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Accounting Information For Business Decisions 2nd Edition Billie Cunningham, Loren A. Nikolai, John Bazley, Marie Kavanagh, Geoff Slaughter, Sharelle Simmons - Solutions
This table provides a summary comparison of the financial performance of three businesses.Required:a Calculate the value added by each business.b Calculate the eco-efficiency ratios for water use for the three businesses.c Which business has the most efficient water use?d What other data would be
An electronics manufacturing business is designing a new range of digital radios. The business is environmentally aware and has found a way to recycle old analogue radios as well as their new digital radios. The business is undertaking a life cycle analysis (LCA) analysis of the radios to be
An automotive battery manufacturer has undertaken a life cycle analysis of its products. For every 750 batteries sold, enough materials are recycled to make 300 new batteries. In addition, the equivalent of another 300 batteries can be recycled into other automotive products. The remaining 150
The Whirlpool distillery is considering a redevelopment of their waste water treatment facilities. The distillery generates large amounts of waste water containing high levels of organic materials that make it unsuitable for discharge into local waterways without treatment. Currently the distillery
Solmere Capital is considering investing in an open-cut coal mine close to a regional town with a population of 1200 people. The mine will create up to 1500 new jobs in the region and will facilitate improved education, medical services and shopping facilities. Additional housing will be required
The local council has been approached to set up a new industrial precinct of the edge of a suburb. A number of proposals have been put forward for the use of the land and the community has been approached as part of the consultation period to provide input. One proposal is for a large industrial
What are relevant costs and relevant revenues?
Explain why past costs are irrelevant.
Since past costs are irrelevant in decision making, why do you think keeping past cost records can be helpful in the decision-making process?
Why should irrelevant costs and revenues be omitted from a decision analysis?
What is the difference between incremental costs and avoidable costs?
Under what circumstances is an avoidable manufacturing cost relevant in the make-or-buy decision?
Under what circumstances is an incremental manufacturing cost relevant in a make-or-buy decision?
In a decision to make a previously purchased part, think of two incremental costs that might not be avoidable if the decision is reversed a year later. Why would this happen?
Explain, by using an example, how a fixed cost can be an incremental cost.
Why might it be valuable to distinguish between relevant fixed costs and relevant variable costs for a short-term decision?
When are variable costs not relevant in a short-term decision?
Define an opportunity cost, and give an example of such a cost.
What is the decision rule for a make-or-buy decision?
Jenni Rennie, who is paid \(\$ 40\) per hour, is the only person trained in the latest technology critical in the production of self-flushing toilets. Each self-flushing toilet has a contribution margin of \(\$ 30\) and requires 15 minutes of processing time. Sales of self-flushing toilets are
Pete Pole has just discontinued its lowest line of high-quality clotheslines. In its inventory, Pete has 60000 lines that cost \(\$ 40\) per line to manufacture. At the current selling price of \(\$ 80\), it may take as long as eight years to sell the lines. A foreign buyer has just offered the
Float Boat ended its busy season with an inventory of 10000 plastic blow-up tubes that cost \(\$ 120000\) to manufacture. The business has two choices. One is that it can store the tubes for six months and sell them for \(\$ 8.00\) each the following year. Storage would cost \(\$ 6500\), and Float
On a chilly Saturday morning, Roy Parker bought 30 dozen doughnuts for \(\$ 72\), took 10 litres of hot coffee and went to a farm auction. He sold all the coffee and all but six dozen of the doughnuts before heading for home late in the afternoon. Knowing that he could not eat six dozen doughnuts
Electro Company produces small electrical engines. The manufacturing costs per unit to produce a small engine are given.Variable selling costs to obtain and fill orders normally average \(\$ 3.00\) per unit when Electro sells the engines to local customers. Recently, however, Electro paid \(\$
Simmons Skates produces several products that are sold by toy shops across the country. Production of one product, long-board skates, uses all available machine hours on machine 24B. The skate, which provides a contribution margin of \(\$ 4.80\) per unit, requires 0.10 machine hours per unit to
Armand Leggitt Company manufactures table legs and chair arms. It owns a lathe that it is not currently using. The lathe, which Armand Leggitt purchased nine years ago for \(\$ 40000\), has a current book value of \(\$ 4000\). Armand Leggitt can get \(\$ 4800\) for the lathe if it sells it
The Possum Transport Company produces bikes, skates and mopeds. Mopeds are not as popular as they used to be, and the company is considering dropping this product. Possum currently sells 10000 mopeds per year for \(\$ 40\) each. Variable manufacturing and selling costs total \(\$ 34\) per moped.
