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3 years ago

What is broad averaging, and what consequences can it have on costs?

2 answers:

7 0

What is broad averaging, and what consequences can it have on costs? Broad averaging is when a company or organization spreads the cost of resources across different objects to help the individual products or services stay equal. When a company does this they are assigning the costs of resources uniformly to cost objects. Broad averaging directly relates to costs because they can mislead an organizations data reports by spreading out the costs inappropriately.

timofeeve [1]3 years ago

5 0

For the answer to the question above, when applying that to a business, you are ignoring the variation in the consumption of resources by the different cost of objects or products that can lead to inaccurate and misleading cost data. In that result, it can negatively impact the marketing and operating decisions.

That costing method or approach uses a broad averaging for applying the cost of resources uniformly to cost objects. When in fact those are not uniform ways at all.

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What is the present value of the future cash flows, if you also could earn $110,000 per year rent on the property? The rent is p

dem82 [27]

Answer:

a. The present value of the sales price is $1.657 million.

b. No. This is because an investment in the property will result in a negative net present value (NPV) of $0.443 million.

c-1. The present value of the future cash flows is $2.122 million.

c-2. Yes. Yes. This is because an investment in the property will result in a positive net present value (NPV) of $0.022 million.

Explanation:

Note: This question is not complete. The complete question is therefore presented before answering the question as follows:

You can buy property today for $2.1 million and sell it in 6 years for $3.1 million. (You earn no rental income on the property.)

a. If the interest rate is 11%, what is the present value of the sales price? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

b. Is the property investment attractive to you?

c-1. What is the present value of the future cash flows, if you also could earn $110,000 per year rent on the property? The rent is paid at the end of each year. (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

c-2. Is the property investment attractive to you now?

The explanation to the answers is now provided as follows:

a. If the interest rate is 11%, what is the present value of the sales price? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

The present value of the sales price can be calculated using the simple present value formula as follows:

PV = FV / (1 + r)^n ……………………….. (1)

Where;

PV = Present value of the sales price = ?

FV = Future value or the sales price in 6 years = $3.1 million

r = interest rate = 11%, or 0.11

n = number of years = 6

Substitute the values into equation (1), we have:

PV = $3.1 / (1 + 0.11)^6

PV = $3.1 / 1.11^6

PV = $3.1 / 1.870414552161

PV = $1.65738659187525 million

Rounding to 3 decimal places, we have:

PV = $1.657 million

Therefore, the present value of the sales price is $1.657 million.

b. Is the property investment attractive to you?

No. This is because an investment in the property will result in a negative net present value (NPV) of $0.443 million.

The negative net present value (NPV) of $0.443 million is determined as follows:

NPV = Present value of the sales price - Acquisition cost = $1.657 million - $2.1 million = -$0.443 million

The present value of the future cash flows can be calculated using the following steps:

Step 1: Calculation of the present value of the $110,000 per year rent

Since the rent is paid at end of each year, this can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PVR = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (2)

Where;

PVR = Present value of yearly rent = ?

P = Annual rent =$110,000

r = interest rate = 11%, or 0.11

n = number of years = 6

Substitute the values into equation (2) to have:

PVR = $110,000 * ((1 - (1 / (1 + 0.11))^6) / 0.11)

PVR = $110,000 * 4.23053785373826

PVR = $465,359.163911209

Converting to million and rounded to 3 decimal places, we have:

PVR = $0.465 million

Step 2: Calculation of the present value of the future cash flows

Present value of future cash flows = Present value sales price + Present value of annual rent ……. (3)

Where;

Present value sales price = $1.657 million, as already calculate in part a above

Present value of annual rent = PVR = $0.465 million

Substituting the values into equation (3), we have:

Present value of future cash flows = $1.657 million + $0.465 million = $2.122 million

Therefore, the present value of the future cash flows is $2.122 million.

c-2. Is the property investment attractive to you now?

Yes. This is because an investment in the property will result in a positive net present value (NPV) of $0.022 million.

The positive net present value (NPV) of $0.022 million is determined as follows:

NPV = Present value of tof the future cash flows - Acquisition cost = $2.122 million - $2.1 million = 0.0219999999999998 million

Converting to million and rounded to 3 decimal places, we have:

NPV = $0.022 million

6 0

3 years ago

The purchase of raw materials on account in a process costing system is recorded with a:A. Debit to Purchases and credit to Cash

Mashcka [7]

Answer: The purchase of raw materials on account in a process costing system is recorded with a "C. Debit to Raw Materials Inventory and a credit to Accounts Payable.".

Explanation: The purchase of raw materials must reflect an increase in the inventory of raw materials and an increase in the liability generated by the purchase on account.

6 0

4 years ago

You are depositing $3,000 in a retirement account today and expect to earn an average return of 7.5 percent on this money. How m

GrogVix [38]

If we're expecting 7.5% of an increase of our $3,000 in 40 years, then we need to figure out how much of an increase we will get for the 5 plus years.

1.We're constantly dividing until we get the left side to 5 (years).

7.5% -- 40 (Half of 40 is 20, so let's divide by 2 on both sides)

3.75% -- 20 (Half of 20 is 10, so let's divide by 2 on both sides)

1.875% -- 10 (Half of 10 is 5, so let's divide 2 on both sides)

0.9375% -- 5 (We've reached our goal!)

2. Now we have to plug in.

$3,000 x 7.5 = 22,500 (Initial)

Our New Problem with 45 Years Total:

Answer: $3,000 x 8.4375 = $25,312.5

(I never completed a problem like this before, so I hope that this helps. Goodluck.)

6 0

3 years ago

Applying Excel: Exercise (Part 2 of 2)

Vilka [71]

Answer:

ROI 15%

Residual Income $1,350,000

Explanation:

Residual Income is the difference between net income of the company and the required rate of return. It determines the excess of income generate than the minimum return. The formula to calculate the residual income is,

RI = Net operating Income - (Required rate of return * Cost of operating assets)

RI = $4,500,000 - (21% * $15,000,000 )

RI = $1,350,000

ROI = $\frac{Net Operating Income}{Capital Employed}$

Capital Employed = Sales - Average operating assets

ROI = 15%

Residual income is positive when the department has meet the minimum return requirement. Minimum return is the return that is required by the company stakeholders. The particular projects and activities are selected on the basis of residual income.

8 0

4 years ago

xyz's corporation has an investment in 20,000 shares of wallace company common stock with a cost of $872,000. these shares are u

Flura [38]

Answer:

XYZ's Corporation

The net effect of this property dividend on retained earnings is a reduction of:

= $388,000.

Explanation:

a) Data and Calculations:

Cost of investment in Wallace Company = $872,000

Property dividend declaration date = May 25

Property dividend distribution date = July 31

Property dividend date of record = June 15

Fair value per share of Wallace shares:

May 25 = $63

June 15 = $66

July 31 = $68

Amount of property dividend declared = $1,260,000 ($63 * 20,000)

Analysis of entries:

May 25:

Property dividend $872,000 Loss on Distribution $388,000 Property Dividend Payable $1,260,000

July 31:

Property Dividend Payable $1,260,000 Cash $1,260,000

5 0

3 years ago

What is broad​ averaging, and what consequences can it have on​ costs?

What is broad averaging, and what consequences can it have on costs?