Accounting problems

I have the answers to the problem in the file, just need you to take a look at the answers and let me know if it is correct. if it is wrong please complete the question then.

Problem I – Capital Budgeting
Sumitomo Heavy Industries Ltd. desires to buy a new crane and accessories to help move and
install modular buildings. The machine sells for $100,000 and requires working capital of
$20,100. Its estimated useful life is six years and it will have a salvage value of $19,927. Sam’s
depreciates all equipment on a straight line basis. Recovery of working capital will be $20,100 at
the end of its useful life. Annual cash savings from the purchase of the machine will be $30,100.
Required:
a. Compute the net present value at a 16% required rate of return.
b. Compute the internal rate of return.
c. Compute the Accounting Rate of Return
d. Determine the payback period of the investment.
Note: show all workings on this question including the type and amount of all cash inflows
and outflows, and the year of all cashflows for your NPV, IRR and payback calculations.
PV tables are at the end of the exam.
0-year
Equipment
( $100 000)
Working capital
( $20 100)
Total
( $120 100)
1-5 year
Revenues
$30 100
Operating expenses
( $16 666.7)
Total
$13 433.3
6 year
Revenues
$30 100
Operating expenses
( $16 666.7)
Salvage
$19 927
Recovery
$20 100
Total
$ 53460.3
NPV
0 year
Cash flow
discount factor
present value
($120 100 )
1.000
($120 100)
3.274
$43 980.6242
0.410
$21 918.723
1-5 years
$13 433.3
6 year
$53 460.3
Net present value
($54 200.6528)
IRR
$100 000/$30 100 = 3.322
3.322 = 20% approximately
ARR
$100 000/6 = $16 666.7
$30 100 – $16 666.7 = $13 433.3
$13 433.3/$100 000 = 0.1343
Payback return
$100 000+$20 100 = $120 100
$120 100/$30 100 = 3.99 approximately 4 year
PV
Present value = 120 626.8*0.410 = $49 456.988
at 16%
Performance Evaluation and Transfer Pricing
Divisional Performance
JustBrandIt Company has two divisions that report on a decentralized basis. Their results for
2021 were as follows:
Sales
Operating Income
Average Assets
Capital Employed
Weighted average cost of capital
Hat
$200,000
$ 25,000
$ 50,000
$ 75,000
16%
Bicycle
$400,000
$ 55,000
$100,000
$210,000
16%
Required:
Assuming JustBrandIt has a 40% tax rate, compute the following amounts for each division
(show all workings):
a. Return on investment (ROI).
Hat: ($25,000*0.6)/$75,000=20%
Bicycle: ($55,000*0.6)/$210,000=15.71%
b. Residual income if the desired rate of return is 25 percent.
Hat: ($25,000*0.6)-$55,000*16%=$6,200
Bicycle: ($55,000*0.6)-$100,000*16%=17,000
c. EVA.
Hat: ($25,000*0.6)-$75,000*16%=$3,000
Bicycle: ($55,000*0.6)-$210,000*16%=($600)
d. Turnover.
Hat:
Bicycle:
e. Margin.
Hat: $25,000/$200,000=12.5%
Bicycle: $55,000/$400,000=13.75%
Problem III – Performance Evaluation and Transfer Pricing
Transfer pricing
The Wood Parts Division of Beta company sells all of its output to the Finishing Division of the
company. The only product of the Wood Parts Division is chair legs that are used by the
Finishing Division. The retail price of the legs is $32 per leg. Each chair completed by the
Finishing Division required four legs. Production quantity and cost data for 2021 are as follows:
Chair legs produced
40,000
Direct materials
$9.50
Direct labor
$6.50
Factory overhead (30% variable)
$10.00
Assume that all variable costs are relevant costs and all fixed costs are unavoidable.
Required (show all relevant workings):
a) What is the maximum transfer price (for one chair leg)?
$9.5+$$6.5+$3=$19
b) What is the minimum transfer price if the Wood Parts Division can sell all of its output
on the market?
$9.5+$6.5+$10=$26
c) What is the minimum transfer price if the Wood Parts Division can only sell 15,000 chair
legs on the external market and the Wood Parts Division has the capacity to produce
60,000 chair legs?
