Professional Documents
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Ma 2
Ma 2
Male de Mer Co makes and sells a product which has a variable cost of $30 and which sell
for $40 Budgeted fixed costs are $70,000 and expected sales are 8,000 units.
Required
2. Riding Breeches Co makes and Sells a single product, for which variable costs are as follows.
Direct materials 10
Direct labor 8
24
The sales price is $30 per unit, and fixed costs per annum are $68,000. The company wishes
to make a profit of $16,000 per annum.
3. Close Brickett Co makes a product which has a variable production cost of $8 and a variable
sales cost of $2 per unit. Fixed costs are $40,000 per annum, the sales price per unit is $18,
and the current volume of output and sales is 6,000 units. The company is considering
whether to have an improve machine for production. Annual hire costs would be $10,000
and it is expected that the variable cost of production would fall to $6 per unit.
(a) Determine the number of units that must be produced and sold to achieve the
same profit as is currently earned, if the machine is hired.
(b) Calculate the annual profit with the machine if output and sales remain at 6,000
units per annum.
4. Net cash flows, estimated for a capital investment project, have discount at four discount
rates with the following results:
Discounts Rate
What is the best estimate of the IRR using only the above data as appropriate?
5. A project, investing in new machinery, has an estimated, has an estimated five year life. The
cost of capital is 10% per annum.
0 (Cost) ($186,000)
The cumulative discount factor at 10% for Time 1 to 5 is 3.79. The discount factor at 10%
for Time 5 is 0.62.
6. An investment requires expenditure of $18,000 now will yield income of $8,000 pa for
times 2-5. Is the investment worthwhile when evaluated at a 10% discount rate? (lecture
note p136)
7. An investment requires expenditure of $15,000 now will yield income of $5,000 pa after
depreciation for times 1 – 3 then $4,000 after depreciation of year 4. The machine can be
sold for $3,000 in year 4. Research expenditure of $5,000 has been incurred on the new
product that would be made by the machine. Is the investment worthwhile when evaluated
at a 6% discount rate? (lecture note p136)
8. A business is considering implementing solar heating throughout its factories. This will cost
$900,000 after one year and the savings are estimated to be $400,000 two years from now
and $600,000 three years from now.
The savings figures are after time from existing managers has been charged to the project at
$30,000 per year. Discount rate = 10%
10. Here are actual figures for November and December 2016 and budgeted figures for 2017.
Tax 10,000
You are told that 60% of customers pay after one month and 40% after two months. Suppliers are
always paid after one month. Expenses are paid in the month incurred.
Draft the cash flow budget for the first four months of 2017.