...Course Project – Clark Paints Joseph Pingtella Keller Graduate School of Management AC505 Managerial Accounting February 26, 2012 Professor David Buenger Clark Paints From the financial analysis I recommend that Clark Paints pursue the option of producing their paint cans internally versus buying from a supplier. On a cursory review, the analysis indicates the annual cost to produce the cans is $422,460 versus buying at a price of $495,000. This is a before tax savings of $72,540 ($58,351 after taxes) annually by producing the paint cans versus purchasing from a supplier. The payback on the equipment investment is realized in 3.43 years making the equipment paid for prior to the five year depreciation schedule. This indicates that the investment cost for the equipment is financially sound. To truly understand if the decision is financially correct, I will use the Net Present Value (NPV) and Internal Rate of Return (IRR) to justify the decision. NPV is a time series of cash flows for both incoming and outgoing (Garrison, 2010). Since the NPV is $33,040, we can assume that the project will recover the original cost of the equipment investment and generate excess cash flow justifying the original allocation of funds to purchase. Clark Paints - Net Present Value Before Tax After tax % PV Present Item Year Amount Tax% Amount Factor Value Cost of machine 0 $ (200,000) $ (200,000) 1 $ (200,000) Annual cash savings 1-5 $ 72,540 65% $ 47,151 3.60 $...
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...Managerial Accounting – Exam 4 Summer 2006 Student Number: __________________________ Pledge: On my honor I have neither given or received help on this exam. I understand that any violation of the University Honor Policy will result in an automatic zero on this exam, and that I will be subject to all sanctions available under the University's Honor Policy. Part I - Multiple Guess (135 points) 1. A segment of a business responsible for both revenues and expenses would be called: A) a cost center. B) an investment center. C) a profit center. D) residual income. 2. Lanta Restaurant compares monthly operating results with a static budget prepared at the beginning of the year. When actual sales are less than budget, would the restaurant usually report favorable variances on variable food costs and fixed supervisory salaries? | |Food Costs |Supervisory Salaries | |A) |No |No | |B) |No |Yes | |C) |Yes |No | |D) |Yes |Yes | 3. All other things equal, a company's return on investment (ROI) would generally increase when: A) average operating assets increase. B) sales decrease. C) operating expenses decrease...
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...AC505-Managerial Accounting Project BClark Paint Capital Budgeting ProblemData: Cost of new equipment200,000$Expected life of equipment in years5Disposal value in 5 years40,000$Life production - number of cans5,500,000 Annual production or purchase needs1,100,000 Initial training costsNumber of workers needed3Annual hours to be worked per employee2000Earnings per hour for employees12.00$Annual health benefits per employee2,500$Other annual benefits per employee-% of wages18%Cost of raw materials per can0.25$Other variable production costs per can0.05$Costs to purchase cans - per can0.45$Required rate of returnTax rate35%12% MakePurchaseCost to Produce Annual cost of direct material:Need of 1,1,000,000 cans per year275,000$Annual cost of direct labor for new employees:Wages72,000$Health benefits7,500$Other benefits12,960$Total wages and benefits92,460$Other variable cost:55,000$Total annual production costs422,460$Annual cost to purchase cans495,000$ Part 1 Cash Flows over the life of the projectBefore TaxTax EffectAfter Tax ItemAmountAmountAnnual cash savings (make vs buy)72,540$ 65%47,151$ * Tax effect on Annual Cash Savings is 1 - tax ratTax savings due to depreciation32,000$ 35%11,200$ * Tax effect on Depreciation is the tax rate Total annual cash flow 104,540$ 58,351.00$Part 2 Payback Period ($200,000)/ $87,690 = 3.4yearsPart 3 Annual Rate of Return Accounting income as result of decreased costsAnnual cash savings (before tax effect)104,540$Less Depreciation(32...
