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 Companyâs 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
and show computations to support your answers.
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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