$9.5+$$6.5+$3=$19
d) What is the transfer price using variable product costs plus a fixed fee of $5 per chair leg?
Do you suppose that Wood Parts and Finishing Divisions would choose to transfer at that
price if Wood Parts cannot sell any of its output on the external market? Explain
$9.5+$$6.5+$3+$5=$24
No, they would not choose this transfer price if Wood Parts cannot sell any output on the
external market. I suppose they would agree on a transfer price which equals the sum of
all variable costs.
e) What is the transfer price using full costs plus 25 percent? Do you suppose that Wood
Parts and Finishing Divisions would choose to transfer at that price if Wood Parts cannot
sell any of its output on the external market? Explain
($9.5+$6.5+$10)*1.25=$32.5
No, they would not choose to transfer at this price because it is even above the retail
price.
Note: all questions relate to transfer prices for one chair leg
Problem IV – Incremental Analysis – Special Order
Hamper Corporation, which produces one product, had the following income statement for a
recent month:
Hamper Corporation
Income Statement
For the Month of April 2021
Sales
Cost of goods sold
Gross profit
Selling and administrative
Net income
$40,500
27,300
$ 13,200
10,000
$ 3,200
There were no beginning or ending inventories of work-in-process or finished goods. Hamper’s
manufacturing costs were as follows:
Direct materials (1,350 units x $3.50)
Direct labor (1,350 units x $6.50)
Variable overhead (1,350 units x $6.00)
Fixed overhead
Total
$ 4,725
8,775
8,100
5,700
$27,300
Average cost per unit
$ 20.22
Selling and administrative expenses include a 4% sales commission. The remainder of the selling
and admin expenses are fixed.
Hamper has just received a special order from a firm in Turkey to purchase 765 units at $25
each. The order will not affect the selling price to regular customers but requires additional fixed
overhead of $1,750. Sales commission will not be paid on the special order.
Required:
a.
Prepare a relevant cost analysis of the relevant costs and revenues associated with the
decision to accept or reject the special order, assuming Hamper has excess capacity.
Indicate if Hamper should accept or reject the special order.
Relevant cost per unit: $3.5+$6.5+$6=$16
Sales
Relevant Cost of goods sold
Gross Profit
Relevant admin costs
$19,125 (=765*$25)
$12,240(=765*$16)
$6,885
$1,750
Net income
$5,135
As can be seen from the above, it is beneficial to accept the special order, assuming Hamper has
excess capacity. Therefore, it should accept.
b.
Determine the net advantage or disadvantage (profit increase or decrease) of accepting
the order, assuming Hamper does not have excess capacity. Indicate if Hamper should
accept or reject the special order.
Net disadvantage=($25-$30)*765+$918 (savings on sales commission 0.04*765*$30)-$1,750 =
($4,657)
Assuming Hamper does not have excess capacity, the net disadvantage of accepting the order
will be $4,657. Therefore, Hamper should reject the special order.