Buzz Telephone Company manufactures landline telephones. Buzz currently buys a connector for its phones for \(\$ 1.80\) per unit. Buzz's president asked for cost estimates for making this product and received this report.If Buzz makes the connector, production would take place in its machine shop.
Mane Street normally sells 3000 economy-size bottles of shampoo for \(\$ 10\) per bottle. The cost to manufacture the shampoo is \(\$ 5.00\) per bottle. Further variable processing costs of \(\$ 4.00\) per bottle for the shampoo would convert it into a shampoo-conditioner, which Mane Street could
During a recent 10-year period, the percentage of Australians who drank coffee was constant at 50 per cent. But the type of coffee that Australians purchased shifted during that time. Growing at a rate of 7-10 per cent per year, by the end of the 10 years the number of coffee drinkers who purchased
Show Time Company currently manufactures the hands it uses in the assembly of grandfather clocks. Cost estimates to make each set of hands follow.Required:a Prepare an analysis to answer each of the following independent questions.i Assume that all variable costs are avoidable and that the company
Woodchuck Manufacturing produces quality tools for woodworking. Woodchuck has been forced to increase prices by about 40 per cent over the last few years, mostly because of the increased costs of purchased components and other direct materials used in the manufacture of its products. Although
Sunnydays Pre-school has been in operation for about five years. The school has never had any trouble filling its limit: 36 children for the morning session, 36 different children for the afternoon session, and 18 children who stay all day and are served a hot lunch. Monthly fees are \(\$ 60\) for
Pringle Paper Products is considering converting some of its fine writing paper into fancy stationery. The company currently is able to sell all of the fine writing paper it can produce, but it believes that its profit might be improved by giving up some of its fine writing paper sales to produce
Music, Music, Music Company has just completed a study suggesting that sales of two of its products, sheet music and CDs, could be increased by spending more on advertising. The following table shows how many additional units of the two products could be sold if advertising for each is
What is a capital expenditure decision? Give three examples of capital expenditure opportunities.
When is a capital expenditure proposal acceptable to a business?
What four steps must a business complete to determine whether or not a capital expenditure proposal is acceptable?
What is the initial cost of a capital expenditure proposal? Give three examples of items included in the initial cost of purchasing a machine.
Identify three forms of expected net future cash receipts.
What are relevant cash flows? How are cash inflows and outflows that occurred prior to a capital expenditure decision included in relevant cash flows?
Briefly discuss how depreciation expense on a machine is treated in a capital expenditure analysis.
What is a business' cost of capital? How does it relate to the required rate of return on a capital expenditure?
What is an acceptable accounting rate of return on a capital expenditure proposal?
What is the relationship between present value and compound interest?
Explain how to calculate the present value of a future amount.
Explain how to calculate the present value of an annuity.
Define the net present value of a capital expenditure proposal. Identify what amount of net present value indicates an acceptable (unacceptable) proposal.
Define the term payback period. Why is the payback period a poor measure for determining whether a capital expenditure proposal is acceptable?
Briefly explain the advantages and disadvantages of the accounting rate of return and the payback period.
What are mutually exclusive capital expenditure proposals? Give an example.
Define the term capital rationing. Identify an investment approach that a business could use in a capital rationing situation.
