Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool

EX 10-4 Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 9,000 units at $42 each. The new manufacturing equipment will cost $156,000 and is expected to have a 10-year life and $12,000 residual value. Selling expenses related to the new product are expected to be 5% of sales revenues. The cost to manufacture the product includes the following on a per-unit basis:

Direct labor $7.00
Direct materials 23.40
Fixed factory overhead-depreciation 1.60
Variable factory overhead 3.60
Total $35.60

Determine the net cash flows for the first year of the project, Years 2-9 and for the last year of the project.

Click here for the solution: Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool

Consider a firm that has decided to make, but has not yet announced, a large “bonus” cash dividend amounting in the aggregate to $5 million

B3. (Cash dividend versus share repurchase) Consider a firm that has decided to make, but has not yet announced, a large “bonus” cash dividend amounting in the aggregate to $5 million. The firm has 1 million shares outstanding that sell for $20 each. The firm has no debt; there are no taxes; and all transactions take place in a perfect capital market. Using calculations like those in the illustration of dividend irrelevance in a perfect capital market, show that shareholders will be indifferent between whether the firm pays out the “bonus” as a dividend or uses the money to buy back $5 million of its shares.


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The qualitative characteristics that make accounting information useful for decision-making purposes are as follows

E2-2 (Qualitative Characteristics) The qualitative characteristics that make accounting information useful for decision-making purposes are as follows.

Relevance Timeliness Representational faithfulness
Reliability Verifiability Comparability
Predictive value Neutrality Consistency
Feedback value

Instructions
Identify the appropriate qualitative characteristic(s) to be used given the information provided below.
(a) Qualitative characteristic being employed when companies in the same industry are using the same accounting principles.
(b) Quality of information that confirms users' earlier expectations.
(c) Imperative for providing comparisons of a company from period to period.
(d) Ignores the economic consequences of a standard or rule.
(e) Requires a high degree of consensus among individuals on a given measurement.
(f) Predictive value is an ingredient of this primary quality of information.
(g) Two qualitative characteristics that are related to both relevance and reliability.
(h) Neutrality is an ingredient of this primary quality of accounting information.
(i) Two primary qualities that make accounting information useful for decision-making purposes.
(j) Issuance of interim reports is an example of what primary ingredient of relevance?

Click here for the solution: The qualitative characteristics that make accounting information useful for decision-making purposes are as follows

(Make or Buy) Cincinnati Flow Technology (CFT) has purchased 10,000 pumps annually from Kobec, Inc

PROBLEM 14–48 Make or Buy

Cincinnati Flow Technology (CFT) has purchased 10,000 pumps annually from Kobec, Inc. Because the price keeps increasing and reached $102.00 per unit last year, CFT’s management has asked for an estimate of the cost of manufacturing the pump in CFT’s facilities. CFT makes stampings and castings and has little experience with products requiring assembly.
The engineering, manufacturing, and accounting departments have prepared a report for management which includes the following estimate for an assembly run of 10,000 pumps. Additional production employees would be hired to manufacture the pumps but no additional equipment, space, or supervision would be needed.
The report states that total costs for 10,000 units are estimated at $1,435,500 or $143.55 per unit. The current purchase price is $102.00 per unit, so the report recommends continued purchase of the product.
Components (outside purchases) ......... $ 180,000
Assembly labor* ........................................ 450,000
Manufacturing overhead† ........................ 675,000
General and administrative overhead‡ .. 130,500
Total costs ............................................... $1,435,500
* Assembly labor consists of hourly production workers.
†Manufacturing overhead is applied to products on a direct-labor-dollar basis. Variable-overhead costs vary closely with direct-labor dollars.
Fixed overhead ....................................................................................... 50% of direct-labor dollars
Variable overhead ................................................................................... 100% of direct-labor dollars
Manufacturing-overhead rate .................................................................. 150% of direct-labor dollars
‡General and administrative overhead is applied at 10 percent of the total cost of material (or components), assembly labor, and manufacturing
overhead.

Required:
Were the analysis prepared by Cincinnati Flow Technology’s engineering, manufacturing, and accounting departments and their recommendation to continue purchasing the pumps correct? Explain your answer and include any supporting calculations you consider necessary.

Click here for the solution: (Make or Buy) Cincinnati Flow Technology (CFT) has purchased 10,000 pumps annually from Kobec, Inc

(Qualitative Characteristics) The qualitative characteristics that make accounting information useful for decision-making purposes are as follows

Exercise 2-2 (E2-2). Qualitative Characteristics. The qualitative characteristics that make accounting information useful for decision-making purposes are as follows.

Relevance Timeliness Representational faithfulness
Reliability Verifiability Comparability
Predictive value Neutrality Consistency
Feedback value

Instructions
Identify the appropriate qualitative characteristic(s) to be used given the information provided below.
(a) Qualitative characteristic being employed when companies in the same industry are using the same accounting principles.
(b) Quality of information that confirms users' earlier expectations.
(c) Imperative for providing comparisons of a company from period to period.
(d) Ignores the economic consequences of a standard or rule.
(e) Requires a high degree of consensus among individuals on a given measurement.
(f) Predictive value is an ingredient of this primary quality of information.
(g) Two qualitative characteristics that are related to both relevance and reliability.
(h) Neutrality is an ingredient of this primary quality of accounting information.
(i) Two primary qualities that make accounting information useful for decision-making purposes
(j) Issuance of interim reports is an example of what primary ingredient of relevance

Click here for the solution: (Qualitative Characteristics) The qualitative characteristics that make accounting information useful for decision-making purposes are as follows