1. Savanna Company is considering two capital investment proposals. Relevant data on

each project are as follows:

Capital investment

Annual net income Estimated useful life

Project Red

$440,000 25,000 8 years

Project Blue $640,000

60,000 8 years

Depreciation is computed by the straight-line method with no salvage value. Savanna requires an 8% rate of return on all new investments. The present value of 1 for 8 periods at 8% is .540 and the present value of an annuity of 1 for 8 periods is 5.747.


(a) Compute the cash payback period for each project.

(b) Compute the net present value for each project.

(c) Compute the annual rate of return for each project.

(d) Which project should Savanna select.

(Problem is worth 75 points)

2. Carney Company manufactures cappuccino makers. For the first eight months of 2013, the

company reported the following operating results while operating at 80% of plant capacity:

Sales (500,000 units) $90,000,000 Cost of goods sold 54,000,000 Gross profit 36,000,000 Operating expenses 24, 000,000 Net income $12,000,000

An analysis of costs and expenses reveals that variable cost of goods sold is $95 per unit

and variable operating expenses are $35 per unit. In September, Carney Company receives a special order for 40,000 machines at $135 each from a major coffee shop franchise. Acceptance of the order would result in $10,000 of shipping

costs but no increase in fixed expenses.

REQUIIREMENTS: (a) Prepare an incremental analysis for the special order. (b) Should Carney Company accept the special order? Justify your answer.

(Problem is worth 50 points)

ACC 212 SPRING 2017


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3. Data concerning manufacturing overhead for Wilson Industries are presented below.

The Mixing Department is a cost center.

An analysis of the overhead costs reveals that all variable costs are controllable by the manager of the Mixing Department and that 50% of supervisory costs are controllable at the department level.

The flexible budget formula and the cost and activity for the months of July and August are as


Direct labor hours

Overhead costs


Flexible Budget Per Direct Labor Hour ActualCosts and Activity

July August

6,000 7,000

Indirect materials $3.50 $ 20,500 $ 25,100 Indirect labor 6.00 39,500 40,700 Factory supplies 1.00 7,600 8,200

Fixed Depreciation $20,000 15,000 15,000 Supervision 25,000 23,000 26,000 Property taxes 10,000 12,000 12,000

Total costs $117,600 $127,000

IREQUIREMENTS: (a) Prepare the responsibility reports for the Mixing Department for each month.

(b) Comment on the manager’s performance in controlling costs during the two month period.

(Problem is worth 50 points)

4. Pleasant Company has decided to begin accumulating a fund for plant expansion. The company deposited $80,000 in a fund on January 2, 2013. Pleasant will also deposit $40,000 annually at the end of each year, starting in 2013. The fund pays interest at 4% compounded annually. What is the balance of the fund at the end of 2017 (after the 2017 deposit)?

(Problem is worth 25 points)

ACC 212 SPRING 2017


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(EXTRA CREDIT)(Worth EC – 20 points) 5. Forrest Painting Service has budgeted the following time and material for 2016:


Time Charges

Material Charges

Painters’ wages and benefits $ 36,000 Service manager’s salary and benefits $23,000 Office employee’s salary and benefits 12,000 3,000 Cost of paint 50,000 Overhead (supplies, utilities, etc.) 16,000 8,500 Total budgeted costs $64,000 $84,500

Forrest budgets 4,000 hours of paint time in 2016 and will charge a profit of $12 per hour, in addition to a 25% markup on the cost of paint.

On February 15, 2016, Forrest is asked to prepare a price estimate to paint a building. Forrest estimates that this job will take 12 labor hours and $500 in paint.

REQUIREMENTS: 1. Compute the labor rate for 2016. 2. Compute the material loading charge rate for 2016. 3. Prepare a time-and-material price estimate for painting the building.

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