Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Textbook Question
Chapter 5, Problem 71P
Learning Curves (Appendix B)
Krylon Company purchases eight special tools annually from CO., Inc. The price of these tools has increased each year, reaching $100,000 per unit last year. Because the purchase price has increased significantly, Krylon management has asked for a cost estimate to produce the tools in its own facilities.
A team of employees from the engineering, manufacturing, and accounting departments has prepared a report for management that includes the following estimate to produce the first unit. Additional production employees will be hired to manufacture the tools. However, no additional equipment or space will be needed.
The report states that total incremental costs for the first unit are estimated to be $120,000, as shown here:
Overhead and administrative costs are not affected by producing this tool.
The current purchase price is $100,000 per unit, so the report recommends that Krylon continue to purchase the product from CO., Inc.
Required
Assume that Krylon could experience labor-cost improvements on the tool production consistent with an 80 percent learning curve. Should Krylon produce or purchase its annual requirement of eight tools? Explain your answer. (Note that the 80 percent learning rate coefficient is −0.3219.)
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A company purchases a component, which is critical in the production process, from an international supplier. Recently, quality problems with this component have increased. For this reason, managers of the company are considering of producing this part in-house. The economic life of the new production system will be 8 years. The savings and expenditures related to the new production system are given below. The MARR is 15%. According to the information, answer the questions from 8 to 9.
Capital expenditures (Investment costs):
Building: 500,000 TL
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Salvage value: 1,500,000 TL
8. What is the discounted payback period of the new production system?
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D.between 2 and 3 years
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Acme Semiconductor is expanding its facility and needs to add equipment. There are three process
tools under consideration. You have been asked to perform and economic analysis to select the
most appropriate tool to acquire. You have gathered the following information for evaluation. Each
of these tools has a useful life of seven years. Acme's accounting staff has established a company-
wide MARR of 8% per year. Which of the process tools should be selected?
Tool B
P45,000,000
P8,550,000
P16,750,000
P3.750.000
Tool C
P80,000,000
P3,200,000
P20,200.000
P22,000,000
14.6%
Tool A
P55,000,000
P6,250,000
P18.250.000
Investment Costs
Annual Expenses
Annual Revenues
Market Value
P18,000,000
15,9%
IRR
7.9%
Macquarium Inc. provides computer-related services to its dients. Its two primary services are Web page design (WPD) and Internet consulting services (ICS).
Assume that Macquarium's management expects to earn a 35% annual return on the assets invested. Macquarium has invested $5.4 million since its opening.
The annual costs for the coming year are expected to be as follows:
Variable Costs Fixed Costs
Consulting support
Sales and administration
$225,000 $1,575,000
135,000
765,000
The two services expend about equal costs per hour, and the predicted hours for the coming year are 15,000 for WPD and 25,000 for ICS.
Required
a. If markup is based on variable costs, how much revenue must each service generate to provide the profit expected by corporate headquarters? What is the
anticipated revenue per hour for each service?
Hint: Start by determining the markup rate.
WPD $
Total Revenue Reveue per Hour
ICS S
b. If the markup is based on total costs, how much revenue must each service…
Chapter 5 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 5 - What are the common methods of cost estimation?Ch. 5 - Prob. 2RQCh. 5 - Under what conditions is the engineering estimates...Ch. 5 - If one wishes simply to prepare a cost estimate...Ch. 5 - When using cost estimation methods based on past...Ch. 5 - Prob. 6RQCh. 5 - What is the difference between R2 and adjusted R2?Ch. 5 - Why are accurate cost estimates important?Ch. 5 - What are three practical implementation problems...Ch. 5 - Why is it important to incorporate learning into...
Ch. 5 - What are some complications that can arise when...Ch. 5 - The following costs are labeled fixed or variable...Ch. 5 - Prob. 13CADQCh. 5 - When preparing cost estimates for account analysis...Ch. 5 - How can one compensate for the effects of price...Ch. 5 - Prob. 16CADQCh. 5 - Prob. 17CADQCh. 5 - A decision maker is interested in obtaining a cost...Ch. 5 - Consider the Business Application item Using...Ch. 5 - A friend comes to you with the following problem....Ch. 5 - After doing an account analysis and giving the...Ch. 5 - In doing cost analysis, you realize that there...Ch. 5 - Prob. 23CADQCh. 5 - Are learning curves likely to affect materials...Ch. 5 - McDonalds, the fast-food restaurant, is known for...Ch. 5 - Prob. 26CADQCh. 5 - A manager asks you for a cost estimate to open a...Ch. 5 - Prob. 28CADQCh. 5 - Methods of Estimating Costs: Engineering Estimates...Ch. 5 - Prob. 30ECh. 5 - Methods of Estimating Costs: Engineering Estimates...Ch. 5 - Prob. 32ECh. 5 - Methods of Estimating Costs: Account Analysis The...Ch. 5 - Methods of Estimating Costs: Account Analysis...Ch. 5 - Methods of Estimating Costs: High-Low, Ethical...Ch. 5 - Methods of Estimating Costs: High-Low Adriana...Ch. 5 - Methods of Estimating Costs: High-Low
Adriana...Ch. 5 - Prob. 38ECh. 5 - Adriana Corporation manufactures football...Ch. 5 - Methods of Estimating Costs: Simple...Ch. 5 - Prob. 41ECh. 5 - Methods of Estimating Costs: High-Low Davis Stores...Ch. 5 - Methods of Estimating Costs: Scattergraph Prepare...Ch. 5 - Prob. 44ECh. 5 - Interpretation of Regression Results: Multiple...Ch. 5 - Interpretation of Regression Results Brodie...Ch. 5 - Prob. 47ECh. 5 - Interpretation of Regression Results: Simple...Ch. 5 - Learning Curves Assume that General Dynamics,...Ch. 5 - Learning Curves Assume that Whee, Cheatham, and...Ch. 5 - Prob. 51ECh. 5 - Learning Curves (Appendix B) Refer to the example...Ch. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Regressions from Published Data Obtain 13 years of...Ch. 5 - Prob. 56PCh. 5 - High-Low Method, Scattcrgraph Cubicle Solutions...Ch. 5 - High-Low Method, Scattcrgraph Academy Products...Ch. 5 - High-Low, Scattergraph, Issues with Data
Wyoming...Ch. 5 - Interpretation of Regression Results: Simple...Ch. 5 - Interpretation of Regression Results: Simple...Ch. 5 - Interpretation of Regression Results: Multiple...Ch. 5 - Interpretation of Regression Results: Simple...Ch. 5 - Interpretation of Regression Results Brews 4 U is...Ch. 5 - Cost Estimation: Simple Regression The following...Ch. 5 - Prob. 68PCh. 5 - Methods of Cost Analysis: Account Analysis, Simple...Ch. 5 - Learning Curves (Appendix B) Refer to the example...Ch. 5 - Learning Curves (Appendix B) Krylon Company...
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