# Savanna Company is considering two capital

TCO 6) Savanna
Company is considering two capital investment proposals. Relevant data on
each project are as follows.

Project Red

Project Blue

Capital
investment

\$400,000

\$560,000

Annual
net income

\$50,000

\$80,000

Annual
cash flows

\$100,000

\$150,000

Estimated
useful life

8 years

8 years

Savanna requires an 8% rate of return on all new investments.
Part
(a): Compute the payback period for each project.
Part (b): Compute the net present value for each project.
Part (c): Compute the accounting rate of return for each project.
Part (d): Which project should Savanna select?
(Points : 30)

Question 4. 4.(TCO 7) The management of Horton
Company estimates that credit sales for August, September, October, and
November will be \$270,000, \$375,000, \$420,000, and \$240,000,
respectively. Experience has shown that collections are made as follows.

In
month of sales

25%

In
first month after sale

60%

In
second month after sales

10%

Determine the collections from customers in October and November. Show all
computations. (Points : 30)

Question 5. 5.(TCO 8) Northern Companyâs budgeted
and actual sales for 2009 were as follows.

Product

Budgeted Sales

Actual Sales

A

6,000 units at \$8.00 per unit

6,810 units at \$7.80 per unit

B

5,000 units at \$10.00 per unit

4,720 units at \$10.40 per unit

Part (a): Calculate the sales volume variance.
Part (b): Calculate the sales price variance.
Part (c): Calculate the total sales variance.
(Points : 30)

Question 6. 6.(TCO 9) Herbart Company gathered the
following information on power costs and factory machine usage for the last 6
months.

Power Cost

Factory Machine Hours

January

\$24,400

13,900

February

30,300

17,600

March

29,000

16,800

April

22,340

13,200

May

19,900

11,600

June

14,900

6,600

Using the high-low method of analyzing costs, answer the following questions

Part (a): What is the estimated variable portion of power costs per factory
machine hour?
Part (b): What is the estimated fixed power cost each month?
Part (c): If it is estimated that 10,000 factory machine hours will be run in
July, what is the expected total power cost for July?

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