Managerial Accounting Information For Decisions 4th Edition Thomas L. Albright , Robert W. Ingram, John S. Hill - Solutions

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Obsolete laventory. The Lantern Corporation has 1800 ebsolete lanterns in inventory that had a manufacturing cost of $20,000. If the lanterns are remachined at a cost of $5,000. they can be sold for $9,000. If they are scrapped, they can be sold for $1,000. Which alternative is more desirable, and
Define capital project and capital budgeting.
How does capital budgeting help management to select capital projects for approval?
What is the effect of qualitative factors on capital budgeting?
Describe the advantages and disadvantages of the payback method.
Since the unadjusted rate of return method measures profitability, why is it not considered one of the better capital budgeting techniques?
Drole Company has used the unadjusted rate of return method in evaluating capital projects for several years. In the past, the firm used the initial investment to determine the rate of return. Recently, the president has stated that, in the future, all divisions will use the average investment
What is meant by the statement. "Money has value in relation to time? How does the statement affect capital budgeting?
Would you rather receive $2.000 per year for three years or $3.000 per year for two years? Does it make any difference? Explain. (Appendix) (Note: Do not use present value tables to answer the question.)
When the net present value method is used, a project with a negative net present value should be rejected. Do you agree? Explain.
Three projects under evaluation have net present values of $1,200, $5,000, and $25,000. Which project is best? Explair
How does the time-adjusted rate of return method differ from the unadjusted rate of return method and from the net present value method? Which technique is best? Why?
A salesperson, when questioned about the apparently high maintenance cost of a machine that he was selling, replied. "Don't worry about it. It's deductible." What did he mean by that? Do you agree that one should not worry about high costs if they are deductible? Explain
If reducing expenses increases taxes, how can it be an advantage?
Since depreciation does not involve a cash flow, why is it considered in capital budgeting
For tax purposes, accelerated depreciation under MACRS generally is considered more favorable than the optional straight-line method. Why do you think this is so?
Under what circumstances might a firm prefer to use the straight-line method of depreciation rather than accelerated depreciation for tax purposes?
Payback Method. Determine the payback period in each of the following situations: incremental Nor Cash allows $4,000 $1,500b. 8,000 2,500 12,000 2,000d. 40,000 7.000
125,000 28,000
Payback Method; Uneven Cash Flows. Determine the payback period in the situations shown below. Incremental investment was: (a) $35.000, (b) $60,000, and (c) $180,000. Annual net cash inflows were as follows: Year 1 510.000 $30,000 $60,000 2 8.000 20.000 50.000 3 6.000 15,000 50.000 4 6,000 15.000
Payback Method: Unadjusted Rate of Return. Barney Company may purchase a new machine a a cost of $30,000. Its expected life is five years, with no salvage value. Operating costs will be reduced by $10,000 per year. Determine the followinga. Payback period.b. Unadjusted rate of return, based on the
Payback Method: Unadjusted Rate of Return. Plastics, Inc., is considering the purchase of a $40.000 machine, which will be depreciated on a straight-line basis over an eight-year period, with no salvage value. The machine is expected to generate net cash income of $12,000 per year. Determine the
Net Present Value: Profitability Index. Determine the net present value and the profitability index in each of the following situations. Investment Annual net cash inflows Salvage value lat end of new asset lite Asset lile (in years) Cost of capital $50,000 $80.000 $ 8,500 $15,000 $160.000 $ 50.000
Net Present Value: Profitability Index: Tax Effect. Determine the net prevent value in each situation below. Assume a 40 percent income tax rate: round straight-line rutes to the nearest percent. Investment $5,000 $20,000 $100.000 Annual net cash inflows $1.500 $5,000 $25.000 Salvage value (at end
Present Value of After-Tax Cash Flows; Independent Situations. Determine the present value of the after-tax cash flows in each of the situations below. The tax rate is 40 percent in all cases. Use parentheses to indicate when your answer is a cash outflow.a. $6,000 loss on disposal of an asset sold
Net Present Value: Time-Adjusted Rate of Return; Independent Situations. Determine the net present value and the time-adjusted rate of return in each situation below. (Note: Estimate the rate of return to the nearest percent.) Nel Cash Project Life Cost Infows Investment (Years) Captaa. $6,000
