**Name ____________________________
Managerial Accounting**

**Spring 16 **

**1. For the following two situations you
must show your calculations for credit.**

** **

**a. Based
on the information below please calculate the value of $30,000 to be received
at the end of ten years, **

__discounted__at 10%. (4 Points)

** **

** **__End of Period__** PV of $1
PV of an Annuity of $1
(factors at 10%)**

10

0.386

6.145

** b. Based on the information below please
calculate the annual net cash inflows of $20,000 for four years, discounted
at 15%. (4 Points)**

** **

__End
of Period__

__PV of $1____PV of an Annuity of $1__(factors at 15%)

4

0.572

2.855

**2. Lodge
Company makes cast-iron griddles. The
following information is available for Lodge Company’s anticipated annual
volume of 50,000 units.**

** Per**

UnitTotal

**Direct materials
$12**

**Direct labor $
6**

**Variable manufacturing overhead $ 9**

**Fixed manufacturing overhead
$ 350,000**

**Variable selling and administrative
expenses $ 3 **

**Fixed selling and administrative
expenses
$ 200,000**

**The company uses a 40% markup percentage
on total cost.**

** a. Compute the total cost per unit. (5 Points)**

**b. Compute the target selling price (to
2 decimals). (5 points)**

**3. You
are given the following present value factors at 8 percent, the Three-City
Plastic Company’s minimum desired rate of return. (14 points, 3 points sections
a-d and 2 points section e)**

Present

Value Present Value of

__End
of Period__

__of $1____an Annuity of $1__

1

0.926

0.926

2

0.857

1.783

3

0.794

2.577

4

0.735

3.312

5

0.681

3.993

6

0.630

4.623

**The
Three-City Plastic Company is considering the replacement of a piece of
equipment. The old machine has a book value of $10,000 and a **

__remaining estimated life of six years__, with no salvage value at that time.

__Present salvage value is $2,300__. The

__new equipment will cost $11,000__, including transportation and installation. It has an estimated life of six years, with no salvage value then.

__Annual cash operating costs are $4,000 for the old machine__and

__$1,500 for the new machine__.

** **

**a.
Compute the present value of the operating cash outflows for the old
machine.**

** **

** **

**b.
Compute the present value of the operating cash outflows for the new
machine.**

** **

** **

**c.
Compute the present value of the cash operating savings if the new
machine is purchased.**

** **

** **

**d.
What is the net present value of the replacement alternative (remember
that the salvage would lower your cost when considering whether to purchase the
new piece of equipment or not)?**

**e.
Should the equipment be purchased, why or why not (should be based on your work
in d)?**

**4. Heat-wear
Company makes heat- and wear-resistant cookware. The company is expanding and a new stamping
machine is under consideration. The machine
being considered can make parts that currently are purchased from an outside
supplier. The machine’s cost is
$600,000; its estimated useful life is twelve years. Gross annual cash inflow from the new machine
is estimated at $425,000, and annual operating expenses should be $385,000
(including $50,000 of depreciation).
Management requires the payback period before taxes to be eight years or
less.**

**Using the information given and the
payback period analysis procedures, **

**i.
**

**(i)**

__Show__

the calculationsneeded to make the decision below. (6 points)the calculations

**i.
**

**(ii) What**

should be management’s decision? (3 Points)

should be management’s decision? (3 Points)

**5. The Cooling Division of JOY
International produces a cooling element that it sells to its customers for $39
per unit. Its variable cost per unit is
$18, and its fixed cost per unit is $11.
Top management of JOY International would like the Cooling Division to
transfer 17,500 cooling units to another division within the company at a price
of $25. The Cooling Division is
operating at full capacity. **

**a.
What is the minimum transfer price that the Cooling Division should
accept? (Besides **

__show__ing the

__price__please

__briefly explain__– for full credit)(5 points)

**b.
Assume that the Cooling Division has sufficient excess capacity to
provide the 17,500 cooling units to the other division. What is the minimum transfer price that the
Cooling Division should accept? (**

__Show__ing the

__price__and please

__briefly explain__– for full credit) (5 points)

**6. Your poor Managerial
Accounting instructor, Mr. Stack, recently won the OCCC poor faculty benefit
lottery for $1,000,000. Poor Mr. Stack
has the option of receiving a lump-sum check for $350,000 or leaving the money
in the OCCC poor faculty benefit fund and receiving an annual year-end check
for $32,000 for each of the next 20 years.
Mr. Stack likes to (and can) earn at least 7% return on his investments. **

** For
your information the following present value factors at 7%**

Present

Value Present Value of

__End
of Period__

__of $1____an Annuity of $1__**20.
**

**20**

0.258

10.594

0.258

10.594

**a.
What is the present value amount of the lump sum (3 points):**

**b. Please show your calculations and identify
the present value of the annuity to be considered**

** (4 points):**

**c. Which
choice financially (the lump sum or the annuity) should (poor) Mr. Stack select
and state why this is the best choice?
(3 Points)**