These are four sets of cash flows:a A single \(\$ 1000\) cash inflow at the end of year 5 .b A series of \(\$ 2500\) cash inflows at the end of years \(1,2,3,4\) and 5 .c A cash inflow of \(\$ 360\) at the end of year 3 and a cash inflow of \(\$ 480\) at the end of year 5 .d A series of cash
These are four sets of cash flows:a A single \(\$ 450\) cash inflow at the end of year 6 .b A series of \(\$ 800\) cash inflows at the end of years \(1,2,3,4\) and 5 .c A cash inflow of \(\$ 55000\) at the end of year 3 and a cash inflow of \(\$ 650\) at the end of year 5 .d A series of cash
These are two independent questions.a The Danforth Business sells a new type of macadamia nut shelling machine that it claims will save a constant amount of labour costs at a particular business each year for 10 years. Danforth suggests that this savings would have a present value (at 16 per cent)
Tina Harper is considering investing \(\$ 7840\) in some farmland a group of her friends is planning to buy. Her share of the expected selling price of the land after five years would be \(\$ 13440\).Required:a Calculate the net present value of the land investment, assuming a 12 per cent required
The Simpson Business is considering buying a machine that would increase the business' cash receipts by \(\$ 3300\) per year for five years. Operation of the machine would increase the business' cash payments by \(\$ 150\) in each of the first two years, \(\$ 300\) in the third and fourth years,
Fernandez Radio Business, a distributor of radio towers and antennas, is considering buying the entire inventory of Southern Tower Business, which manufactures extremely large, heavy-duty towers, and which is going out of business. These towers would cost \(\$ 300000\) delivered to Fernandez 's
Rooney Business is considering purchasing a packaging machine for \(\$ 40000\) that will have a residual value of \(\$ 400\) after 10 years. It would be depreciated using the straight-line method. The machine would reduce labour costs in despatch by \(\$ 16000\) per year. Experience with such
Nelson Business is considering purchasing an overhead conveyor system for \(\$ 350000\) that will have a residual value of \(\$ 5250\) after eight years. This conveyor system would be depreciated on a straightline basis. The conveyor system would reduce labour costs in despatch by \(\$ 105000\) per
A business is considering the following three capital expenditure proposals:Proposal A - An investment of \(\$ 15000\) promising cash receipts of \(\$ 5400\) per year for five years.Proposal B - An investment of \(\$ 15000\) promising a single cash receipt of \(\$ 30000\) after five years.Proposal
A business is considering the following three capital expenditure proposals:Proposal A - An investment of \(\$ 24000\) promising cash receipts of \(\$ 5400\) per year for 20 years.Proposal B - An investment of \(\$ 24000\) promising a single cash receipt of \(\$ 390000\) after 20 years.Proposal C -
A business is considering the following investment proposals:a \(\$ 15000\) invested in a savings account that pays \(\$ 300\) (in cash) quarterly.b \$15000 invested in a delivery van, which would reduce delivery expenses so that cash payments are decreased by \(\$ 1500\) per year for 10 years.c
Refer to 12.23.Required:Calculate the payback period of Simpson Business for this machine.12.23The Simpson Business is considering buying a machine that would increase the business' cash receipts by \(\$ 3300\) per year for five years. Operation of the machine would increase the business' cash
Refer to 12.23.Required:Calculate the accounting rate of return for the machine being considered by Simpson Business.12.23The Simpson Business is considering buying a machine that would increase the business' cash receipts by \(\$ 3300\) per year for five years. Operation of the machine would
Infinite Ltd is considering two investment options. The first option involves an upgrade to an existing food processing facility and the second option building a new food processing facility. Infinite can only undertake one of the two options so is evaluating which option they should choose.