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...Taco Soup Recipe User Rating 4.5 Star Rating (19 Reviews) Write a review By Diana Rattray, About.com Guide See More About: * beef soup recipes * ground beef * soups and chowders * southwest & tex-mex * rotel tomatoes Taco Soup Photo of Taco Soup © Diana Rattray ------------------------------------------------- Ads 5 Foods you must not eat:Cut down a bit of stomach fat every day by never eating these 5 foods.Beyonddiet.com Taco Soup RecipesBrowse delicious taco soup recipes. Recipes ready in under 30 minutes.www.HalfHourMeals.com Free Samples In Your MailRequest Samples of Brand Products. Absolutely Free.www.freeflys.com Southern Food Ads * Food Recipes * Beef Dumpling Soup * Crockpot Soup * Soup Ingredients * Soup Recipes This taco soup was shared by Suzi, who also says it freezes very well. Serve this flavorful soup with cornbread or muffins for a delicious everyday family meal! If you don't have pinto beans, make it with black beans or similar beans. Take a look at the reviews to see what others have done with the recipe. Cook Time: 1 hour, 5 minutes Total Time: 1 hour, 5 minutes Yield: Serves 6 to 8 Ingredients: * 2 pounds ground beef * 1 tablespoon olive oil, if ground beef is very lean * 1 large onion, chopped * 1 can (15 ounces) pinto beans * 1 can (11 to 15 ounces) whole kernel corn ,drained * 1 can (14.5 ounces) stewed tomatoes - Mexican style if available * 1 can (10 to 15 ounces)...
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...Week 7 Discussion Welcome to Week 7 Discussions! Let's begin by discussing the difference between capital budgeting screening decisions and capital budgeting preference decisions. According to the text screening decision are determined when solutions are measured against “preset hurdles” (pg. 628). For example there are certain predetermined phases that a solution would have to pass in regards to making a final decision. For budgets, their maybe certain profit goals or certain costs that need to be met in order for a company to move forward on either instituting a new product or cutting a product. Preference decisions are made by measuring a solution to different alternative opportunities. I believe the decision is made from a team’s or individual’s preference after the solution has been challenged by each alternative opportunity. How important is employee "buy-in" in a project? Please provide examples of projects that you have seen succeed and fail due to employee buy-in. My company owns and develops the GRE which is now called the Revised General Test. It took 2 years for our company to revise the test along with many hours and sacrifices. The GRE is a test prospective graduate students seeking to get into schools who accept the test as a part of their admission’s process. The revised version was scheduled for a predetermined date but because it was not ready the powers that be (of my company) decided to continue the process of revision for the test. With that...
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...Jerry Moffett Case study 1 a. Variable cost per passenger=$70.00 Full fare per passenger=$160.00 Contribution margin = $ 160- $ 70 = $ 90 per passenger Contribution margin ratio = $ 90/$160 = 56.25% Break-even point in passengers = Fixed costs/Contribution Margin = $ 3,150,000/$ 90 per passenger = 35,000 passengers Break-even point in dollars = Fixed Costs/Contribution Margin Ratio= $ 3,150,000/0.5625 = $ 5,600,000. b. Average load factor=70% of 90 90 X 0.70 =63 seats per train car 35,000/ 63 = 556 train cars ( rounded) c. CM = $190 - $ 70 = $120 per passenger 90 X .60 = 54 filled seats Break-even point in passengers = fixed costs/ contribution margin= $ 3,150,000/$120 = 26,250 passengers 26,250/54 = 486 train cars (rounded) d. Contribution margin = $ 160 - $ 90 = $ 70 per passenger Break-even point in passengers = fixed costs/contribution margin= $ 3,150,000/ $ 70 per passenger = 45,000 passengers 45,000/ 63 = 714 train cars ( rounded) e. Profit=CM ratio*sales-fixed expenses Unit CM=205-85=120 CM ratio=120/205=0.5854 750,000=0.5854*sales-3,600,000 Sales= (750,000+3,600,000)/0.5854 Sales= 7,430,816 f. Average load factor=70% of 90=63 Load factor of 80%=72 Additional load factor =72-63=9 New fixed costs=3,150,00+180,000=3,330,000 Sale per day =50{(63*160)+(120*9)}=558,000 Sales...