Appendix A: Present Value Tables
Present Value of $1
Periods
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
2%
0.98
0
0.96
1
0.94
2
0.92
4
0.90
6
0.88
8
0.87
1
0.85
3
0.83
7
0.82
0
0.80
4
0.78
8
0.77
3
0.75
8
0.74
3
4%
0.96
2
0.92
5
0.88
9
0.85
5
0.82
2
0.79
0
0.76
0
0.73
1
0.70
3
0.67
6
0.65
0
0.62
5
0.60
1
0.57
7
0.55
5
6%
0.94
3
0.89
0
0.84
0
0.79
2
0.74
7
0.70
5
0.66
5
0.62
7
0.59
2
0.55
8
0.52
7
0.49
7
0.46
9
0.44
2
0.41
7
8%
0.92
6
0.85
7
0.79
4
0.73
5
0.68
1
0.63
0
0.58
3
0.54
0
0.50
0
0.46
3
0.42
9
0.39
7
0.36
8
0.34
0
0.31
5
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
40%
0.909
0.893
0.877
0.862
0.847
0.833
0.820
0.806
0.794
0.781
0.769
0.758
0.714
0.826
0.797
0.769
0.743
0.718
0.694
0.672
0.650
0.630
0.610
0.592
0.574
0.510
0.751
0.712
0.675
0.641
0.609
0.579
0.551
0.524
0.500
0.477
0.455
0.435
0.364
0.683
0.636
0.592
0.552
0.516
0.482
0.451
0.423
0.397
0.373
0.350
0.329
0.260
0.621
0.567
0.519
0.476
0.437
0.402
0.370
0.341
0.315
0.291
0.269
0.250
0.186
0.564
0.507
0.456
0.410
0.370
0.335
0.303
0.275
0.250
0.227
0.207
0.189
0.133
0.513
0.452
0.400
0.354
0.314
0.279
0.249
0.222
0.198
0.178
0.159
0.143
0.095
0.467
0.404
0.351
0.305
0.266
0.233
0.204
0.179
0.157
0.139
0.123
0.108
0.068
0.424
0.361
0.308
0.263
0.225
0.194
0.167
0.144
0.125
0.108
0.094
0.082
0.048
0.386
0.322
0.270
0.227
0.191
0.162
0.137
0.116
0.099
0.085
0.073
0.062
0.035
0.350
0.287
0.237
0.195
0.162
0.135
0.112
0.094
0.079
0.066
0.056
0.047
0.025
0.319
0.257
0.208
0.168
0.137
0.112
0.092
0.076
0.062
0.052
0.043
0.036
0.018
0.290
0.229
0.182
0.145
0.116
0.093
0.075
0.061
0.050
0.040
0.033
0.027
0.013
0.263
0.205
0.160
0.125
0.099
0.078
0.062
0.049
0.039
0.032
0.025
0.021
0.009
0.239
0.183
0.140
0.108
0.084
0.065
0.051
0.040
0.031
0.025
0.020
0.016
0.006
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
0.72
8
0.71
4
0.70
0
0.68
6
0.67
3
0.66
0
0.64
7
0.63
4
0.62
2
0.61
0
0.59
8
0.58
6
0.57
4
0.56
3
0.55
2
0.53
4
0.51
3
0.49
4
0.47
5
0.45
6
0.43
9
0.42
2
0.40
6
0.39
0
0.37
5
0.36
1
0.34
7
0.33
3
0.32
1
0.30
8
0.39
4
0.37
1
0.35
0
0.33
1
0.31
2
0.29
4
0.27
8
0.26
2
0.24
7
0.23
3
0.22
0
0.20
7
0.19
6
0.18
5
0.17
4
0.29
2
0.27
0
0.25
0
0.23
2
0.21
5
0.19
9
0.18
4
0.17
0
0.15
8
0.14
6
0.13
5
0.12
5
0.11
6
0.10
7
0.09
9
0.218
0.163
0.123
0.093
0.071
0.054
0.042
0.032
0.025
0.019
0.015
0.012
0.005
0.198
0.146
0.108
0.080
0.060
0.045
0.034
0.026
0.020
0.015
0.012
0.009