Time-Adjusted Rate of Return. Yamamoto Corporation will invest in the project below that provides the highest time-adjusted rate of return, provided it exceeds the firm's cost of capital of 10 percent. Annual Cost Project Life Proje! Sanngs Investor (Years) $8,000 $32,000 B 3.500 12.000 8 5.000
Net Present Value: Tax Effect. D.R. Williams Sales Company would like to hire another salesperson in order to expand sales. Estimates show that the addition of one person could result in increased sales of $80,000 per year. for three years on which the firm averages a 40 percent contribution
Time-Adjusted Rate of Return: Ethics. In preparing capital budgeting analysis to purchase new equipment for his department, Jim Atkins calculates that the time-adjusted rate of return will be 18 percent, well above the company's cost of capital of 10 percent. He believes the figures he used and the
Purchase of Computers. BCB Company plans to buy ten new computers at a cost of $2,000 each. The old computers can be disposed of for a total of 5500 for all of them. The new computers are expected to last five years, with no salvage value at the end of that time. Because the new computers will
Purchase of Machine Yahoo Corporation is considering the purchase of a new machine. Two alternatives are available. Machine A costs $30,000 and would reduce operating costs by $8.000 per year. Its salvage value is $3,000. Machine B costs $40,000, would reduce operating costs by $12.000 per year,
Purchase of Machine. Blue Ridge Spring Water Company sells clear, clean, bottled spring water to both business and residential customers. The current demand for the product exceeds the firm's ability to bottle the water in sufficient quantities to meet the demand. New equipment that would speed up
Alternative Projects. Bell Company is considering two alternative projects. Project A requires a $40,000 investment and would provide annual net cash inflows of $12,000 per year. Project B requires a $70,000 investment and would provide annual net cash inflows of $18,000 per year. Each project has
Single Project: Tax Effect. Mama Miya Pizza Company is considering investing in a project at acost uf S80,000. The project is expected to provide annual incremental cash inflows of $30,000 per year for the next eight years, with no salvage value at the end of that time. The project would use the
How is probability theory helpful in management decision-making?
Define conditional value and expected value. Describe the difference between the two terms.
A firm has an investment opportunity with conditional values of annual profits for three possible events of $30,000, $50,000, and $80,000. By applying the expected probabilities to each event, it has arrived at total expected value of $65,000 if it decides on this investment. Since the actual
What is meant by the value of perfect information? How is it helpful in management decision- making?
How can profitability theory be applied to capital budgeting?
In what type of situations is linear programming normaily used?
Since linear programming is a mathematical technique, why should a manager be familiar with its use?
Why must the optimal solution to a linear programming problem always he at a corner?
How does a stockout affect profitability?
EOQ calculation includes elements that, as a practical matter, are difficult to determine with the precision implied in the calculation. Carrying cost per unit is an example. Therefore, how is EOQ calculation helpful to management?
Expected value. Wistful Company is considering a project that will result in possible annual net cash inflows as follows Not Cash Probability $15,000 05 30.000 25 50,000 40 70.000 30 Determine the expected value of this project.
Expected Value. Benny Company anticipates introducing a new product. The annual profits that it might eam, along with the probabilities are as follows: Probability ($25,000 5.000 .10 10,000 25.000 40.000 50,000 25.000 05 28828 10 30 20 15 20a. Calculate the expected value of this product.b. Assume
Expected Value Allison Corporation has plans for a new product, with the fallowing possible profit- and their probabilities: Prost Probsty ($20.000 15 20.000 30 50.000 80.000 40 15 The reason for the possible loss is that product sales depend on the national economy, so that in economic downturns,
Expected Value. Thoran Electronics Company began to produce pacemakers last year. At that time. the company forecast the need for 10.000 integrated circuits per year. During the first year, the company placed orders when the inventory dropped to 600 units, so that it would have enough to produce
Linear Programming: Raw Materials Constraint. A to Z Manufacturing Company manufactures two products: Bee and Cee. Each unit of Bee requires two units of raw material Jay and four units of raw material Kay. Each unit of Cee requires three units of raw material Jay and two units of raw material Kay.