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...Managerial Accounting 20 May 2012 AC 505 Case Study II: A. Break-even point in passengers and revenues per month = 35,000; $5,600,000 1) Per Passenger Sales $160 Variable Expenses 70 Unit Contribution Margin $90 Fixed expenses ÷ Unit CM = $3,150,000 ÷ 90 = 35,000 passengers in break-even point 2) Contribution Margin Ratio (CM Ratio) = Contribution Margin ÷ Selling Price = $90 ÷ $160 = .5625 Break-even point in dollars = Fixed costs ÷ CM Ratio = $3,150,000 ÷ .5625 = $5,600,000 B. Break-even point in number of passenger train cars per month = 556 Number of seats per train car = Average load factor × Number of seats per train car = .70 × 90 = 63 passengers per train on average Passengers in break-even point ÷ Number of seats per passenger train = Number of passenger train cars per month to break-even 35,000 ÷ 63 = 555.5 or 556 train cars C. Monthly break-even point in number of passenger cars when fare is raised to $190 = 486 Number of seats per train car = Average load factor × Number of seats per train = .60 × 90 = 54 passengers per train on average Per Unit Sales $190 Variable Expenses 70 Unit Contribution Margin $120 Fixed Expenses ÷ Contribution Margin = $3,150,000 ÷ $120 = 26,250 passengers to break even Break-even point in passengers ÷ average passengers per train = Break-even point in train cars = 26,250 ÷ 54 = 486.11 or 486 train cars to break-even D. Break-even point in passengers...
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...Capital Budgeting Decision AC505 Managerial Accounting I would recommend the acceptance of this proposal of making paint cans for several reasons. First, we look at the payback period. From our analysis, it will take 3.4 years to recover the initial investment. Though Clark Paints has not established a maximum payback period for comparison, an investment has a 3.4 year payback period is considerably a short period of time. It has less uncertainty and is less risky for the company to accept this proposal. Then we look at the annual rate of return, also known as simple rate of return. It calculates the percentage of the annual incremental accounting income of the investment. The simple rate of return of making the paint cans is 13.18% of the investment. Again, this is not a bad investment in terms of the company’s net operating income. Next, net present value is the difference between the cost of the investment and the present value of the cash flow. At a minimum return rate of 12%, the present value of the cash flow is $233,035. Since the cost of the investment is $200,000. We get a positive net present value of $33,035. As a rule of thumb, the positive net present value is a sign of an acceptable proposal. Finally, the internal rate of return also proves that it is better to make the paint cans than to buy from the vendor. The internal rate of return is the discount rate where present value of the future cash inflows equals to the present value of the cash outflow. From the...
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...AC505 - Capital Budgeting Problem Data: Cost of new equipment Expected life of equipment in years Disposal value in 5 years Life production - number of cans Annual production or purchase needs Initial training costs Number of workers needed Annual hours to be worked per employee Earnings per hour for employees Annual health benefits per employee Other annual benefits per employee-% of wages Cost of raw materials per can Other variable production costs per can Costs to purchase cans - per can Required rate of return Tax rate Make Cost to produce Annual cost of direct material: Need of 1,000,000 cans per year Annual cost of direct labor for new employees: Wages Health benefits Other benefits Total wages and benefits Total annual production costs Annual cost to purchase cans Part 1 Cash flows over the life of the project Item Annual cash savings (make vs buy) Tax savings due to depreciation Total annual cash flow Part 2 Payback Period ($200,000 + $0)/ $58,351 = Part 3 Annual rate of return Accounting income as result of decreased costs Annual cash savings (before tax effect) Less Depreciation Before tax income Tax at 35% rate After tax income $26,351/($200,000 + $0) = Part 4 Net Present Value 3.4 years Before Tax Tax Effect After Tax Amount Amount $72,540 0.65 $47,151 $32,000 0.35 $11,200 $58,351.00 * Tax effect on Annual Cash Savings is 1 - tax rate * Tax effect on Depreciation is the tax rate $330,000 $72,000 $7,500 $12,960 $92,460 $422,460 $495,000 $200,000 5 $40,000 5,500,000...
