Description N.B- All working out is required to be shown on excel sheet. This paper has five (5) sections: 1. Net Present Value 2. Break Even Analysis 3. Activity Based Costing 4. Death Spiral and Opportunity Costs 5. Make Versus Buy
profdalmus
copy_of_managerial_accounting.xlsInstructions
| NAME | |||
| COURSE: | Advanced Accounting Managerial | ||
| Instructor: | |||
| Instructions: | |||
| This paper has 5sections (CLICK ON THE RESPECTIVE TAB for each section) | |||
| % | |||
| Net Present Value | 20% | ||
| Break-even Analysis | 25% | ||
| Activity Based Costing | 15% | ||
| Death Spiral and Opportunity Costs | 20% | ||
| Make versus Buy | 20% | ||
| 100% |
NPV
| SANER Environment |
| SANeR (Sarah, Adam, Nic, and Ryan) enterprises are contemplating how to react to California regulations regarding their proposed oil refinery in Redwood City. |
| They face two options. Under option A, the initial investment would cost $0.8B ($800M) to build without fully meeting regulatory requirements. The unit price and variable cost |
| per barrel of this product is estimated to be $150 and $100 respectively. While California would permit this facility to be built, SANER would have to pay a penalty of $15M per year after taxes. |
| Under Option B, the initial outlay for the oil refinery would triple to $2.4 B ($2,400M). However, with the added cost, there would be improvements with regard to increased operating efficiencies and perceived quality. |
| Estimates suggest that the variable cost per barrel of product would be reduced to $75 and the price that SANER could charge customers would be raised to $200 per barrel. |
| Lastly, there would not be the annual $15M fee imposed by the State of California. |
| Under both conditions, they would expect to produce and sell 5 million barrels per year. Additionally, the initial investment would be expected to have a useful life of 20 years, |
| without any salvage value at the end of the 20 years; for depreciation purposes, straight-line depreciation would be used. |
| The tax rate is 40% and the cost of capital is 16% for both options. Lastly, the pricing, variable costs and demand levels are estimated to be constant for the next 20 years. |
| Which option should Sarah, Adam Nic, and Ryan choose that would maximize SANER's financial value? How did the California penalty ($15M annually) affect your recommendation? |
| Please support your recommendation with a Net Present Value calculation using discounted cash flow analysis. |
| (A suggestion: keep your answers in the millions---don't get wrapped up around all the zeros; also, you may want to look at 3-33 and 3-35 as this problem is a blend between the two). |
Break-even
| Break-even Analysis (Multiple Products) | |||||
| 20% | |||||
| Anton's Major Retail Outlet is a company that specializes in selling Jeans, Jackets, and Scarves. | |||||
| The sales mix is 4:4:2 (i.e. for every 4 Jeans sold, 4 Jackets and 2 Scarves are sold). | |||||
| Find the break-even point for each product. The company's annual fixed costs are 26,000 | |||||
| Additionally, please find the target # of untis to reach an operating profit of $16,000. | |||||
| Selling Price Per Unit | Variable Cost Per Unit | Contribution Margin Per unit | Sales Mix | Sales Mix % | |
| jeans | 40 | 10 | 30 | 4 | 40.0% |
| jackets | 100 | 40 | 60 | 4 | 40.0% |
| scarves | 25 | 5 | 20 | 2 | 20.0% |
| 10 | 100% |
Activity Based Costing
| June and Muskaan decide to start their own cellphone company after graduating from Lincoln. Their accountants have identified the | |||||
| following three activities and related cost drivers for indirect production costs: | |||||
| Activity | Cost Driver | ||||
| Materials Handling | Direct-materials cost | ||||
| Engineering | Engineering change notices | ||||
| Power | Kilowatt hours | ||||
| There are 3 types of cellphones, Cool, Super-Cool, and Really Super-Cool. The direct costs and cost drivers are given below: | |||||
| Cool | Super-Cool | Really Super-Cool | |||
| Direct materials Cost | $ 25,000 | $ 50,000 | $ 125,000 | ||
| Direct-labor cost | $ 4,000 | $ 1,000 | $ 3,000 | ||
| Kilowatt hours | 50,000 | 200,000 | 150,000 | ||
| Engineering change notices | 13 | 5 | 2 | ||
| Indirect production cost for the month was: | |||||
| Materials handling | $ 8,000 | ||||
| Engineering | $ 20,000 | ||||
| Power | $ 16,000 | ||||
| Total indirect Production Cost | $ 44,000 | ||||
| 1. Compute the indirect production cost allocated to each product with the activity based costing system. | |||||
| 2. Suppose all indirect production costs had been allocated to products in proportion to their direct-labor costs. Compute the indirect | |||||
| production costs allocated to each product. | |||||
| 3. In which product costs, those in number 1 or those in number 2, do you have the most confidence? Why? |
Death Spiral and Opp. Cost
| Death Spiral and Opportunity Costs | ||||
| Mohammad owns a video shop in San Francisco. He is considering dropping a line of videos (comedies), which has consistently had an operating loss. | ||||
| Below are the income statements for Mohammad's three lines of videos: | ||||
| Total | Drama | Action | Comedy | |
| Sales | 8,000 | 5,000 | 2,000 | 1,000.00 |
| Variable Costs | 4,900 | 3,500 | 1,000 | 400.00 |
| Contribution Margin | 3,100 | 1,500 | 1,000 | 600 |
| Fixed Costs | 2,250 | 750 | 750 | 750 |
| Operating Income | 850 | 750 | 250 | (150) |
| Fixed costs relate to the amount of space that is used in the video store. Given constraints on his ability to sell videos, Mohammad cannot | ||||
| use this space for anything else. In other words, Mohammad can only sell videos and can't use the space for other things. | ||||
| Should Mohammad close the comedy section? Support your answer with calculations and discussion. | ||||
| Now, suppose that if he replaced the comedy with additional drama or action, he could get $1,000 in additional drama or action revenue. The contribution margin | ||||
| percentages would be the same as in the first case. Using opportunity cost concepts, should Mohammad replace comedy with either drama or action films? |
Make-Buy
| Assume that Lotoya's Cola Company has the following costs to make a 17.5 oz bottles for it's Cola Bottles: | ||
| Cost of Making 17.5 ounce Bottles | ||
| One Million Bottles ($) | Cost Per Bottle | |
| Direct Materials | $ 85,000 | $ 0.085 |
| Direct Labor | $ 30,000 | $ 0.030 |
| Variable Factory Overhead | $ 60,000 | $ 0.060 |
| Fixed Factory Overhead | $ 85,000 | $ 0.085 |
| Total Costs | $ 260,000 | $ 0.260 |
| Rodney promises to sell Lotoya cola bottles for $0.25. The capacity now used to make bottles | ||
| will become idle if the company purchases the bottles. Further, one supervisor with a salary | ||
| of $60,000, a fixed cost, would be eliminated if the bottles were purchased. Prepare a | ||
| schedule that compares the costs to make or buy the bottles. What should Lotoya do? |