0.003
0.180
0.130
0.095
0.069
0.051
0.038
0.028
0.021
0.016
0.012
0.009
0.007
0.002
0.164
0.116
0.083
0.060
0.043
0.031
0.023
0.017
0.012
0.009
0.007
0.005
0.002
0.149
0.104
0.073
0.051
0.037
0.026
0.019
0.014
0.010
0.007
0.005
0.004
0.001
0.135
0.093
0.064
0.044
0.031
0.022
0.015
0.011
0.008
0.006
0.004
0.003
0.001
0.123
0.083
0.056
0.038
0.026
0.018
0.013
0.009
0.006
0.004
0.003
0.002
0.001
0.112
0.074
0.049
0.033
0.022
0.015
0.010
0.007
0.005
0.003
0.002
0.002
0.000
0.102
0.066
0.043
0.028
0.019
0.013
0.008
0.006
0.004
0.003
0.002
0.001
0.000
0.092
0.059
0.038
0.024
0.016
0.010
0.007
0.005
0.003
0.002
0.001
0.001
0.000
0.084
0.053
0.033
0.021
0.014
0.009
0.006
0.004
0.002
0.002
0.001
0.001
0.000
0.076
0.047
0.029
0.018
0.011
0.007
0.005
0.003
0.002
0.001
0.001
0.001
0.000
0.069
0.042
0.026
0.016
0.010
0.006
0.004
0.002
0.002
0.001
0.001
0.000
0.000
0.063
0.037
0.022
0.014
0.008
0.005
0.003
0.002
0.001
0.001
0.000
0.000
0.000
0.057
0.033
0.020
0.012
0.007
0.004
0.003
0.002
0.001
0.001
0.000
0.000
0.000
24%
0.80
6
26%
0.79
4
28%
0.78
1
30%
0.76
9
32%
0.75
8
40%
0.71
4
Present Value of an Annuity of $1 in Arrears
Period
s
2%
4%
6%
8%
1
0.980
0.962
0.943
0.926
10%
0.90
9
12%
0.89
3
14%
0.87
7
16%
0.86
2
18%
0.84
7
20%
0.83
3
22%
0.82
0
2
1.942
1.886
1.833
1.783
3
2.884
2.775
2.673
2.577
4
3.808
3.630
3.465
3.312
5
4.713
4.452
4.212
3.993
6
5.601
5.242
4.917
4.623
7
6.472
6.002
5.582
5.206
8
7.325
6.733
6.210
5.747
9
8.162
7.435
6.802
6.247
10
8.983
8.111
7.360
6.710
11
9.787
10.57
5
11.34
8
12.10
6
12.84
9
13.57
8
14.29
2
14.99
2
8.760
7.887
7.139
9.385
8.384
7.536
9.986
10.56
3
11.11
8
11.65
2
12.16
6
12.65
9
8.853
7.904
9.295
8.244
9.712
10.10
6
10.47
7
10.82
8
8.559
12
13
14
15
16
17
18
8.851
9.122
9.372
1.73
6
2.48
7
3.17
0
3.79
1
4.35
5
4.86
8
5.33
5
5.75
9
6.14
5
6.49
5
6.81
4
7.10
3
7.36
7
7.60
6
7.82
4
8.02
2
8.20
1
1.69
0
2.40
2
3.03
7
3.60
5
4.11
1
4.56
4
4.96
8
5.32
8
5.65
0
5.93
8
6.19
4
6.42
4
6.62
8
6.81
1
6.97
4
7.12
0
7.25
0
1.64
7
2.32
2
2.91
4
3.43
3
3.88
9
4.28
8
4.63
9
4.94
6
5.21
6
5.45
3
5.66
0
5.84
2
6.00
2
6.14
2
6.26
5
6.37
3
6.46
7
1.60
5
2.24
6
2.79
8
3.27
4
3.68
5
4.03
9
4.34
4
4.60
7
4.83
3
5.02
9
5.19
7
5.34
2
5.46
8
5.57
5
5.66
8
5.74
9
5.81
8
1.56
6
2.17
4
2.69
0
3.12
7
3.49
8
3.81
2
4.07
8
4.30
3
4.49
4
4.65
6
4.79
3
4.91
0
5.00
8
5.09
2
5.16
2
5.22
2
5.27
3
1.52
8
2.10
6
2.58
9
2.99
1
3.32
6
3.60
5
3.83
7
4.03
1
4.19
2
