Student Name:
Class:
115,000$
Correct!
Net Net Cash
Income Flow
1,840,000$ 1,840,000$
(480,000) (480,000)
(672,000) (672,000)
(336,000) (336,000)
(115,000)
(160,000) (160,000)
77,000
Income taxes
Net income
Net cash flow
Part 3 Payback period
Part 4 Accounting rate of return
480,000$
20,000
500,000$
250,000$
21.56%
Correct!
Present
Value Present
Net Cash of $1 at Value of Net
Flows 7% Cash Flows
168,900$ 0.9346 157,854$
168,900 0.8734 147,517
168,900 0.8163 137,873
188,900 0.7629 144,112
695,600$ 587,356$
(480,000)
Net present value
*Year 4’s cash flow includes the $20,000 salvage value of the machine.
Part 1 Annual depreciation
Instructor
Calculations
FACTOR COMPANY
Problem 25-01A
McGraw-Hill/Irwin
Selling and administrative expenses
Part 2 Expected income and cash flow
Expected annual sales of new product
Expected costs of new product:
Direct materials
Direct labor
Overhead excluding
depreciation on new asset
Depreciation on new asset
Average investment:
Income before taxes
Asset cost
Final year’s book value
Sum
Average
Accounting rate of return
Part 5 Net present value of asset
Present Value of Net Cash Flows:
Total
Amount invested
Year
1
2
3
4*
480,000$
4
20,000$
1,840,000$
480,000$
672,000$
336,000$
160,000$
30%
7%
21.56%
107,356$
Income taxes
FACTOR COMPANY
Given Data P25-01:
Cost of new machine
Life of new machine in years
Salvage value of new machine
Expected annual sales of new product
Expected annual costs of new product:
Direct materials
Direct labor
Overhead excluding SL depreciation on new machine
Selling and administrative expenses
Discount rate for net present value of investment
Check figures:
(4)
(5)
Student Name:
Class:
Normal New
Volume Business Combined
2,400,000$ 260,000$ 2,660,000$
576,000 72,000 648,000
144,000 27,000 171,000
320,000 30,000 350,000
150,000 150,000
100,000 5,000 105,000
1,290,000 134,000 1,424,000
1,110,000$ 126,000$ 1,236,000$
Correct! Correct! Correct!
576,000$
400,000
1.44$
50,000
72,000$ «- Correct!
144,000$
0.54$
Normal direct labor cost
Units of output
Cost per unit
Overtime per unit
New business direct labor cost per unit
50,000
27,000$ «- Correct!
320,000$
80,000
240,000$
0.60$
30,000$ «- Correct!
Cost per unit
New business variable overhead cost
Variable overhead
Units of output
Sales
Instructor
Comparative Income Statements
JONES PRODUCTS
Problem 25-04A
McGraw-Hill/Irwin
Costs and expenses:
Direct materials
Direct labor
Overhead
Selling expenses
Administrative expenses
Total costs and expenses
Operating income
Supporting Computations
New business volume
Normal direct materials cost
Units of output
Cost per unit
New business volume
New business direct materials cost
New business direct labor cost
Total overhead
Fixed overhead
6.00$
400,000
576,000$
144,000
320,000
150,000
100,000
1,290,000$
50,000
5.20$
100%
50%
25%
5,000$
–$
1,110,000$
126,000$
Direct materials
JONES PRODUCTS
Given Data P25-04A:
Sales price of markers per package
Packages manufactured and sold
Production and sale costs:
Variable portion of direct materials
Direct labor
Overhead
Selling expenses
Administrative expenses
Total costs and expenses
Wholesalers’ proposal:
Packages to be sold
Price per package
Study of costs reveals:
(1) Operating income
(2) Operating income
Increase per unit for direct labor costs
Fixed portion of overhead costs (350,000 to 500,000 units)
Increase in administrative expenses
Additional selling expenses
Check figures: