Kit Inc., a manufacturer of kitchen cabinets, sells cabinets for $16,000 per set. Kit is now...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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)
Expert Answer:
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:
Students also viewed these accounting questions
-
A body lotion 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...
-
Which database method would be most appropriate for ticket sales at thirty different outlets to an assigned seating concert? Why?
-
A five-year-old defender has a current market value of $4,000 and expected O&M costs of $3,000 this year, increasing by $1,500 per year. Future market values are expected to decline by $1,000 per...
-
Is the converse of the second part of Theorem 5.7 true? That is, if a function is one-to-one (and therefore has an inverse function), then must the function be strictly monotonic? If so, prove it. If...
-
Lance, Inc., manufactures, markets, and distributes a variety of snack foods. Product categories include sandwich crackers, cookies, restaurant crackers and bread basket items, candy, chips, meat...
-
A (not necessarily connected) graph without cycles is called a forest. Give typical examples of applications in which graphs occur that are forests or trees.
-
Why do we need different levels of testing? Cant we just test the finished software?
-
Explain why such forecasting devices as moving averages, weighted moving averages, and exponential smoothing are not well suited for data series that have trends.
-
The salesman at the lot of Smiles Pre-Owned Vehicles told the woman buying the car that it was in "mint condition." Is this an express warranty? Why or why not?
-
Alice has invented a new card game to play with Bob. Alice made a deck of cards with random values between 1 and 52. Bob picks 5 cards. Then, he has to rearrange the cards so that by utilizing the...
-
5. Write out an algorithm to find the insertion position from the last position in pseudo- code, based on binary tree structure. Public Position findInsertionPosition () { Position z; // insertion...
-
A very thin plane source (with thickness Ax but infinite in y and z directions) of monoenergetic particles emits 1/Ax particles/cm-s isotropically per unit volume. a. What is the angular distribution...
-
KANE CO. INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019 AND THE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 AND 2019 WERE: Sale Ghe000 Ghe000 720 Raw materials consumed 70 Staff...
-
Use the following information for Questions 6-10. Sales COGS Income Statement 2012 2013 2014 675,000 650,000 600,000 330,000 370,000 375,000 345,000 280,000 225,000 165,000 175,000 180,000 Gross...
-
If you and your attorney wanted to get information from Boom Bay about the accident, what step in the process can you request information? What types of requests can you make?
-
Rover plc's Income Statement for the year ended 31 December 2020 and the Statements of Financial Position as at 31 December 2019 and 2020 are as follows: Income Statement for the year ended 31st...
-
Your company's share have a price equal to $140. At the end of the year the company will pay all the cash produced in the form of dividend of $20 per share. You have 5000 shares outstanding and your...
-
You continue to work in the corporate office for a nationwide convenience store franchise that operates nearly 10,000 stores. The per- store daily customer count (i.e., the mean number of customers...
-
Digital Controls, Inc. (DCI), manufactures two models of a radar gun used by police to monitor the speed of automobiles. Model A has an accuracy of plus or minus 1 mile per hour, whereas the smaller...
-
The Porsche Club of America sponsors driver education events that provide high-performance driving instruction on actual race tracks. Because safety is a primary consideration at such events, many...
-
The purpose of this exercise is to learn how to calculate stock returns for portfolio models using actual stock price data. Ten years worth of stock price data are included in the file StockReturns...
-
Online purchases are commonly governed by a sales contract between the online merchant and the consumer in the terms of use found as a link on the sellers home page. Often, purchasers are informed...
-
Zapata, a Texas company, entered into a contract for Unterweser, a German company, to tow an oil-drilling rig from Louisiana to Italy. The contract stated, Any dispute arising must be treated before...
-
Aangi sends Anil a purchase order stating that only her terms apply and that in the event of a dispute between the parties in connection with the transaction, the dispute will be submitted to...
Study smarter with the SolutionInn App