Multiple Accounting Problems

1.value:
1.00 points 
Santos Company currently manufactures one of its crucial parts at a cost of $3.20 per unit. This cost is based on a normal production rate of 70,000 units per year. Variable costs are $1.70 per unit, fixed costs related to making this part are $70,000 per year, and allocated fixed costs are $35,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $2.90 per unit guaranteed for a three-year period.

Calculate the total incremental cost of making 70,000 units. (Omit the "$" sign in your response.)

Total incremental cost $ 

Calculate the total incremental cost of buying 70,000 units. (Omit the "$" sign in your response.)

Total incremental cost $ 

Should the company continue to manufacture the part, or should it buy the part from the outside supplier?

Make
Buy

2.value:
1.00 points 
Cantrell Company has already manufactured 23,000 units of Product A at a cost of $25 per unit. The 23,000 units can be sold at this stage for $560,000. Alternatively, the units can be further processed at a $440,000 total additional cost and be converted into 4,700 units of Product B and 7,700 units of Product C. Per unit selling price for Product B is $73 and for Product C is $57.

1.
Calculate the Incremental Net Income (or loss) if processed further. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Incremental net income (or loss) $ 


2.
Indicate whether the 23,000 units of Product A should be processed further or not.


Process further
Sell without further processing

3.value:
2.00 points 
Elite Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $498,000 cost with an expected four-year life and a $16,400 salvage value. All sales are for cash, and all costs are out of pocket except for depreciation on the new machine. Additional information includes the following. (Use Table B.1)


Expected annual sales of new product $ 1,870,000
Expected annual costs of new product
Direct materials 475,000
Direct labor 675,000
Overhead excluding straight-line depreciation on new machine 338,000
Selling and administrative expenses 163,000
Income taxes 38 %

Required:
1.
Compute straight-line depreciation for each year of this new machine’s life. (Omit the "$" sign in your response.)

Straight-line depreciation $ 

2.
Determine expected net income and net cash flow for each year of this machine’s life. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)


Net income $ 
Net cash flow $ 

3.
Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year. (Round your answer to 2 decimal places.)

Payback period years 

4.
Compute this machine’s accounting rate of return, assuming that income is earned evenly throughout each year. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Accounting rate of return % 

5.
Compute the net present value for this machine using a discount rate of 6% and assuming that cash flows occur at each year-end. (Hint: Salvage value is a cash inflow at the end of the asset’s life.) (Round "PV Factor" to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Net present value $