Question: Refer to the XYZ Company example in
Refer to the XYZ Company example in the chapter and the results in Panels A and B of Exhibit 12.7. On the basis of this information, management of the company has decided to delay the implementation of the project for 1 year. Those managers are now interested in knowing how sensitive this decision is with respect to the assumptions they’ve made regarding the basic analysis. Therefore, they have asked you to prepare some supplementary analyses regarding Panel B of Exhibit 12.7. Required: 1. Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios are as follows: high (20%), medium (50%), and low (30%)? (Express amounts in millions of dollars; round expected NPV result to 3 decimal places.) 2. Holding everything else constant, what is the expected NPV of the decision if the probabilities for the three scenarios are as follows: high (30%), medium (40%), and low (30%)? (Express amounts in millions of dollars; round expected NPV result to 3 decimal places.) 3. Prepare a 5 × 3 table containing the estimated NPV of the decision to delay for each combination of the following: risk-free rate of interest (4%, 5%, 6%) and weighted-average cost of capital (13%, 14%, 15%, 16%, and 17%). For example, one cell in your table would be the estimated NPV of the project if the risk-free rate of interest is 4% and the weighted-average cost of capital is 13%. (Express data inputs in millions of dollars; round expected NPV results in your 5 × 3 table to 2 decimal places.) What does your analysis suggest? Exhibit 12.7: 
> Acme Financial issues letters of credit to importers for overseas purchases. The company charges a nonrefundable application fee of $4,000 and, on approval, an additional service fee of 2.0% of the amount of credit requested. The company’s budget for the
> This assignment involves the use of a traditional (i.e., non-time-driven) ABC system to address the problem of measuring and managing the cost of capacity. As controller for Zen Company, you’ve been asked to provide input regarding the appropriate level
> Zenon Computer competes at the retail level on the basis of customer service. It has invested significant resources in its customer service department. Recently, the company has installed a traditional activity-based costing (ABC) system to provide bette
> See the following: K. P. Coyne, S. T. Coyne, and E. J. Coyne Jr., “When You’ve Got to Cut Costs Now: A Practical Guide to Reducing Overhead by 10%, 20%, or (wince) 30%,” Harvard Business Review, May 2010, pp. 74–82 (available at http://my.gartner.com/htm
> Edney Company employs a standard cost system for product costing. The per-unit standard cost of its product is: Raw materials ……………………………………………………………………..…. $14.50 Direct labor (2 direct labor hours × $8.00 per hour) …………………… 16.00 Manufacturing overhea
> Butrico Manufacturing Corporation uses a standard cost system, records materials price variances when direct materials are purchased, and prorates all variances at year-end. Variances associated with direct materials are prorated based on the balances of
> Obtain from your library (or instructor or course pack, as appropriate) a copy of the following article: K. Snead, D. Stott, and A. Garcia, “The Causes of Misapplied Capacity Related Manufacturing Costs and Corresponding Reporting Implications: A Concept
> Obtain and read the following article: Robert S. Kaplan and David P. Norton, “Mastering the Management System,” Harvard Business Review, January 2008, pp. 63–77 (available at ftp://public.dhe.ibm.com/software/data/swlibrary/cognos/pdfs/whitepapers/wp_mas
> Any given cost information system is a function of a number of design choices. For product costing purposes, one such design choice relates to how overhead, particularly fixed manufacturing overhead, application rates are determined. As controller for yo
> At a recent board meeting of the Grayson Manufacturing Company, several individuals in attendance expressed concern that they could not understand how the choice of an activity level for determining overhead application rates for the company could affect
> Franklin Cards sells greeting cards for $2 each, and plans to sell 100,000 cards every quarter. The management accountant has determined they must sell 80,000 cards to break even every quarter. What is the margin of safety (MOS), in both units and sales
> New Millennium Technologies uses a standard cost system. It budgeted 50,000 machine hours to manufacture 100,000 units in 2022. The budgeted total fixed factory overhead was $9,000,000. The company manufactured and sold 80,000 units in 2022 and would rep
> At its Sutter City plant, Yuba Machine Company manufactures nut shellers, which it sells to nut processors throughout the world. Since its inception, the family-owned business has used actual factory overhead costs in costing factory output. On December
> This is a story about manufacturing performance at one plant of a large company. It begins with Kristen Reynolds, a relatively new plant manager, coming to visit Bryan Simpkins, the plant’s head of manufacturing. Kristen and Bryan work for ITR Incorporat
