Tony Siebers is an accounting major at a midwestern state university located approximately 60 miles from a major city

ACC 560 Week 8 Assignment

P12-2A Tony Siebers is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Tony, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Tony has gathered the following investment information.

1. Five used vans would cost a total of $75,000 to purchase and would have a 3-year useful life with negligible salvage value. Tony plans to use straight-line depreciation.
2. Ten drivers would have to be employed at a total payroll expense of $48,000.
3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,000, Maintenance $4,300, Repairs $5,000, Insurance $5,200, Advertising $2,500.
4. Tony has visited several financial institutions to discuss funding. The best interest rate he has been able to negotiate is 8%. Use this rate for cost of capital.
5. Tony expects each van to make 10 round trips weekly and carry an average of 6 students each trip. The service is expected to operate 30 weeks each year, and each student will be charged $12.00 for a round-trip ticket.

Instructions
(a) Determine the annual (1) net income and (2) net annual cash flows for the commuter service.
(b) Compute (1) the cash payback period and (2) the annual rate of return. (Round to two decimals.)
(c) Compute the net present value of the commuter service. (Round to the nearest dollar.)
(d) What should Tony conclude from these computations? Is the commuter service a wise investment?


Click here for the solution: Tony Siebers is an accounting major at a midwestern state university located approximately 60 miles from a major city

If a truck is driven 147,000 miles during a year, the average operating cost is 8.7 cents per mile

If a truck is driven 147,000 miles during a year, the average operating cost is 8.7 cents per mile. If a truck is driven only 98,000 miles during a year, the average operating cost increases to 9.6 cents per mile.

a. Using high/low method, estimate the variable (3 decimal places) and fixed cost (nearest dollar amount) elements of the annual cost of truck operation.
b. Express the variable and fixed costs in the form Y= a+bX
c. If a truck driven 122,000 miles during a year, what total cost would you expect to be incurred?


Click here for the solution: If a truck is driven 147,000 miles during a year, the average operating cost is 8.7 cents per mile

Bruno Company accumulates the following data concerning a mixed cost, using miles as the activity level

BE5-4 Bruno Company accumulates the following data concerning a mixed cost, using miles as the activity level

Miles Driven Total Cost Miles Driven Total Cost
January 8,000 $14,150 March 8,500 $15,000
February 7,500 13,500 April 8,200 14,490

Compute the variable and the fixed cost element using the high-low method

Click here for the solution: Bruno Company accumulates the following data concerning a mixed cost, using miles as the activity level