Backyard Living sells its barbecue sets for $170 each
Suppose the company incurs the following average cost per barbecue set:
Direct materials $52
Direct labor 28
Variable manufacturing overhead 11
Variable selling expenses 5
Fixed manufacturing overhead* 24
Total cost $120
* $ 1,800,000 / 75,000 units
Backyard Living has enough idle capacity to accept a one-time-only special order from Superstore, Inc for 2,000 barbecue sets at a sales price of $130 per set. Backyard Living will not incur $2 of variable selling expenses for this order.
How would accepting the order affect Backyard Living's operating income?
What will be an ideal response
Relevant variable costs:
Direct materials $52
Direct labor 28
Variable manufacturing overhead 11
Variable selling expenses 3
Total relevant variable costs $94
Expected increase in revenue (2,000 sets x $130 ) $260,000
Expected increase in variable manufacturing costs (2,000 sets x $94 ) 188,000
Expected increase in operating income (2,000 sets x $36 ) $72,000
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The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as:
A) solvency and leverage. B) solvency and profitability. C) solvency and liquidity. D) solvency and equity.
The cost of common equity financing is more difficult to estimate than the costs of debt and preferred equity
Explain why. What will be an ideal response?
Orange Inc, the Cupertino-based computer manufacturer, has developed a new all-in-one device: phone, music-player, camera, GPS, and computer. The device is called the iPip. The following data have been collected regarding the iPip project
The company has identified a prime piece of real estate and must purchase it immediately for $100,000. In addition, R&D expenditures of $175,000 must be made immediately. During the first year the manufacturing plant will be constructed. The plant will be ready for operation at the end of Year 1. The construction costs are $500,000 and will be paid upon completion. At the end of the Year 1, an inventory of raw materials will be purchased costing $50,000. Production and sales will occur during years 2 and 3. (Assume that all revenues and operating expenses are received (paid) at the end of each year.) Annual revenues are expected to be $850,000. Fixed operating expenses are $100,000 per year and variable operating expenses are 25% of sales. The construction facilities are classified as 10-year property for tax-depreciation purposes. When the plant is closed it will be sold for $200,000. (Note: Assume the investment in plant is depreciated during years 2 and 3.) The land will be sold for $225,000 at the end of year 3. The tax rate on all types of income is 34%. The cost of capital is 12%. What is the undiscounted sum of the initial cash flows incurred at Year 0 and Year 1 for the iPip project? MACRS Depreciation Rates Year 10-Year 15-Year 1 10.00% 5.00% 2 18.00% 9.50% 3 14.40% 8.55% A) -$100,000 B) -$175,000 C) -$275,000 D) -$550,000 E) -$825,000
Which of the following is true about fringe benefits?
What will be an ideal response?