Twyla Enterprises uses a computer to handle its sales invoices.
Lately, business has been so good that it takes an extra 3 hours per
night, plus every third Saturday, to keep up with the volume of sales
invoices. Management is considering updating its computer with a faster
model that would eliminate all of the overtime processing. Current
Machine New Machine Original purchase cost $15,000 $25,000 Accumulated
depreciation $ 6,000 — Estimated annual operating costs $24,000 $18,000
Useful life 5 years 5 years If sold now, the current machine would have a
salvage value of $5,000. If operated for the remainder of its useful
life, the current machine would have zero salvage value. The new machine
is expected to have zero salvage value after five years. Instructions
Should the current machine be replaced? Make incremental analysis
concerning elimination of division. 3.) Pro Sports Inc. manufactures
basketballs for the National Basketball Association (NBA). For the first
6 months of 2008, the company reported the following operating results
while operating at 90% of plant capacity and producing 112,500 units.
Amount Sales $4,500,000 Cost of goods sold 3,600,000 Selling and
administrative expenses 450,000 Net income $ 450,000 Fixed costs for the
period were: cost of goods sold $1,080,000, and selling and
administrative expenses $225,000. In July, normally a slack
manufacturing month, Pro Sports receives a special order for 10,000
basketballs at $28 each from the Italian Basketball Association (IBA).
Acceptance of the order would increase variable selling and
administrative expenses $0.50 per unit because of shipping costs but
would not increase fixed costs and expenses. Instructions (a) NI
increase $31,000 (a) Prepare an incremental analysis for the special
order. (b) Should Pro Sports Inc. accept the special order? Explain your
answer. (c) What is the minimum selling price on the special order to
produce net income of $4.10 per ball? (d) What nonfinancial factors
should management consider in making its decision? Make incremental
analysis related to make or buy, consider opportunity cost, and identify
nonfinancial factors.
No comments:
Post a Comment