The XYZ Corporation is contemplating the introduction of a new machine tool that will be used solely
Question:
The XYZ Corporation is contemplating the introduction of a new machine tool that will be used solely in the manufacture of a rotor shaft. 50,000 units per year are expected to be manufactured, and the time study group anticipates a standard of 2.5 hours per piece. The labor rate for the first year is expected to be 5.60 per hour. The present method takes 3.0 hours at the same rate. The new machine tool will cost $800,000 and will be depreciated on a straight-line basis over a period of 10 years with no residual value. $150,000 of special tools will be needed. It is expected that the useful life of the special tools will be 250,000 pieces. The benefit rate is 30 percent. Basing your judgment solely on the facts listed above, should the tool be purchased?
Required:
a. Describe the factors Cook should consider before applying substantive procedures to General’s balance sheet accounts at April 30, 2013.
b. For accounts tested on April 30, 2013, describe how Cook should design the substantive procedures covering the balances as of June 30, 2013, and the transactions of the final two months of the year.
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 978-0134475585
16th edition
Authors: Srikant M. Datar, Madhav V. Rajan