Cool Runnings operates a chain of frozen yogurt shops. The company pays $5,000 of rent expense per month for each shop. The mana
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Answer:
Explanation:
We multiply the variable cost by each volume of production
for example direct materials 5 x 80,000 = 400,000
5 x 100,000 = 500,000
5 x 120,000 = 600,000
<u>Then for the fixed cost:</u>
notice the company expect to produce 1,200,000 units.
If fixed depreciation is $2 per unit then
1,200,000 x $2 = 2,400,000 depreciation per year.
we then divide this value by 12 to get the monthly fixed depreciation
2,400,000/12 = 200,000
Same procedure goes for supervision
1,200,000 units x $1 per unit = 1,200,000 per year
1,200,000/12 = 100,000 per month
Finally we add both, fixed and variable to et total overhead for the relevant range.
Answer:
present worth A: 513,821.51
present worth B: 431,013.1
<u><em>We should choose option B as the present worth is lower.</em></u>
<u><em>the IRR cannot be calculated </em></u>when all teh cashflow are negative as it the rate which makes the present value equal to zero. that means it will discount either the negative or postive subsequent cashflow to match an initial of the opposite sign.
Explanation:
For the intenal rate of return we must look for which rate makes the cost equal to zero.
For the opportunity cost, we solve for the present value of eahc discounted at the given rate of 9%
<em>Method A</em>
discount rate 0.09
# Cashflow Discounted
0 300000 300000
1 66000 60550.46
2 66000 55550.88
3 66000 50964.11
4 66000 46756.06
NPV 513821.51
<em>Method B</em>
# Cashflow Discounted
0 120000 120000
1 96000 88073.39
2 96000 80801.28
3 96000 74129.61
4 96000 68008.82
NPV 431013.1