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...Lynda AC505/Term Project Direct material cost is known as any material cost that can be identified specifically with a final cost objective. Material costs must not be charged to a contract as a direct cost if other material costs incurred for the same purpose in like circumstances have been charged as an indirect cost to that contract or any other contract. All material costs specifically identified with other contracts are direct costs for those contracts and must not be charged to another contract directly or indirectly. Example of a direct material cost is a radio installed in an automobile. A direct labor cost is any labor cost that can be identified specifically with a final cost objective (e.g., a particular contract). Labor costs identified specifically with a particular contract are direct costs of the contract and must be charged to that contract. Labor costs must not be charged to a contract as a direct cost if other labor costs incurred for the same purpose in like circumstances have been charged as an indirect cost to that contract or any other contract. All labor costs specifically identified with other contracts are direct costs for those contracts and must not be charged to another contract directly or indirectly. Manufacturing overhead, the third element of manufacturing cost, includes all costs of manufacturing except direct material and direct labor. Examples of manufacturing overhead include items such as indirect material...
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...AC505 Final Exam Review Answers Chapter 2 COG Mfg & COGS – Traditional Costing – TCO A East of the Border Garage incurred the following costs during January: Raw materials $45,100 Direct labor 48,300 Manufacturing overhead 34,600 Selling expenses 29,800 Administrative expenses 36,700 Interest expense 8,500 During the month, 6,400 units of product were manufactured and 5,900 units of product were sold at $ 35 each. On January 1, East of the Border carried no inventories. a. Cost of goods manufactured: Current period manufacturing costs - Raw materials $ 45,100 Direct labor 48,300 Manufacturing overhead 34,600 Total $128,000 Cost per unit = $128,000 / 6,400 = $20 b. Cost of goods sold = $20 * 5,900 = $118,000 c. The difference between cost of goods manufactured and cost of goods sold is in the finished goods inventory account on the balance sheet. In this case, since more units were produced (6,400) than sold (5,900), the finished goods account will increase by $10,000 ($20 per unit * 500 units). Ch 5 High Low Method – TCO E | |Week 1 Chapter 5 Exercise 6 Data | | | | | | | | | | | | | | |1.) | ...
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...ACCT505 Practice Quiz #2 Student: ___________________________________________________________________________ 1. Return on investment (ROI) can be decomposed into the asset turnover and the A. gross margin ratio. B. profit margin ratio. C. operating margin ratio. D. contribution margin ratio. 2. How will decreases in the following items affect return on investment (ROI)? [pic] A. a B. b C. c D. d 3. The CJP Company produces 10,000 units of item S10 annually at a total cost of $190,000. [pic] The XYZ Company has offered to supply 10,000 units of S10 per year for $18 per unit. If CJP accepts the offer, $4 per unit of the fixed overhead would be saved. In addition, some of CJP's facilities could be rented to a third party for $15,000 per year. What are the relevant costs for the "make" alternative? A. $160,000 B. $165,000 C. $175,000 D. $185,000 4. The following information is available about the Winter Division of Washburn Company. Washburn requires a return of 9% from all divisions. [pic] Required: [Take all calculations to 4 decimal places] a. Compute the ROI for the Winter Division. b. Compute the residual income for the Winter Division. 5. Bayside Wholesaling has the following data for its three divisions for the year: [pic] Required: a. Compute divisional operating income for each of the divisions. Assume taxes are 30%. b. Calculate the gross margin ratio for each division...
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