Linear Programming: Machine-Hour Constraint. Combo Company produces two products: Algon and Grine, which provide contribution margins of $5 and $8 per unit, respectively. Each product goes through two processing departments. Each unit of Algon requires 50 machine hour in Department I and 40 machine
Linear Programming: Minimizing Materials Cost. Beauty Company produces a cosmetic product in 60-gallon batches. The basic ingredients used are Material X, costing $7 per gallon, and Material Y. costing $17 per gallon. No more than eighteen gallons of X can be used, and at least fifteen gallons of Y
Linear Programming: Machine-Hour Constraint. Milligan Company manufactures two models Small and Large. The models are processed as follows: Machining Department Polishing Department Smal Large 2 hours 4 hours 1 hour 3 hours The time available for processing the two models is 100 hours per week in
Determining EOQ by Formula. Rainey Company uses 10,000 units of X-lon per year at a purchase price of $30 per unit. The order cost is 515 per order, and inventory carrying cost is $3 per unit.a. Use the formula to calculate the economic order quantity.b. How many times per year must an order be
Determining Optimum Lot Size by Formula. Kelley Corporation expects to manufacture 100.000 units next year. Its setup costs are $3,000 per production run, and inventory carrying costs average $15 per unit.a. Use the EOQ formula to determine optimum lot size.b. Calculate the number of production
Determining EOQ by Formula. Brady Sporting Goods, Incorporated, buys baseballs at $20 per diven from its wholesaler. Brady will sell 36,000 haschalls evenly throughout the year. Bradly desires a 10 percent return on its inventory investment. In addition, rent, insurance, and taxes for baseballs per
Reorder Point. Belmont Corporation has determined FAQ on one of its major products to be 2.500 units. It uses forty units per day and has established a safety stock of 200 units. The lead time is three days. Determine the reorder point.
Determining EOQ by Formula: Safety Stock: Reorder Point. Brandun Company uses 24,000 units of Part 67K annually. In the past, it has ordered 2.000 units per month. Now, however, the inventory manager wonders whether this is the most economical thing to do. Order costs are $60 per order and carrying
Safety Stock: Reorder Point. The following information relates to Eagle Company's Material A Annual usage on units) Working days (per year) Normal lead time working days) Maximum lead time (in working days) 7,200 240 20 45 Assuming that the units of Material A will be required evenly throughout the
Estimating Annual L'sage. Garmar, Inc., has determined the following data for a given year: Economic order quantity Estandard order size) Total cost to place purchase orders for the year. Cost to place one purchase order Cast to carry ene unit for one year What is Garmar's estimated annual usage in
Define managerial accounting.
If there are no official "rules" for managerial accounting, as there are for financial accounting, how can managerial accounting be studied systematically?
Describe differences between managerial accounting and financial accounting.
In what ways are financial accounting and managerial accounting similar?
Why is managerial accounting important for profit-oriented organizations?
Since not-for-profit organizations, by definition, are not concerned with making profits, why should they use managerial accounting concepts?
What is the difference between authority and responsibility?
How is responsibility accounting related to managerial accounting?
List the three levels of management.
What is the difference between line and staff?
How does the management function of planning differ from that of controlling?
Where does decision-making fit into the functions of management?
What is the primary feature that distinguishes a centralized firm from a decentralized firm?
What is a segment? How does it relate to managerial accounting?
Since managerial accounting is concerned with management decision-making, and since controllers perform a staff function, why is their role important in managerial accounting?
What is the relationship between the CPA certificate and the CMA certificate?
What are some of the types of decisions that are made with the help of managerial accounting?
Why shouldn't a manager be given responsibility without authority?
Since a line manager, rather than an accountant, is typically the one who makes the final decision. how is the management accountant affected by ethical considerations?
Assume that the controller for Southern Food Stores' operations in Louisiana (Exhibit I-1) notes that the inventory ratios for the stores in New Orleans are significantly more favorable than those of the other stores in Louisiana. Upon investigation, she learns that the Area Operations Manager for
Joan Tyler started a small manufacturing company, JT Enterprises, at the beginning of 2005 . Joan has prepared the following income statement for the first quarter of operations.The variable cost of goods sold includes the costs of direct materials, direct labor, and variable manufacturing
Write a short definition of each of the terms listed in the Terms and Concepts Defined in this Chapter section.
Audrey buys a new tanning bed for her salon. The tanning bed costs $\$ 6,000$. The tanning bed generates cash flows of $\$ 2,500$ the first year, $\$ 3,500$ the second year, and $\$ 5,000$ the third year. What is the payback period?
Alison Mayer, owner of a sports complex, is considering adding a climbing wall. The climbing wall costs $\$ 30,000$. Alison estimates the climbing wall will generate cash flows of $\$ 8,000$ the first, year, $\$ 10,000$ the second year, and $\$ 12,000$ the third year. What is the payback
Shannon bought an ice cream truck for $\$ 20,000$. Her net income was $\$ 3,500$ the first year, $2 \$ 5,000$ the second year, and $\$ 6,500$ the third year of business. Calculate the accounting rate of return.
