3. (TCO 6) Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $25,000 and $65,000, respectively. Yappy requires a 10% return on all new investments.
Part (a) Compute each of the following:
1: Payback period.
2: Net present value.
3: Profitability index.
4: Internal rate of return.
5: Accounting rate of return.
(b) Indicate whether the investment should be accepted or rejected. (Points : 30)
4. (TCO 7) The management of Horton Company estimates that credit sales for August, September, October, and November will be $270,000, $375,000, $420,000, and $240,000, respectively. Experience has shown that collections are made as follows:
In month of sales 25%
In first month after sale 60%
In second month after sales 10%
Determine the collections from customers in October and November. Show all computations. (Points : 30)
5. (TCO 8) Western Company’s budgeted and actual sales for 2009 were:
Product Budgeted Sales Actual Sales
A 10,250 units at $16.00 per unit 12,130 units at $15.60 per unit
B 15,560 units at $12.00 per unit 12,940 units at $12.40 per unit
Part (a) Calculate the sales volume variance.
Part (b) Calculate the sales price variance.
Part (c) Calculate the total sales variance. (Points : 30)
6. (TCO 9) Mace Company accumulates the following data concerning a mixed cost, using miles as the activity level.
Miles Driven Total Cost
January 10,000 $15,000
February 8,000 13,500
March 9,000 14,400
April 7,500 12,500
Compute the variable and fixed cost elements using the high-low method. (Points : 30)
