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[answered] 1. The _________________ budget should always be prepared f


1.Warrior Company needs a new processing machine.? The company is considering 2 different machines:? machine 0178 and machine 2216.? Machine 0178 costs $20,000 and will reduce operating costs by $5,000 per year.? Machine 2216 costs $15,000 and reduces operating costs by $3,000 per year.? Compute the payback for each machine and determine which should be selected using the payback method. (show your work).


2.Austin LTD. Manufactures a component that is used in the fans it produces.? A supplier has offered to supply the component for $25 per part.? The annual requirements of Austin are 20,000 components.? Austin?s cost detail of manufacturing the component is as follows:

per unit

direct materials

$9

direct labor

$5

variable overhead

$1

depreciation of equipment

$3

supervisor's salary

$2

general factory overhead

$10

total

$30

It was determined that the special equipment has no resale value and cannot be used for another process.? The factory overhead is an allocation and would be unaffected by the decision.? The costs above are based on the same 20,000 units that the supplier would supply.

Should Austin continue to manufacture the component or purchase it from the outside supplier? (support your work with numbers).


Austin LTD. Manufactures a component that is used in the fans it produces.? A supplier has offered to supply the component for $25 per part.? The annual requirements of Austin are 20,000 components.? Austin?s cost detail of manufacturing the component is as follows:

per unit

direct materials

$9

direct labor

$5

variable overhead

$1

depreciation of equipment

$3

supervisor's salary

$2

general factory overhead

$10

total

$30

It was determined that the special equipment has no resale value and cannot be used for another process.? The factory overhead is an allocation and would be unaffected by the decision.? The costs above are based on the same 20,000 units that the supplier would supply.

Should Austin continue to manufacture the component or purchase it from the outside supplier? (support your work with numbers).




Austin LTD. Manufactures a component that is used in the fans it produces.? A supplier has offered to supply the component for $25 per part.? The annual requirements of Austin are 20,000 components.? Austin?s cost detail of manufacturing the component is as follows:

per unit

direct materials

$9

direct labor

$5

variable overhead

$1

depreciation of equipment

$3

supervisor's salary

$2

general factory overhead

$10

total

$30

It was determined that the special equipment has no resale value and cannot be used for another process.? The factory overhead is an allocation and would be unaffected by the decision.? The costs above are based on the same 20,000 units that the supplier would supply.

Should Austin continue to manufacture the component or purchase it from the outside supplier? (support your work with numbers).



3.

Sherri is going to Chicago to see her friend Ryan.? She is trying to decide which is cheaper, driving or riding the train.? Following is a list of costs that Sherri has compiled in relation to the trip.?

Identify which costs are relevant (R).

________ Annual straight line depreciation on the car

_______ Cost of gasoline

________ Annual cost of auto insurance and license fee

________ Maintenance and repairs

_________ Parking fees at home

_______ Cost of train ticket

________ Reduction in resale value of car due to mileage used and wear and tear

_________ Cost of putting dog in kennel while she is gone

________ Cost of parking car in Chicago



1. The _________________ budget should always be prepared first.

 

2. Why should managers not be punished for missing a budget target? 3. Why can allocation of common costs cause inaccurate decisions to be made? 4. Sherri is going to Chicago to see her friend Ryan. She is trying to decide which is cheaper,

 

driving or riding the train. Following is a list of costs that Sherri has compiled in relation to

 

the trip.

 

Identify which costs are relevant (R). _________ Annual straight line depreciation on the car

 

_________ Cost of gasoline

 

_________ Annual cost of auto insurance and license fee

 

_________ Maintenance and repairs

 

_________ Parking fees at home

 

_________ Cost of train ticket

 

_________ Reduction in resale value of car due to mileage used and wear and tear

 

_________ Cost of putting dog in kennel while she is gone

 

_________ Cost of parking car in Chicago 5. Austin LTD. Manufactures a component that is used in the fans it produces. A supplier has

 

offered to supply the component for $25 per part. The annual requirements of Austin are

 

20,000 components. Austin?s cost detail of manufacturing the component is as follows:

 

per unit

 

direct materials

 

direct labor

 

variable overhead

 

depreciation of

 

equipment

 

supervisor's salary

 

general factory

 

overhead

 

total $9

 

$5

 

$1

 

$3

 

$2

 

$10

 

$30 It was determined that the special equipment has no resale value and cannot be used for another

 

process. The factory overhead is an allocation and would be unaffected by the decision. The

 

costs above are based on the same 20,000 units that the supplier would supply.

 

Should Austin continue to manufacture the component or purchase it from the outside supplier?

 

(support your work with numbers). 6. The financial information for Jamison drug store by business line is as follows:

 

total drugs cosmetics housewares sales

 

variable expenses

 

contribution margin $250,000

 

$105,000

 

$145,000 $125,000

 

$50,000

 

$75,000 $75,000

 

$25,000

 

$50,000 $50,000

 

$30,000

 

$20,000 fixed expenses

 

salaries

 

advertising

 

utilities

 

depreciation

 

rent

 

insurance $50,000

 

$15,000

 

$2,000

 

$5,000

 

$20,000

 

$3,000 $29,500

 

$1,000

 

$500

 

$1,000

 

$10,000

 

$2,000 $12,500

 

$7,500

 

$500

 

$2,000

 

$6,000

 

$500 $8,000

 

$6,500

 

$1,000

 

$2,000

 

$4,000

 

$500 general

 

administrative

 

total $30,000

 

$125,000 $15,000

 

$59,000 $9,000

 

$38,000 $6,000

 

$28,000 net income/ loss $20,000 $16,000 $12,000 -$8,000 It was determined that the associated salaries, advertising and insurance would all be eliminated

 

if Jamison drops the housewares segment. The utilities, depreciation, rent and general and

 

administrative fees are all allocations.

 

Jamison is currently deciding whether the company would benefit overall if the housewares

 

business line was dropped completely, since it is losing money consistently each month. Using

 

what you know about avoidable and unavoidable costs, advise Jamison as their outside

 

consultant as to which is the better business decision. (Support your work with numbers.) 7. John Boy Lumber cuts logs to create 2 immediate joint products, lumber and sawdust.

 

Unfinished lumber can be sold as is for $140 or processed further at a sales price of $270.

 

Sawdust can be sold as is for $40 or processed further for a sales price of $50. There are

 

joint product costs (costs up to the split off point) allocated to each of the products ? $176 for

 

lumber and $24 for sawdust. The cost of further processing is $40 for lumber and $20 for

 

sawdust.

 

a. Should John Boy Lumber process lumber further or sell the unfinished lumber as is? b. Should John Boy Lumber process the sawdust further or sell it as is? 8. There are 2 types of capital budgeting decisions, screening decisions and preference

 

decisions. What is the difference between the two? 9. What is the concept of the time value of money? 10. How are flexible budgets more helpful vs. static or planning budgets? 11. Warrior Company needs a new processing machine. The company is considering 2 different

 

machines: machine 0178 and machine 2216. Machine 0178 costs $20,000 and will reduce

 

operating costs by $5,000 per year. Machine 2216 costs $15,000 and reduces operating costs

 

by $3,000 per year. Compute the payback for each machine and determine which should be

 

selected using the payback method. (show your work). 12. Why is it helpful to evaluate residual income when determining management performance

 

and not just focus on ROI? 13. What are the 4 perspectives of the balanced scorecard? 14. Eber Wares is a division of a major corporation. The following data are for the latest year of

 

operations: Required: (be sure to show your work).

 

i. What is the division's margin? ii. What is the division's turnover? iii. What is the division's return on investment (ROI)? iv. What is the division's residual income?

 


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