Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations

ACC 560 Week 2 Assignment

E3-14 Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations. The operation consists of three segments (departments): receiving, shipping, and delivery. Containers are received at Container's docks and sorted according to the ship they will be carried on. The containers are then loaded onto a ship, which carries them to the appropriate port of destination. The containers are then off-loaded and delivered to the receiving company. Container shipping wants to begin to use process costing in the shipping department. Direct materials represent the fuel costs to run the ship, and "Containers in transit" represents work in process. Listed below is information about the shipping department's first month's activity.

Containers in Transit April 1 0
Containers loaded 800
Containers in Transit April 30 350 40% of direct materials and
30% of conversion costs

Determine the physical flow of containers for the month
Compute the equivalent units for direct materials and conversion costs

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Imagen Arquitectonica of Tijuana, Mexico is contemplating a major change in its cost structure

E6-15 Imagen Arquitectonica of Tijuana, Mexico is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Alfredo Ayala, Imagen's owner, is considering replacing the draftsmen with a computerized drafting system.

However, before making the change Alfredo would like to know the consequences of the change, since the volume of business varies significantly from year to year. Shown below are CVP income statements for each alternative.

Manual System Computerized System
Sales $1,500,000 $1,500,000
Variable costs 1,200,000 600,000
Contribution margin 300,000 900,000
Fixed costs 60,000 660,000
Net income $240,000 $240,000

Instructions
a. Determine the degree of operating leverage for each alternative
b. Which alternative would produce the higher net income if sales increase by $100,000.
c. Using the margin of safety ratio, determine which alternative could sustain the greater decline in sales before operating at a loss.

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The Balboa Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one

The Balboa Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $600,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 year, but it can sell it now to another firm in the industry for $265,000. The old machine is being depreciated by $120,000 per year, using the straight line method.

The new machine has a purchase price of $1,175,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $145,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11% and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $255,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.

a) What is the initial net cash flow if the new machine is purchased and the old one is replaced?
b) Calculate the annual depreciation allowances for both machines, and compute the change in the annual depreciation expense if the replacement is made.
c) What are the incremental net cash flows in Years 1 through 5?
d) Should the firm purchase the new machine? Support your answer.
e) In general, how would each of the following factors affect the investment decision, and how should each be treated?
(1) The expected life of the existing machine decreases.
(2) The WACC is not constant but is increasing as Balboa adds more projects into its
capital budget for the year.

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Stephen Bosworth, a super salesman contemplating retirement on his fifty-fifth birthday

E6-8 (Computations for a Retirement Fund) Stephen Bosworth, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30, beginning in 2014 and continuing through 2017. To develop this fund, Stephen intends to make equal contributions on June 30 of each of the years 2010–2013. Instructions
(a) How much must the balance of the fund equal on June 30, 2013, in order for Stephen Bosworth to satisfy his objective?
(b) What are each of Stephen’s contributions to the fund?

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