Question 1. Determining Under & Over applied overhead

Roller Industries uses a job-order costing system and applies overhead on the basis of direct labour hours. At the beginning of 2014, management estimated that 200,000 direct labour hours would be worked and $600,000 of overhead costs would be incurred.

During the year, the company actually worked 220,000 direct labour hours and incurred the following manufacturing costs:

Indirect labour Indirect materials Insurance Utilities

Repairs & maintenance Depreciation Directmaterialsusedinproduction Direct labour

Required:

$140,000 100,000 50,000 90,000 80,000 180,000 540,000 700,000

a) Calculate the budgeted factory overhead application rate for 2014. b) Determine the amount of manufacturing overhead applied to work in process during 2014. c) Determine the amount of underapplied or overapplied overhead for the year.

Question 2. Rent vs. Buy using Future Value Cash Flows

Assume that you were going to buy a house this year and you have saved a down payment of 25% of the purchase price. The purchase price of the house is $250,000, interest is 5% and amortizing it over 25 years, your monthly mortgage payment is $1,100 per month. Annual maintenance costs and property taxes total $5,000 per year. In 25 years the property will appreciate 2% per year. If you were to rent a similar property it would cost $2,000 per month. Annual rent increases are 1% per year. Investing the foregone down payment in the renting option would allow you to earn 5% on your initial investment.

Required:

a) Identify at least 5 cost drivers that you believe would impact and have to be considered in each of the buying and renting process.

b) Do an analysis and quantify whether you would be better off purchasing a house this year and selling the house in 25 years or renting for the duration.

c) Which choice would result in the your amassing the greatest amount of wealth and by how much

Question 3. Evaluating Capital Investment using Discounted Cash Flows

The West Company is considering a capital investment project that requires an investment of $37,910. The project is expected to have annual cash inflows of $10,000 occurring at the end of each of the next five years.

Required:

a) Determine the internal rate of return for the project.

b) Determine the net present value of the project using discount rates of: 8%, 10%, and 12%.

c) From your answers to part b. above, what are your observations about the effect the discount rate has upon the project's net present value?