> As part of its comprehensive planning and control system, Mopar Company uses a master budget and subsequent variance analysis. You are given the following information that pertains to the company’s only product, XL-10, for the month of
> In a Wall Street Journal article, the author Notes that various retailers in the United States (e.g., Meijer, Gap, and Office Depot) are turning to consulting firms, such as Accenture, to develop engineered labor standards for cashiers and other retail w
> Phoenix Management helps rental property owners find renters and charges the owners one-half of the first month’s rent for this service. For August 2022, Phoenix expects to find renters for 100 apartments with an average first month&aci
> Dash Company adopted a standard costing system several years ago. The standard costs for the prime costs (i.e., direct materials and direct labor) of its single product are: Material (8 kilograms × $5.00 per kilogram) ……………………. $ 40.00 Labor (6 hours ×
> Mark-Wright Inc. (MWI) is a specialty frozen food processor located in the midwestern states. Since its founding in 1982, MWI has enjoyed a loyal local clientele willing to pay premium prices for the high-quality frozen foods prepared from special recipe
> Tastyfreeze Company is a small producer of fruit-flavored frozen desserts. For many years, its products have had strong regional sales because of brand recognition; however, other companies have begun marketing similar products in the area, and price com
> Acme Manufacturing produces corrugated board containers that the nearby wine industry uses to package wine in bulk. Acme buys kraft paper by the ton, converts it to heavy-duty paperboard on its corrugator, and then cuts and glues it into folding boxes. T
> ABC Audio sells headphones and would like to earn an after-tax profit of $400 every week. Each set of headphones incurs variable cost of $5 and sells for $10. Rent and other fixed costs are $200 per week; the income tax rate is 20%. How many headphones m
> Jonas Materials Science (JMS) purchases its materials from several countries. As part of its cost-control program, JMS uses a standard cost system for all aspects of its operations, including purchases of direct materials. The company establishes standar
> Going into the period just ended, Ortiz & Co., manufacturer of a moderately priced espresso maker for retail sale, had planned to produce and sell 3,900 units at $100.00 per unit. Budgeted variable manufacturing costs per unit are $50.00. Ortiz pays its
> Forever Young Inc. has developed a drug that will diminish the effects of aging. Forever Young has spent $1,000,000 on research and development and $2,108,000 for clinical trials. Once the drug is approved by the FDA, which is imminent, it will have a 5-
> Kate Stephens, the COO of BioDerm, has asked her cost management team for a product-line profitability analysis for her firm’s two products, Xderm and Yderm. The two skin care products require a large amount of research and development
> Taylor’s is a popular restaurant that offers customers a large dining room and comfortable bar area. Taylor Henry, the owner and manager of the restaurant, has seen the number of patrons increase steadily over the last two years and is considering whethe
> Chemical Products Company (CPC) produces a variety of chemicals—primarily adhesives, lubricants, and polymers—for industrial use by manufacturers to produce plastics and other compounds. Don Leo, the production vice pr
> Colton Furniture Co. is a small but fast-growing manufacturer of living room furniture. Its two principal products are end tables and sofas. The flow diagram for the manufacturing at Colton follows. Colton’s manufacturing involves five
> Bridal Photography Inc. (BPI) specializes in preparing wedding pictures, including a large book of photos for the wedding couple. Each couple works directly with a single BPI photographer, who helps the couple plan the photos to be made on the wedding da
> Hilton Yacht manufactures a line of family cruiser/racing sailboats. The boats are well known for their quality, safety, and performance. Hilton hired Matthew Perry, a well-known sailboat designer and racer, to design a new sailboat, the M33. The M33 wil
> Harpers Ltd. is a UK manufacturer of casual shoes for men and women. It has sustained strong growth in the UK market in recent years due to its close attention to fashion trends. Harpers’s shoes also have a good reputation for quality a
> Scott Power produces batteries. Scott has determined its contribution margin to be $8 per battery and their contribution margin ratio to be 0.4. What is the effect on operating profit from the sale of one additional battery? One additional dollar of sale
> Brief Exercises 7-11 through 7-14 involve departmental cost allocation with two service departments and two production departments. Use the following information for these four exercises: What is the amount of service department cost allocated to P1 an
> Caldwell Supply, a wholesaler, has determined that its operations have three primary activities: purchasing, warehousing, and distributing. The firm reports the following operating data for the year just completed: Caldwell buys 100,000 units at an ave