Cosmic Investments can accept either capital expenditure proposal A or B (but not both), or it can reject both proposals. Proposal A requires an investment of \(\$ 1400\) and promises increased net cash inflows of \(\$ 440\) for each of the next five years. Proposal B requires an investment of \(\$
The Anderson Business has identified the following capital expenditure proposals as acceptable.Only \(\$ 150000\) is available for investment.Required:Determine the combination of proposals to be selected. Investment proposal Requirod investment $30 000 60 000 30 000 90 000 30 000 60 000 A B C D E
The Merton Medical Business is considering replacing an old machine that cost the business \(\$ 100000\) five years ago. This machine could be used for 10 more years, at which time it would have no residual value. If it were sold now, net receipts from its disposal would be \(\$ 31250\). The old
Several years ago, Catherine's Cattery Business signed a contract to supply 5000 units of a special product each year to one of its customers at a price of \(\$ 15\) per unit. This contract, which runs for five more years, is non-cancellable.Catherine is currently producing the product with an old
Monica's Metal Fabrication Business has just been ordered by the court to install a pollutioncontrol device on the exhaust system of one of its production processes. The business' required rate of return is 20 per cent. Two devices are on the market.Device A costs \(\$ 45000\) and is expected to
Bruce Industries is considering introducing a new product. Bruce believes it can sell 32000 units of this product per year for 10 years at a price of \(\$ 18\) per unit. Bruce estimates that the cost of producing the product would be \(\$ 6\) per unit. Additional production costs of \(\$ 150000\)
The current dividend of a share in Osmium Company is \(\$ 6\) and investors require a rate of return of 9 per cent. Dividends are expected to grow at the following rate.Required:Calculate the price investors would be willing to pay for a share in Osmium Company. Year 1 2 3 Year 4 onwards Expected
The required rate of return for a share in Gamma Company is 12 per cent. The current dividend per share is \(\$ 7\) and dividends are expected to grow at the following rate.Required:Calculate the price investors would be willing to pay for a share in Gamma Company. Year 1 2 3 Year 4 onwards
Quick Coffee Shops, a chain of fast-food shops serving breakfast 24 hours a day, is considering opening a shop in Jonestown. The shop could be opened in one of two ways, either by building the shop between a west-side shopping centre and Jonestown's small university campus or by buying a vacant
Susan lives with her mother and is a secretary for a large architectural business. She earns \(\$ 27500\) per year. She dreams of being an architect, however. Salaries for new architects in her business start at \(\$ 44000\) per year. Susan has been accepted at several universities and believes she
Yesterday, Megan received a note from her father, who is now 47 years old, asking for advice in starting his plans for retirement. The relevant parts of that note are as follows:'. . and you know how much your mum and I like to travel. I was thinking that my pension from the business plus social
Frangipani Fragrances currently reimburses its 40 salespeople for the use of their personal cars for the business. Cassandra, business sales manager, has been trying without success to persuade the business to buy a number of cars to be used by her sales staff in the future. Cassandra's assistant
The following five situations (columns 1-5) are independent.Required:Calculate each of the unknown amounts, items (a) to (e). Ending balance in the business' cheque account Deposits made directly by the bank Deposits in transit Outstanding cheques Ending cash balance from bank statement 1 $ 200 700
An examination of the accounting records and the bank statement of the Evans Company at 31 March provides the following information:i The Cash account has a balance of \(\$ 6351.98\).ii The bank statement shows a bank balance of \(\$ 3941.83\).iii The 31 March cash receipts of \(\$ 3260.95\) were
You have been asked to help the Rancher Company prepare its bank reconciliation. You examine the business' accounting records and its bank statement at 31 May, and find the following information:i The Cash account has a balance of \(\$ 7753.24\).ii The bank statement shows a bank balance of \(\$
The Huron Company keeps a petty cash fund of \(\$ 80\). On 30 June the fund contained cash of \(\$ 36.87\) and these petty cash receipts:Required:a If the business' fiscal year ends 30 June should the petty cash fund be replenished on 30 June? Why?b How much cash is needed to replenish the petty
The Heat Be Gone business sells one type of air conditioner and uses the perpetual inventory system. At the beginning of January, the business had a balance in its Cash account of \(\$ 2100\) and an inventory of eight units (air conditioners) costing \(\$ 100\) each. During January, it made the
The Short Cut Lawn Mower Store sells one type of lawn mower at a price of \(\$ 200\) per unit. On 1 June, it had an \(\$ 800\) accounts receivable balance and a \(\$ 600\) accounts payable balance, as well as an inventory of ten mowers costing \(\$ 120\) each. During June, its purchases and sales
On 31 December the Big Hole Property Management Company had a balance of \(\$ 70\) in its petty cash fund, a reconciled balance of \(\$ 1283\) in its cheque account and a \(\$ 4627\) balance in its savings account.Required:Show how the business would report its cash on its 31 December balance sheet.
