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marishachu [46]
3 years ago
7

A company is considering replacing its air conditioner. They have narrowed their selection to two alternativesthat will offer co

nsiderable savings over their current system. If the effective annual interest rate is 8%,and the lifetime of the machines will be 15 years,what is the benefit cost ratio of eachmachine, and which machine should the company choose
Business
1 answer:
olganol [36]3 years ago
3 0

Answer:

A. Alternative 1 1.88

Alternative 2 1.73

Incremental Analysis 1.34

B. Alternative 2

Explanation:

A. Calculation to determine the benefit cost ratio of each machine,

First step is to calculate the present value of each Alternative

ALTERNATIVE 1

Calculation for alternative 1 Benefit and cost

Benefits = ($1500)(P/A, 8%, 15)

Benefits= ($1500)(8.5595)

Benefits= $12,839

Cost = $7,000 – ($500)(P/F, 8%,15)

Cost= $7,000 – ($500)(0.3152)

Cost = $6842

Now let calculate Alternative 1 Ratio of Benefit to Cost using this formula

Ratio of Benefit to Cost = Benefit/Cost

Let plug in the formula

Ratio of Benefit to Cost=$12,839/$6842

Ratio of Benefit to Cost= 1.88

Therefore the benefit cost ratio for Alternative 1 is 1.88

ALTERNATIVE 2

Calculation for alternative 2 Benefit and cost

Benefits = ($1900)(P/A, 8%,15)

Benefits= ($1900)(8.5595)

Benefits= $16,263

Cost = $9000 + ($1250)(P/F,8%,15)

Cost= $9000 + ($1250)(0.3152)

Cost=$9394

Now let calculate Alternative 1 Ratio of Benefit to Cost using this formula

Ratio of Benefit to Cost = Benefit/Cost

Let plug in the formula

Ratio of Benefit to Cost= $16,263/$9394

Ratio of Benefit to Cost = 1.73

Therefore the benefit cost ratio for Alternative 2 is 1.73

B. In order to know which machine should the company choose we have to determine the incremental analysis for each of the machine

Incremental Analysis = ($16,263- $12,839)/ ($9394 - $6842)

Incremental Analysis= 1.34

Based on the above calculation for Incremental Analysis we can see that the Incremental Analysis is greater than 1 which means that the machine that the company should choose is ALTERNATIVE 2

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3 years ago
Consider the following account balances (in thousands) for the Peterson Company.
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Answer:

Peterson Company

1. A schedule for the cost of goods manufactured for 2017:

A. Peterson Company

Schedule of Cost of Goods Manufactured

For the Year Ended December 31, 2017 (in thousands)

Beginning direct materials inventory            21,000

less ending direct materials inventory        (23,000)

Beginning Work-in-process inventory         26,000

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Purchases of direct materials                       74,000

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Indirect manufacturing labor                        17,000

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Depreciation - plant, building, & equipment 11,000

Repairs and maintenance - plant                  3,000

Total cost of manufactured goods         $133,000

B. Peterson Company

Schedule of Cost of Goods Manufactured

For the Year Ended December 31, 2017 (in thousands)

Direct materials

Beginning direct materials inventory            21,000

Purchases of direct materials                       74,000

Cost direct materials available                     95,000

less ending direct materials inventory         23,000

Direct materials used                                           72,000

Direct manufacturing labor                                 22,000

Indirect manufacturing costs:

Labor                                     17,000

Depreciation                         11,000

Plant Insurance                     7,000

Repairs and maintenance    3,000            

Total Indirect manufacturing costs                    38,000

Manufacturing costs incurred during 2017  $132,000

Beginning work in process inventory             26,000

Total costs to account for                             $158,000

less ending work in process inventory          25,000

Cost of goods manufactured                      $133,000

2. Peterson Company

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For the Year Ended December 31, 2017 (in thousands)

Sales Revenue                                                      $310,000

Cost of goods sold:

Beginning Finished goods inventory      13,100

Cost of goods manufactured               133,000

Cost of goods available for sale         $146,100

less ending Finished goods inventory 20,000

Cost of goods sold                              $126,100      126,100

Gross profit                                                           $183,900

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Selling & Distribution costs  91,000

General & Admin. costs      24,000

Total operating costs                                            $115,000

Operating income (loss)                                       $68,900

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The cost of manufactured goods is the sum of the costs of direct materials, direct labor, manufacturing overhead, and work in process inventory.

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The income statement is a statement of revenue and costs in order to show the financial performance of an entity during a period of time.  It shows the gross profit and net operating profit or loss.

The Gross profit is the difference between Sales Revenue and the Cost of goods sold.

The Operating Profit (Loss) is the difference between the Gross profit and the Operating costs.

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= 2% + 0.8 * 10%

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Answer:

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Credit: Account receivables $2,000

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