> VIP-MD is a health maintenance organization (HMO) located in North Carolina. Unlike the traditional fee-for-service model that determines the payment according to the actual services used or costs incurred, VIP-MD receives a fixed, prepaid amount from su
> Chapter 11 Morrow Company is a large manufacturer of auto parts for automakers and parts distributors. Although Morrow has plants throughout the world, most are in North America. Morrow is known for the quality of its parts and for the reliability of its
> UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these characteristics: The ICU 100 sells for $810 installed, and the ICU 900 sells for $1,520 installed. Required: 1. What are the current gross prof
> Estimated cash-flow data for each of two projects, A and B, and the discount rate, r, to be used for the analysis of capital investment projects are given below: Discount rate, r = 10.0%. Required: 1. In a capital budgeting context, explain the differ
> A proposed investment has the following projected after-tax cash flows over its 3-year life: Initial outlay (time 0) = ($1,000) End of year 1 = $2,000 End of year 2 = $2,000 End of year 3 = ($3,700) Required: 1. In a capital budgeting context, explain t
> Myers Manufacturing Inc. wants to build a booth for painting the boxes it makes for small transformers used to power neon signs. The company can choose either a solvent-based or a powder-based paint process. The following table summarizes the costs and i
> You and your spouse have recently inherited money from a distant relative and are considering a number of investment opportunities, one of which would involve residential real estate. Specifically, you have an opportunity to purchase an apartment complex
> Because of increased consumer demand for fuel-efficient, alternative-energy automobiles, Global Auto Company is considering investing in a new hybrid crossover vehicle. Development costs each year for a 2-year period for this new vehicle are estimated as
> The Mendoza Company discussed in the chapter is now considering replacing a piece of equipment that the company uses to monitor the integrity of metal pipes used for deep-sea drilling purposes. The company’s pretax WACC (discount rate)
> Williams & Williams Co. produces plastic spray bottles and wants to earn a profit of $200,000 next quarter. Variable cost is $0.50 per bottle, fixed costs of $400,000, and sell the bottles for $1.00 each. How many bottles must they sell to meet the profi
> Rob Roy Corporation has been using its present facilities at its annual full capacity of 10,000 units for the last 3 years. Still, the company is unable to keep pace with continuing demand for the product that is estimated to be 25,000 units annually. Th
> Use the information in Problem 12-55 to answer the following questions (for calculations below, do NOT round data to 000s—use raw data). Required: 1. What would the maximum machine annual operating cost of the overhauled AccuDril need to be (before tax)
> The management of Devine Instrument Company is considering the purchase of a new drilling machine, model RoboDril 1010K. According to the specifications and testing results, RoboDril will substantially increase productivity over AccuDril X10, the machine
> You and several of your classmates have just graduated from college and are evaluating various investment opportunities, including a startup company that would produce high-quality jackets embroidered with a college logo. If demand for this customized pr
> This problem pertains to the XYZ Company example in the body of the chapter and the associated discussion of real options. Required: 1. Define the term real option. Provide an example of each of the four common types of real options. 2. Define the terms
> Use the data in Problem 12-50 for Bob Jensen Inc. and MACRS. The asset qualifies as a 5-year property. Required: Compute the following for the proposed investment: 1. Its payback period (in years) under the assumption that the cash inflows occur evenly
> Use the same information for this problem as you did for Problem 12-49, except that the discount rate is 10% (not 12%), the investment is subject to taxes, and the projected pretax operating cash inflows are as follows: Jensen has been paying 25% for c
> Bob Jensen Inc. purchased a $650,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. To encourage capital investments, the government has exempted taxes on profits from n
> Home Service Company offers monthly service plans to provide prepared meals that are delivered to customers’ homes and need only be heated in a microwave or conventional oven. Home Service offers two monthly plans, premier cuisine and h
> Oxicon, Inc. manufactures several different types of candy for various retail stores. The accounting manager has requested that you determine the sales dollars required to break even for next quarter based on past financial data. Your research tells you
> “I’m not looking forward to breaking the news,” groaned Charlie Wettle, the controller of Meyer Paint Company. He and Don Smith, state liaison for the firm, were returning from a meeting with represen
