Compute the annual gross profit for the peanut division
Course:- Accounting Basics
Reference No.:- EM132082246

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Accounting Basics

Questions -

Q1. Appropriate Transfer Prices: Opportunity Costs

Plains Peanut Butter Company recently acquired a peanut-processing company that has a normal annual capacity of 3,000,000 pounds and that sold 2,700,000 pounds last year at a price of $2.00 per pound. The purpose of the acquisition is to furnish peanuts for the peanut butter plant, which needs 700,000 pounds of peanuts per year. It has been purchasing peanuts from suppliers at the market price. Production costs per pound of the peanut-processing company are as follows:

Direct materials


Direct labor


Variable overhead


Fixed overhead at normal capacity




Management is trying to decide what transfer price to use for sales from the newly acquired Peanut Division to the Peanut Butter Division. The manager of the Peanut Division argues that $2.00, the market price, is appropriate. The manager of the Peanut Butter Division argues that the cost price of $1.08 (or perhaps even less) should be used since fixed overhead costs should be recomputed. Any output of the Peanut Division up to 2,700,000 pounds that is not sold to the Peanut Butter Division could be sold to regular customers at $2.00 per pound.

(a) Compute the annual gross profit for the Peanut Division using a transfer price of $2.00.

(b) Compute the annual gross profit for the Peanut Division using a transfer price of $1.08.

Q2. Income Statements Segmented by Territory

Script, Inc., has two product lines. The September income statements of each product line and the company are as follows:

Product Line and Company Income Statements
For Month of September









Less variable expenses




Contribution margin




Less direct fixed expenses




Product margin




Less common fixed expenses


Net income


Pens and pencils are sold in two territories, Florida and Alabama, as follows:




Pen sales



Pencil sales



Total sales



The preceding common fixed expenses are traceable to each territory as follows:

Florida fixed expenses


Alabama fixed expenses


Home office administration fixed expenses


Total common fixed expenses


The direct fixed expenses of pens, $9,000, and of pencils, $8,000, cannot be identified with either territory. The company's accountants were unable to allocate any of the common fixed expenses to the various segments.

Prepare income statements segmented by territory for September, including a column for the entire firm.

Q3. Time Value of Money: Basics

1. An initial investment of $37,260 is to be returned in eight equal annual payments. Determine the amount of each payment if the interest rate is 6 percent.

2. A proposed investment will provide cash flows of $50,000, $8,000, and $5,000 at the end of Years 1, 2, and 3, respectively. Using a discount rate of 16 percent, determine the present value of these cash flows.

3. Find the present value of an investment that will pay $9,000 at the end of Years 10, 11, and 12. Use a discount rate of 10 percent.

Q4. NPV and IRR: Equal Annual Net Cash Inflows

Apache Junction Company is evaluating a capital expenditure proposal that requires an initial investment of $9,460, has predicted cash inflows of $2,000 per year for 16 years, and has no salvage value.

(a) Using a discount rate of 16 percent, determine the net present value of the investment proposal.

(b) Determine the proposal's internal rate of return.

(c) What discount rate would produce a net present value of zero?

Q5. Ranking Investment Proposals:

Payback Period, Accounting Rate of Return, and Net Present Value

Presented is information pertaining to the cash flows of three mutually exclusive investment proposals:


Proposal X

Proposal Y

Proposal Z

Initial investment




Cash flow from operations

Year 1




Year 2



Year 3







Life (years)

3 years

3 years

1 year

(a) Select the best investment proposal using the payback period, the accounting rate of return on initial investment, and the net present value criteria. Assume that the organization's cost of capital is 10 percent.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Accounting Basics) Materials
The Austin Land Company sold land for $85,000 in cash. The land was originally purchased for $65,000, and at the time of the sale, $40,000 was still owed to Regions Bank on
On January 1, 2013, Subsid had common stock of $260,000 and retained earnings of $400,000. During that year, Subsid reported sales of $270,000, cost of goods sold of $140,000,
The cost of supplies purchased by the Miali company was $4500 during the year. Miali Used $3500 worth of those supplies during the year and still had $1000 worth of them le
(a) Prepare a 2010 retained earnings statement for McEntire Corporation. (Enter all amounts as positive amounts and subtract where necessary.)
P1-5B Cinta Company is a manufacturer of toys. Its controller resigned in August 2011. An inexperienced assistant accountant has prepared the following income statement for th
Warner Company issued $800,00 of 6%, 10-year bonds on one of its interest dates for $690,960 to uield an effective annual rate of 8%. The effective-interest method of amorti
An examination of Taylor's payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each comple
The following data consists of 6 homes with variables Price = sale price in tens of thousands of dollars, Floor = floor size in thousands of square feet, and Lot= lot size.