2.99 See Answer

Question: Crichton Publications uses the accounting rate of


Crichton Publications uses the accounting rate of return method to evaluate proposed capital investments. The company’s desired rate of return (its cost of capital) is 18%. The project being evaluated involves a new product that will have a three-year life. The investment required is $300,000, which consists of a $240,000 machine, and inventories and accounts receivable totaling $60,000. The machine will have a useful life of three years and a salvage value of $150,000. The salvage value will be received during the fourth year, and the inventories and accounts receivable related to the product also will be converted back to cash in the fourth year.
Accrual accounting net income from the product will be $87,000 per year, before depreciation expense, for each of the three years. Because of the time lag between selling the product and collecting the accounts receivable, cash flows from the product will be:

1st year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,000
2nd year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
3rd year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,000
4th year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000

Required:
a. Calculate the accounting rate of return for the first year of the product. Assume straight-line depreciation. Based on this analysis, would the investment be made? Explain your answer.
b. Calculate the net present value of the product using a cost of capital of 18% and assuming that cash flows occur at the end of the respective years. Based on this analysis, would the investment be made? Explain your answer.
c. Which of these two analytical approaches is the more appropriate to use? Explain your answer.



> Should a managerial accounting system provide both financial and nonfinancial information? Explain.

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> What is managerial accounting?

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> Kallard Manufacturing Company produces t-shirts screen-printed with the logos of various sports teams. Each shirt is priced at $13.50 and has a unit variable cost of $9.85. Total fixed cost is $197,600. Required: 1. Compute the break-even point in units

> Khumbu Company’s projected profit for the coming year is as follows: Required: 1. Compute the break-even point in units. 2. How many units must be sold to earn a profit of $240,000? 3. Compute the contribution margin ratio. Using that

> Income statements for two different companies in the same industry are as follows: Required: 1. Compute the degree of operating leverage for each company. 2. CONCEPTUAL CONNECTION Compute the break-even point in dollars for each company. Explain why th

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> Klamath Company produces a single product. The projected income statement for the coming year is as follows: Sales (54,600 units @ $34) …………………………………….. $1,856,400 Total variable cost …………………………………………………….. 1,064,700 Contribution margin …………………………………………

> Lotts Company produces and sells one product. The selling price is $10, and the unit variable cost is $6. Total fixed cost is $10,000. Required: 1. Prepare a CVP graph with ‘‘Units Sold’’ as the horizontal axis and ‘‘Dollars’’ as the vertical axis. Labe

> The Bedron Company is a closely held investment service group that has been quite successful over the past 5 years, consistently providing most members of the top management group with 50% bonuses. In addition, both the chief financial officer and the ch

> Arberg Company’s controller prepared the following budgeted income statement for the coming year: Sales ……………………………………………………….. $415,000 Total variable cost ……………………………………… 302,950 Contribution margin …………………………………. $112,050 Total fixed cost ……………………………

> Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $8.12 per string. The variable costs per string are as follows: Direct materials ……………………………………. $1.87 Direct labor ……………………………………………. 1.70 V

> Werner Company produces and sells disposable foil baking pans to retailers for $2.75 per pan. The variable cost per pan is as follows: Direct materials …………………………………………………… $0.37 Direct labor …………………………………………………………… 0.63 Variable factory overhead ………………

> The controller of Pelley Company prepared the following projected income statement: Sales ……………………………………………………………….. $95,000 Total variable cost ……………………………………………… 68,400 Contribution margin ………………………………………… $26,600 Total fixed cost ………………………………………………….

> For each of the following independent situations, calculate the amount(s) required. Required: 1. At the break-even point, Jefferson Company sells 115,000 units and has fixed cost of $349,600. The variable cost per unit is $4.56. What price does Jefferso

> Suppose that Adams Company sells a product for $20. Unit costs are as follows: Direct materials …………………………………………………….. $1.90 Direct labor …………………………………………………………….. 1.40 Variable factory overhead ………………………………………… 2.10 Variable selling and administrative

> Jellico Inc.’s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales …………………………………………………… $11,700,000 Total variable cost …………………………………… 8,190,000 Contribution margin …………………………….. $ 3,510,000 Total

> Suppose a firm with a contribution margin ratio of 0.3 increased its advertising expenses by $10,000 and found that sales increased by $30,000. Was it a good decision to increase advertising expenses? Suppose that the contribution margin ratio is now 0.4

> Explain why contribution margin per unit becomes profit per unit above the break-even point.

> Describe the difference between the units sold approach to CVP analysis and the sales revenue approach.

> Identify the three forms of accounting certification. Which form of certification do you believe is best for a managerial accountant? Why?

> What is the difference between a product and a service? Give an example of each.

> On February 1, 2010, the balance of the retained earnings account of Blue Power Corporation was $630,000. Revenues for February totaled $123,000, of which $115,000 was collected in cash. Expenses for February totaled $131,000, of which $108,000 was paid

> For the year ended December 31, 2010, Ebanks, Inc., earned an ROI of 12%. Sales for the year were $96 million, and average asset turnover was 2.4. Average owners’ equity was $32 million. Required: a. Calculate Ebanks, Inc.’s margin and net income. b. Ca

> At the beginning of the year, the net assets of Carby Co. were $346,800. The only transactions affecting owners’ equity during the year were net income of $42,300 and dividends of $12,000. Required: Calculate Carby Co.’s return on equity (ROE) for the y

> From the following data, calculate the retained earnings balance as of December 31, 2009: Retained earnings, December 31, 2010 . . . . . . . . . . . . . ………... . . . . . . . $841,200 Decrease in total liabilities during 2010 . . . . . . . . . . . . . .

> From the following data, calculate the retained earnings balance as of December 31, 2010: Retained earnings, December 31, 2009 . . . . . . . . …………... . . . . . . . . . . …. $311,800 Cost of equipment purchased during 2010 . . . . . . . ………………….. . . .

> From the following data, calculate the Retained Earnings balance as of December 31, 2011: Retained earnings, December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $346,400 Cost of buildings purchased during 2011 .

> Prepare a bank reconciliation as of October 31 from the following information: a. The October 31 cash balance in the general ledger is $844. b. The October 31 balance shown on the bank statement is $373. c. Checks issued but not returned with the bank s

> Prepare a bank reconciliation as of August 31 from the following information: a. The August 31 balance shown on the bank statement is $9,810. b. There is a deposit in transit of $1,260 at August 31. c. Outstanding checks at August 31 totaled $1,890. d.

> Assume that you own 600 shares of common stock of a company, that you have been receiving cash dividends of $6 per share per year, and that the company has a 4-for-3 stock split. Required: a. How many shares of common stock will you own after the stock

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2.99

See Answer