Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6648aa7857b26_2636648aa77d81d9.jpg)
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6648aa78e2209_2646648aa7880af8.jpg)
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6648aa797da35_2656648aa791ebdc.jpg)
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6648aa7a25070_2656648aa79b5d6a.jpg)
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6648aa7aa43a9_2666648aa7a57362.jpg)
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6648aa7b39016_2666648aa7acff71.jpg)
Transcribed Image Text:
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: 50,000 20x5 20x6 50,000 20x7 52,000 55,000 20x8 20x9 55,000 The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of $945,000 with terms of 2/10, n/30; the company's policy is to take all purchase discounts. The freight on the equipment would be $11,000, and installation costs would total $22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three- year property under MACRS. This equipment is expected to have a salvage value of $12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of $2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of $1,500. Rather than replace the equipment, one of Jonfran's production managers has suggested that the waste containers be purchased. One supplier has quoted a price of $27 per container. This price is $8 less than Jonfran's current manufacturing cost, which is as follows: Direct labor Variable overhead Fixed overhead: Supervision Facilities General Total unit cost $2 5 8 6 4 11 $35 Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at $45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 25 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. You must use the Exhibit 19B.1 and Exhibit 19B.2 present value tables and Exhibit 19.5 to solve the following problems. 1. Prepare a schedule of cash flows for the make alternative. Enter cash outflows as negative amounts and cash inflows as positive amounts. Round your answers to the nearest dollar when rounding is required. Jonfran Company Schedule of Cash Flows Item CF Year 20x4 Equipment -945,000 Discount 18,900 Freight -11,000 Installation -22,900 Salvage-old 1,500 X Working capital reduction 2,500 -956,600 X Total Year 20x5 Operating expenses -627,000 X Depreciation tax shield 127,987 X Total -499,013 X Year 20x6 Operating expenses -627,000 X Depreciation tax shield 170,688 X Depreciation tax shield Total 170,688 -456,312 X Year 20x7 Operating expenses -651,000 X Depreciation tax shield 56,870 X Total -594,130 X Year 20x8 Operating expenses -687,000 X Depreciation tax shield 28,454 X Total -658,546 X Year 20x9 Operating expenses -687,000 X Salvage-new 7,200 X Total -679,800 X Calculate the NPV of the make alternative. Round intermediate calculations and your final answer to the nearest dollar. If the NPV is negative, enter your answer as a negative value. -2,993,061 X 2. Prepare a schedule of cash flows for the buy alternative. Enter cash outflows as negative amounts and cash inflows as positive amounts. Jonfran Company Schedule of Cash Flows Item Year 20x4 Salvage-old CF 900 X Year 20x5 Purchase cost -810,000 X Year 20x6 Purchase cost: -810,000 X Year 20x7 Purchase cost: -842,400 X Year 20x8 Purchase cost: -891,000 X Year 20x9 Purchase cost: -891,000 X Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: 50,000 20x5 20x6 50,000 20x7 52,000 55,000 20x8 20x9 55,000 The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of $945,000 with terms of 2/10, n/30; the company's policy is to take all purchase discounts. The freight on the equipment would be $11,000, and installation costs would total $22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three- year property under MACRS. This equipment is expected to have a salvage value of $12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of $2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of $1,500. Rather than replace the equipment, one of Jonfran's production managers has suggested that the waste containers be purchased. One supplier has quoted a price of $27 per container. This price is $8 less than Jonfran's current manufacturing cost, which is as follows: Direct labor Variable overhead Fixed overhead: Supervision Facilities General Total unit cost $2 5 8 6 4 11 $35 Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at $45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 25 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. You must use the Exhibit 19B.1 and Exhibit 19B.2 present value tables and Exhibit 19.5 to solve the following problems. 1. Prepare a schedule of cash flows for the make alternative. Enter cash outflows as negative amounts and cash inflows as positive amounts. Round your answers to the nearest dollar when rounding is required. Jonfran Company Schedule of Cash Flows Item CF Year 20x4 Equipment -945,000 Discount 18,900 Freight -11,000 Installation -22,900 Salvage-old 1,500 X Working capital reduction 2,500 -956,600 X Total Year 20x5 Operating expenses -627,000 X Depreciation tax shield 127,987 X Total -499,013 X Year 20x6 Operating expenses -627,000 X Depreciation tax shield 170,688 X Depreciation tax shield Total 170,688 -456,312 X Year 20x7 Operating expenses -651,000 X Depreciation tax shield 56,870 X Total -594,130 X Year 20x8 Operating expenses -687,000 X Depreciation tax shield 28,454 X Total -658,546 X Year 20x9 Operating expenses -687,000 X Salvage-new 7,200 X Total -679,800 X Calculate the NPV of the make alternative. Round intermediate calculations and your final answer to the nearest dollar. If the NPV is negative, enter your answer as a negative value. -2,993,061 X 2. Prepare a schedule of cash flows for the buy alternative. Enter cash outflows as negative amounts and cash inflows as positive amounts. Jonfran Company Schedule of Cash Flows Item Year 20x4 Salvage-old CF 900 X Year 20x5 Purchase cost -810,000 X Year 20x6 Purchase cost: -810,000 X Year 20x7 Purchase cost: -842,400 X Year 20x8 Purchase cost: -891,000 X Year 20x9 Purchase cost: -891,000 X
Expert Answer:
Related Book For
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen
Posted Date:
Students also viewed these accounting questions
-
How can your knowledge of meat and meat cookery be used to understand protein substitutions for vegan dishes, such as tofu, texturized soy protein, grains, or beans?
-
Why are returns on the stock market used as a benchmark in measuring systematic risk?
-
Refer to Cornerstone Exercise 9.1. Guillermos Oil and Lube Company provided the following information for the production of oil changes during the month of June: Actual number of oil changes...
-
Do you believe that rules-based accounting leads to unethical managerial behavior? If so, why? Do you think that rules-based GAAP allows businesses to design their financial reporting so as to stay...
-
A four-cylinder, four-stroke, 2.2-L gasoline engine operates on the Otto cycle with a compression ratio of 10. The air is at 100 kPa and 60C at the beginning of the compression process, and the...
-
You have been given an opportunity to build your own hotel. As we all know, the success of a business is determined to a great degree, by its LOCATION. When deciding on a location for your hotel, you...
-
2 OMG Engineers is a consulting firm that provides design and support services for civil engineering projects. OMG is in the process of preparing a tender for a project involving the extension of the...
-
What is the yield to maturity of a corporate bond with 13 years to maturity, a coupon rate of 8% per year, a $1,000 par value, and a current market price of $1,250? Assume annual coupon payments.
-
14 Complete this question by entering your answers in the tabs below. 00:30:48 Required 1 Required 2 Prepare journal entries to record the following transactions for Sherman Systems. a. Purchased...
-
Lean manufacturing is concerned with eliminating waste in manufacturing processes. Benefits include: reduced lead times, improved quality, improved on-time deliveries, less inventory, reduced...
-
A firm's most recent dividend on common stock was $5.00, and the expected growth rate is 8.00%. If you require a rate of return of 15.00%, what is the highest price you should be willing to pay for...
-
A $1,000 par value bond has an 8% coupon rate (paid semiannually). It has 5 years remaining to maturity. If bond's current price $1, 179.65, what should be the YTM of this bond?
-
A company was analyzed for the bankruptcy. The analyst used Altman Z score model for analyzing the bankruptcy. After analyzing the financial statements, the company got a Z score of 2.5. What is the...
-
Derive Eq. (18.33) from Eq. (18.32).
-
Presented below are summary financial data from The Boeing Company 2015 annual report. Using the ratio definitions from Exhibit 4.6, calculate the following liquidity and solvency ratios: cash and...
-
Presented below are selected financial data from the Bristol-Myers Squibb 2015 annual report. Using the ratio definitions from Exhibit 4.6, calculate the following ratios: receivable turnover,...
-
Presented below are selected financial data from the The Coca-Cola Company 2015 annual report. Using the ratio definitions from Exhibit 4.6, calculate the following ratios: receivable turnover,...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App