4.32
7
4.43
9
4.53
3
4.61
1
4.67
5
4.73
0
4.77
5
4.81
2
1.49
2
2.04
2
2.49
4
2.86
4
3.16
7
3.41
6
3.61
9
3.78
6
3.92
3
4.03
5
4.12
7
4.20
3
4.26
5
4.31
5
4.35
7
4.39
1
4.41
9
1.45
7
1.98
1
2.40
4
2.74
5
3.02
0
3.24
2
3.42
1
3.56
6
3.68
2
3.77
6
3.85
1
3.91
2
3.96
2
4.00
1
4.03
3
4.05
9
4.08
0
1.42
4
1.92
3
2.32
0
2.63
5
2.88
5
3.08
3
3.24
1
3.36
6
3.46
5
3.54
3
3.60
6
3.65
6
3.69
5
3.72
6
3.75
1
3.77
1
3.78
6
1.39
2
1.86
8
2.24
1
2.53
2
2.75
9
2.93
7
3.07
6
3.18
4
3.26
9
3.33
5
3.38
7
3.42
7
3.45
9
3.48
3
3.50
3
3.51
8
3.52
9
1.36
1
1.81
6
2.16
6
2.43
6
2.64
3
2.80
2
2.92
5
3.01
9
3.09
2
3.14
7
3.19
0
3.22
3
3.24
9
3.26
8
3.28
3
3.29
5
3.30
4
1.33
1
1.76
6
2.09
6
2.34
5
2.53
4
2.67
7
2.78
6
2.86
8
2.93
0
2.97
8
3.01
3
3.04
0
3.06
1
3.07
6
3.08
8
3.09
7
3.10
4
1.22
4
1.58
9
1.84
9
2.03
5
2.16
8
2.26
3
2.33
1
2.37
9
2.41
4
2.43
8
2.45
6
2.46
9
2.47
8
2.48
4
2.48
9
2.49
2
2.49
4
19
20
21
22
23
24
25
26
27
28
29
30
15.67
8
16.35
1
17.01
1
17.65
8
18.29
2
18.91
4
19.52
3
20.12
1
20.70
7
21.28
1
21.84
4
22.39
6
13.13
4
13.59
0
14.02
9
14.45
1
14.85
7
15.24
7
15.62
2
15.98
3
16.33
0
16.66
3
16.98
4
17.29
2
11.15
8
11.47
0
11.76
4
12.04
2
12.30
3
12.55
0
12.78
3
13.00
3
13.21
1
13.40
6
13.59
1
13.76
5
9.604
9.818
10.01
7
10.20
1
10.37
1
10.52
9
10.67
5
10.81
0
10.93
5
11.05
1
11.15
8
11.25
8
8.36
5
8.51
4
8.64
9
8.77
2
8.88
3
8.98
5
9.07
7
9.16
1
9.23
7
9.30
7
9.37
0
9.42
7
7.36
6
7.46
9
7.56
2
7.64
5
7.71
8
7.78
4
7.84
3
7.89
6
7.94
3
7.98
4
8.02
2
8.05
5
6.55
0
6.62
3
6.68
7
6.74
3
6.79
2
6.83
5
6.87
3
6.90
6
6.93
5
6.96
1
6.98
3
7.00
3
5.87
7
5.92
9
5.97
3
6.01
1
6.04
4
6.07
3
6.09
7
6.11
8
6.13
6
6.15
2
6.16
6
6.17
7
5.31
6
5.35
3
5.38
4
5.41
0
5.43
2
5.45
1
5.46
7
5.48
0
5.49
2
5.50
2
5.51
0
5.51
7
4.84
3
4.87
0
4.89
1
4.90
9
4.92
5
4.93
7
4.94
8
4.95
6
4.96
4
4.97
0
4.97
5
4.97
9
4.44
2
4.46
0
4.47
6
4.48
8
4.49
9
4.50
7
4.51
4
4.52
0
4.52
4
4.52
8
4.53
1
4.53
4
4.09
7
4.11
0
4.12
1
4.13
0
4.13
7
4.14
3
4.14
7
4.15
1
4.15
4
4.15
7
4.15
9
4.16
0
3.79
9
3.80
8
3.81
6
3.82
2
3.82
7
3.83
1
3.83
4
3.83
7
3.83
9
3.84
0
3.84
1
3.84
2
3.53
9
3.54
6
3.55
1
3.55
6
3.55
9
3.56
2
3.56
4
3.56
6
3.56
7
3.56
8
3.56
9
3.56
9
3.31
1
3.31
6
3.32
0
3.32
3
3.32
5
3.32
7
3.32
9
3.33
0
3.33
1
3.33
1
3.33
2
3.33
2
3.10
9
3.11
3
3.11
6
3.11
8
3.12
0
3.12
1
3.12
2
3.12
3
3.12
3
3.12
4
3.12
4
3.12
4
2.49
6
2.49
7
2.49
8
2.49
8
2.49
9
2.49
9
2.49
9
2.50
0
2.50
0
2.50
0
2.50
0
2.50
0