Bugs-Be-Gone sells two types of screen doors. Model A, which sells for \(\$ 30\), is the basic screen door and Model B, for \(\$ 50\), is the deluxe screen door. At the beginning of July, the business had a balance in its Cash account of \(\$ 1600\) and an inventory consisting of 12 units of Model
On 1 January, the balance in the Accounts Receivable Account for James Pty Ltd was \(\$ 4125\). During the next six months, credit sales amounted to \(\$ 13075\) and clients paid \(\$ 14560\) to settle their accounts after allowances for goods returned by clients of \(\$ 240\). At 30 June, James
Your friend, an avid sports fan, recently purchased a cricket bat from a catalogue. While he was filling out the order form, he noticed the warning, 'Don't send cash!' He asked you, 'Does it seem odd to you that a business wouldn't appreciate receiving cash? You're taking accounting. Don't they
Sam Lewis has been operating a 'full service' service station for several years. Although he occasionally has employed students part-time, he has collected the cash and cheques for petrol and repair work himself. He now has decided to open a second 'full service' service station and put himself
Your dad's friend Frank has a business, Frank's Franks, which is responsible for street-corner vending of sausages, pies and soft drinks. It's a small business with an office and four vending carts located in different areas of the city. When you asked Frank what kind of internal controls his
Your sister Ella works at a bar in an upmarket hotel located in a shopping centre that includes a bank. She often works the late shift and doesn't leave work until 1:00 or 1:30 a.m. One day, when you were having lunch with her, she began complaining about an aspect of her job: 'My boss is a real
The Anibonita Company is a retail shop with three sales departments. It also has a small accounting department, a purchasing department and a receiving department. All inventory is kept in the sales departments. When the inventory for a specific item is low, the manager of the sales department that
The JeBean Company makes sales only on credit. All JeBean's customers order through the post. The business has a small accounting department, a credit department, an inventory department and a despatch department. After approval of an order by the credit department, the merchandise is assembled in
Oliver Bauer, owner of Bauer's Retail Store, has been very careful to establish good internal control over inventory purchases for his shop. The shop has several employees, and since Ollie cannot devote as much time as he would like to running the shop, he has entrusted a long-term employee with
We mentioned that if Sweet Temptations came up short four boxes of chocolates, it should increase its Cost of Goods Sold account and decrease its Inventory account by the cost of those boxes. Suppose Anna wanted to keep a record of chocolate shortages in the accounting system.Required:Design a way
Suppose that one of your business' largest customers has written an NSF cheque for \(\$ 9734\) and your boss has just found out about it. This morning he comes flying into your office demanding to know how this NSF cheque will affect specific accounts in the business' financial statements. You
You are a consultant for several businesses. The following are independent situations you have discovered, each of which may or may not have one or more internal control weaknesses. The names of the businesses have been changed to protect the innocent.i In Business A, one employee is responsible
Write out the income statement equation, and explain its components.
Company X purchases inventory under terms FOB destination from Company Y, and the goods are still in transit. Which company includes the goods in its inventory? Why? How would your answers change if the purchase had been made under terms FOB shipping point?
Explain how managers use a business' income statement for decision making.
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