> High Point Furniture Company (HPF) manufactures very high-quality furniture for sale directly to exclusive hotels, interior designers, and select retail outlets throughout the world. HPF’s products include upholstered furniture, dining
> Humbolt Electric manufactures electronic subcomponents that be sold at the end of Process #1 or processed further, in Process #2, and then sold. Currently, the entire output of Process #1 can be sold at a price of $2.00 per unit. The output of Process #2
> GianAuto Corporation manufactures parts and components for manufacturers and suppliers of parts for automobiles, vans, and trucks. Sales have increased each year based, in part, on the company’s excellent record of customer service and
> Let us revisit the Windbreakers Inc. situation from the chapter. Information from Exhibit 11.16B is reproduced below and shows the results after Gale was dropped and the avoidable marketing expenses were also removed. We will now assume that the produc
> If not assigned previously, Problem 9-50 and 9-51 (CVP Analysis; Sustainability; Uncertainty; Decision Tables) can be assigned here. Problem 9-51: Required: 1. The information in Problem 9-50 presents a decision problem similar to the choice of cost str
> Creighton Corporation produces a variety of consumer electronic products. Unit selling prices and costs for three models of one of its product lines are as follows: Variable overhead is charged to products on the basis of direct labor dollars; fixed ov
> RayLok Incorporated has invented a secret process to improve light intensity and, as a result, manufactures a variety of products related to this process. Each product is independent of the others and is treated as a separate profit/loss division. Produc
> Hillside Furniture Company makes outdoor furniture from recycled products, including plastics and wood by-products. Its three furniture products are gliders, chairs with footstools, and tables. The products appeal primarily to cost-conscious consumers an
> Merchants’ Bank (MB) is a large regional bank operating in 634 locations in the southeastern United States. Until 2014, the bank operated a call center for customer inquiries out of a single location in Atlanta, Georgia. MB understood the importance of t
> The Cobb Clinic treats walk in patients for various illnesses. The accounting manager has estimated they have $5,000 in monthly fixed costs in addition to a $20 cost per patient. If the charge is $30 per visit, how many visits per month does the clinic n
> The Midwest Division of the Paibec Corporation manufactures subassemblies used in Paibec’s final products. Lynn Hardt of Midwest’s profit planning department has been assigned the task of determining whether Midwest should continue to manufacture a subas
> Martens Inc. manufactures a variety of electronic products. It specializes in commercial and residential products with moderate-to-large electric motors such as pumps and fans. Martens is now looking closely at its production of attic fans, which include
> Williams Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby states. Currently, the company is operating at about 70 percent capacity and is earning a satisfactory ret
> Assume the same information as for Problem 11-33, except that the $12.00 fixed manufacturing overhead cost per unit consists of facility-level costs ($9.00/unit at the 20,000-unit output level), with the remainder being setup-related (i.e., batch-level)
> As noted in the chapter, some individuals allege that the practice of tying managerial rewards to budgeted performance has dysfunctional consequences, including (but not limited to) gaming behavior. Search the Internet and pertinen literature (e.g., Mich
> Norton Company, a manufacturer of infant furniture and carriages, is in the initial stages of preparing the annual budget for the coming year. Scott Ford recently joined Norton’s accounting staff and is interested in learning as much as possible about th
> Triple-F Health Club (Family, Fitness, and Fun) is a not-for-profit family-oriented health club. The club's board of directors is developing plans to acquire more equipment and to expand club facilities. The board plans to purchase about $25,000 new equi
> National Auto Insurance company underwrites automobile coverage for the consumer market. As part of the annual planning process, National requires monthly estimates for number of policies in force and the amount of premium revenue associated with this vo
> National Insurance Company underwrites property insurance for homeowners. You have been charged with the responsibility of developing a portion of the monthly budget for the coming 12-month period for the company. You have collected the following driver
> As a newly hired management accountant, you have been asked to prepare a profit plan for the company for which you work. As part of this task, you’ve been asked to do some what-if analyses. Following is the budgeted information regarding the coming year:
> Ford Tops manufactures hats for baseball teams. Ford has fixed costs of $175,000 per quarter and each hat sells for $20. If the variable cost per hat is $10, how many hats must Ford sell each quarter to break even?
