 52 weeks/year R = 30 dresses per week = 30 X 52 weeks per year = $1560 Sales price = $300/dress C = 150 per dress Order Lead Time = 2 weeks Fixed Order Cost = S = $225 Cost of Capital = r = 20% Annual Holding cost = H = rC = 150 X 20% = $30 per dress Q = 10 week supply X $30 Annual
$15,300C.$18,700D $23,700E. $35,500 | 3 | b | Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent. Sales are $15,900 and depreciation is $680.
Exercise 3-13. Costing Units Completed and Ending Work in Process: [LO 2,3,4] At the start of November, Penco Refinery had Work in Process inventory consisting of 4,000 units that were 90 percent complete with respect to materials and 50 percent complete with respect to conversion costs. The cost of the units was $43,000 ($30,000 of material cost and $13,000 of labor and overhead). During November, the company started 44,000 units and incurred $421,990 of material cost and $394,880 of labor and overhead. The company completed 45,000 units during the month, and 3,000 units were in process at the end of November.
Ans: DSO (Days Sales Outstanding) = Accounts Receivables/Average Sales per day Accounts Receivables = 20 * 20000 = $400,000 (3-2) Debt Ratio Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debtratio? Ans: Equity Multiplier = 2.5 Therefore Equity Ratio = 1/EM Equity Ratio = 1/2.5 = 0.40 Debt Ratio + Equity Ratio = 1 Therefore Debt Ratio = 1 - Equity Ratio = 1 - 0.40 = 0.60 = 60% (3-3) Market/Book Ratio Winston Washers’s stock price is $75 per share. Winston has $10 billion in total assets.
$ | | Beginning inventory(jan1, year1) | 3,000,000 | 0.215 | 645,000 | | Purchases(year 2) | 7,250,000 | 0.175 | 1,268,750 | | Ending inventory(4qt,year2) | (4,250,000) | 0.16 | (680,000) | | Cost of goods sold | 6,000,000 | | 1,233,750 | | | | | | | 1-2-. Equipment | | | PLN | USD/PLN | U.S. $ | | Old Equipment - at January 1, Year 1 | 10,000,000 | 0.25 | 2,500,000 | | New Equipment-acquired January 3, Year 2 | 2,500,000 | 0.18 | 450,000 | | Total | 12,500,000 | | 2,950,000 | | | | | | | Acc. Depreciation -Old Equipment | 4,000,000 | 0.25 | 1,000,000 | | Acc. Depreciation -New Equipment | 250,000 | 0.18 | 45,000 | | Total | 4,250,000 | | 1,045,000 | | | | | | | Depreciation Expense - Old Equip. | 1,000,000 | 0.25 | 250,000 | | Depreciation Expense - New Equip.
APV vs. WACC Problem Given the following information, answer questions 1 and 2 below. Company and market data: Rf = 4% Rm = 10% βu = 0.9 D/V (target) = 40% RD = 4% Tc = 30% Project CFs: I0 = 1000, CF1 = 300, CF2 = 400, CF3 = 500 1) Calculate the project’s value using WACC 2) Calculate the project’s value using APV -Oops, we can’t until we know the financing (debt) pattern over time. (a) OK, assume the project is financed with 60% debt which is paid off in three equal, annual installments. (b) Now assume instead of (a) that the debt is rebalanced to be consistent with the firm’s target debt ratio (i.e. D/V = 40%).
Cost and Revenue A manufacturer sells a product at $8.35 per unit, selling all produced. The fixed cost is $2116 and the variable cost is $7.20 per unit. At what level of production will a) there be a profit of $4600? b) there be a loss of $1150? c) the break even point occur?
What would be the impact on monthly sales cost, and income? Regular Selling Price Impact: Price $4,350 Quantity $3,000 Revenue $13,050,000 Variable Manufacturing Costs ($5,385,000) Variable Marketing Costs ($825,000) Contribution Margin $6,840,000 *Fixed Manufacturing Costs ($1,980,000) *Fixed Marketing Costs ($2,310,000) Income $2,550,000 Using the regular selling price Income = Revenues – Total costs = $13,050,000 - $10,500,000 = $2,550,000 * Continue to the next page New Selling Price Impact: Price $3,850 Quantity $3,500 Revenue $13,475,000 Variable Manufacturing Costs ($6,282,500) Variable Marketing Costs ($962,500) Contribution Margin $6,230,000 Fixed Manufacturing Costs ($1,980,000) Fixed Marketing Costs ($2,310,000) Income $1,940,000 2) After price reduction, income = $13,475,000 - $11,535,000 =