Kit Inc., a manufacturer of kitchen cabinets, sells cabinets for $16,000 per set. Kit is now...
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Kit Inc., a manufacturer of kitchen cabinets, sells cabinets for $16,000 per set. Kit is now considering developing a new set of cabinets for a condominium project. The estimated costs are $12,000 per set. The contractor of the condominium is willing to buy 200 sets at a maximum price of $15,000 per set. Required: a.. b. C. d. If the new sets of cabinets were actually in the manufacturing cycle rather than in the research, development, and engineering (RD&E) cycle, which approach of product costing would be most appropriate? Explain. (3 marks) Problem 3 (15 marks) A worldwide cosmetics company can upgrade the quality of one of its products by purchasing new equipment at a cost of $155,000. The new equipment would replace old equipment that has a current market value of $23,000. The new equipment has an expected life of 12 years. Its salvage value is estimated at $30,000. Calculate the profit margin percentage at the current selling price. (5 marks) Calculate the target cost for the new cabinets, considering the profit margin percentage found in part (a). (3 marks) Compare the estimated costs and target costs. What should Kit do if the target costs are less than the estimated costs? (4 marks) By upgrading the quality of this product, the company would be able to increase the sale price. As a result, the operating income before tax will increase by $20,000 per year for the first 3 years, and by an additional $5,000 per year during the last 9 years. a. The company's tax rate is 40% and its cost of capital after tax is 15%. The capital cost allowance for the new equipment is 20%. Required: b. Compute the net present value (NPV) for the investment and state whether the company should proceed with the investment. (10 marks) Determine the internal rate of return (IRR) for this investment. (5 marks) Kit Inc., a manufacturer of kitchen cabinets, sells cabinets for $16,000 per set. Kit is now considering developing a new set of cabinets for a condominium project. The estimated costs are $12,000 per set. The contractor of the condominium is willing to buy 200 sets at a maximum price of $15,000 per set. Required: a.. b. C. d. If the new sets of cabinets were actually in the manufacturing cycle rather than in the research, development, and engineering (RD&E) cycle, which approach of product costing would be most appropriate? Explain. (3 marks) Problem 3 (15 marks) A worldwide cosmetics company can upgrade the quality of one of its products by purchasing new equipment at a cost of $155,000. The new equipment would replace old equipment that has a current market value of $23,000. The new equipment has an expected life of 12 years. Its salvage value is estimated at $30,000. Calculate the profit margin percentage at the current selling price. (5 marks) Calculate the target cost for the new cabinets, considering the profit margin percentage found in part (a). (3 marks) Compare the estimated costs and target costs. What should Kit do if the target costs are less than the estimated costs? (4 marks) By upgrading the quality of this product, the company would be able to increase the sale price. As a result, the operating income before tax will increase by $20,000 per year for the first 3 years, and by an additional $5,000 per year during the last 9 years. a. The company's tax rate is 40% and its cost of capital after tax is 15%. The capital cost allowance for the new equipment is 20%. Required: b. Compute the net present value (NPV) for the investment and state whether the company should proceed with the investment. (10 marks) Determine the internal rate of return (IRR) for this investment. (5 marks)
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Answer rating: 100% (QA)
a To calculate the profit margin percentage at the current selling price we use the formula text Pro... View the full answer
Related Book For
An Introduction to Management Science Quantitative Approaches to Decision Making
ISBN: 978-1111823610
14th edition
Authors: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Posted Date:
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