> CompUSA Inc. sells computer hardware. It also markets related software and software-support services. The company prepares annual forecasts for sales, which are given below. In a typical month, total sales are broken down as follows: cash sales, 30%; VIS
> (Use information in Problem 10-50 for Spring Manufacturing Company.) Spring Manufacturing Company has had a continuous-improvement (kaizen) program for the last two years. According to the kaizen program, the firm is expected to manufacture C12 and D57 w
> (Use information in Problem 10-50 for Spring Manufacturing Company.) C12 is a mature product. The sales manager believes that the price of C12 can be raised to $160 per unit with no effect on sales quantity. D57 is a new product introduced last year. Man
> Spring Manufacturing Company makes two components identified as C12 and D57. Selected budgetary data for 2022 follow: The firm expects the average wage rate to be $25 per hour in 2022. Spring Manufacturing uses direct labor hours to apply overhead. Ea
> Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow: ∙ Sales are budgeted at $250,000 for December and $225,000 for January, terms 1/eom, n/60. âˆ
> Required: 1. The information in Problem 9-50 presents a decision problem similar to the choice of cost structure (variable vs. fixed) discussed in the chapter. Here, the issue is whether to pay an upfront premium (extra fixed cost) for the hybrid model i
> With gasoline prices increasing rapidly in recent years, consumers have moved to high miles-per-gallon (mpg) vehicles, in particular hybrid vehicles that rely on a battery as well as a gasoline engine for even greater mpg. The new vehicles save money on
> SolarFlex is a small but very innovative manufacturer of cutting-edge solar panels. A significant portion of the company’s success is due to technologically superior product design. SolarFlex has invented a flexible photovoltaic panel t
> Hartford Publishing Company (HPC) specializes in international business news publications. Its principal product is HPC-Monthly, which is mailed to subscribers the first week of each month. A weekly version, called HPC-Weekly, is also available to subscr
> Using the information in Problem 9-46, complete the following: Required: 1. Compute the breakeven point in units for both the current and the proposed manufacturing plans, assuming that total setup costs vary with the number of batches and that the batc
> Felton Paper produces paper for textbooks. Felton plans to produce 500,000 cases of paper next quarter to sell at a price of $100 per case. The variable cost per case, including both manufacturing and selling costs, is $80. What is the total contribution
> Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. The company has succeeded by being very innovative in product design. As a spin-off of a large electronics manufacturer (ElecTech), CG managem
> Garner Strategy Institute (GSI) presents executive level training seminars nationally. Eastern University (EU) has approached GSI to present 40 oneweek seminars during 2022. This activity level represents the maximum number of seminars that GSI is capabl
> Don Carson and two colleagues are considering the opening of a law office in a large metropolitan area to make inexpensive legal services available to people who cannot otherwise afford these services. They intend to provide easy access for their clients
> Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid an 18 percent commission on sales; that percentage was used when Lionel prepared the following b
> GoGo Juice is a combination gas station and convenience store located at a busy intersection. Recently a national chain opened a similar store only a block away; consequently sales have decreased for GoGo. In an effort to reclaim lost sales, GoGo has imp
> Leary and O’Donnell, a local CPA firm, has been asked to bid on a contract to perform audits for three counties in its home state. Because existing staff are fully scheduled, if the firm is awarded the contract, it must hire one new staff member at a sal
> General Hospital’s Cardiac Diagnostic Screening Center (CDSC) is contemplating purchasing a blood gas analysis machine at a cost of $960,000. Useful life for this machine is 10 years. The screening center currently serves 3,000 patients per year, 40 perc
> Horton Manufacturing Inc (HMI) is suffering from the effects of increased local and global competition for its main product, a lawn mower that is sold in discount stores throughout the United States. The following table shows the results of HMI’s operati
> Most businesses sell several products at varying prices. The products often have different unit variable costs. Thus, the total profit and the breakeven point depend on the proportions in which the products are sold. Sales mix is the relative contributio
> Bubba’s Western Wear is a western hat retailer in Lubbock, Texas. Although the store carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table. Sales
> Doughton Bearings produces ball bearings for industrial equipment. In evaluating their financial data from the previous year, the accounting manager has determined that their unit sales price is $25 per bearing and their unit variable cost is $18 per bea
> Companies that do business with the U.S. Defense Department (e.g., The Boeing Company, Lockheed Martin Corporation, General Electric, Northrop Grumman, and General Dynamics) typically develop large multiyear proposals for large-scale defense-related proj