Stephanie bought a stereo system for her DJ service for $\$ 4,000$. Her net income was $\$ 500$ the first year, $\$ 900$ the second year, and $\$ 1,000$ the third year of business. Calculate the accounting rate of return.
Gerrish Corporation bought a new machine for $\$ 50,000$. The net income from this machine is $\$ 8,000$ in year 1 and $\$ 10,000$ in year 2. In order to obtain an accounting rate of return of $20 \%$, what would Gerrish have to make in the third and final year of this machine's life?
Kelly Sloan, purchasing manager at an Internet service provider, bought a new server for \$ 4,000\). The net income from this machine is $\$ 700$ in year 1 and $\$ 900$ in year 2. In order to obtain an accounting rate of return of $25 \%$, what will they have to make in the third and final
Amy Sims runs an advertisement firm. She estimates that a $\$ 7,000$ high-resolution printer will result in increased cash inflows of $\$ 2,000$ in year $1, \$ 4,000$ in year 2 , and $\$ 4,500$ in year 3 . Amy's cost of capital is $10 \%$. Calculate the net present value. What is the
Ryan, owner of a furniture business, currently leases a small building for $\$ 20,000$ per year. He is considering leasing a large store for his furniture business. He estimates the new store will result in increased net cash inflows (inflows - outflows) of $\$ 10,000$ in year $1, \$ 12,000$
Bill, owner of a video arcade, is considering buying a new game. The game would cost $\$ 5,000$. He estimates the new game will result in increased cash inflows of $\$ 2,000$ in year $1, \$ 2,000$ in year 2 , and $\$ 2,000$ in year 3. Calculate the internal rate of return.
Mike Gallager, owner of a bowling alley, is considering buying a new pool table. The pool table would cost $\$ 3,000$. He estimates the pool table will result in increased cash inflows of $\$ 750$ per year for five years. Calculate the internal rate of return.
Geory, general manager at a water park, installed a new waterslide with an estimated use-ful life of 10 years. The waterslide will generate cash inflows of $\$ 10,000$ each year over the next 10 years. The waterslide has no salvage value at the end of 10 years, and the company's discount rate is
Henry, manager of a widget factory, bought a new machine with an estimated useful life of five years. The machine will generate cash inflows of $\$ 12,000$ each year over the next five years. The machine has no salvage value at the end of five years, and the company's discount rate is $10 \%$.
Briggs Corporation, a lawn mowing service, bought a new commercial lawn mower. The mower costs $\$ 12,000$ and is expected to have a service life of five years. At the end of five years, the lawn mower can be sold for $\$ 2,000$. Briggs has a $30 \%$ tax rate. What is the annual depreciation
Fix-It-Yourself, a rental equipment store, bought a jackhammer. The jackhammer costs $\$ 8,000$ oand is expected to have a service life of six years. At the end of six years, the jackhammer can be sold for $\$ 2,000$. Fix-It-Yourself has a $30 \%$ tax rate. What is the annual depreciation
Matt invested $\$ 100,000$ to open Steakhouse. He withdrew $\$ 10,000$ at the end of each year for three years. At the end of the third year, Matt sold the restaurant for $\$ 120,000$ cash. His discount rate is $15 \%$. What is the net present value of Matt's investment? What is the
Elizabeth Ann invested $\$ 80,000$ to start a business at the beginning of 2004 . She withdrew \$ 5,000\) at the end of each year for three years. At the end of the third year, Elizabeth sold the business for $\$ 100,000$ cash. Her discount rate is $10 \%$. What is the net present value of
The Wild Side Bowling Alley is planning to invest in pinball machines and pool tables for use by its patrons. The equipment will cost $\$ 3,896$ to acquire and will have an estimated service life of seven years with a $\$ 100$ residual value. Based on estimates by the owner, the tables and
John's Arcade is planning on purchasing a virtual reality simulator for $\$ 210,000$. The simulator's estimated service life is seven years with a residual value of $\$ 25,000$. The simulator is expected to bring in $\$ 40,000$ per year after expenses. Compute the internal rate of return on
Alice owns a tow truck company. She is considering buying a new tow truck for $\$ 55,000$. The service life of the truck is five years. At the end of the five years, Alice estimates she can sell the truck for $\$ 5,000$. She estimates her revenues from the truck will be $\$ 15,000$ per year.

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Managerial Accounting Information For Decisions 4th Edition Thomas L. Albright , Robert W. Ingram, John S. Hill - Solutions

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