User Account

All Pages

Impact on this years divisional operating profit

Assignment Help Cost Accounting
Reference no: EM13514677

You were appointed the manager of Drive Systems Division (DSD) at Tunes2Go, a manufacturer of portable music devices using the latest developments in hard drive technology, on December 15 last year. DSD manufactures the drive assembly, M-24, for the company's most popular product. Your bonus is determined as a percentage of your division's operating profits before taxes. One of your first major investment decisions was to invest $3 million in automated testing equipment for the M-24. The equipment was installed and in operation on January 1 of this year. This morning, J. Bradley Finch III, the assistant manager of the division (and, not coincidentally, the grandson of the company founder and son of the current CEO) told you about an offer by Pan-Pacific Electronics. Pan-Pacific wants to rent to DSD a new testing machine that could be installed on December 31 (only two weeks from now) for an annual rental charge of $690,000. The new equipment would enable you to increase your division's annual revenue by 7 percent. This new, more efficient machine would also decrease fixed cash expenditures by 6 percent. Without the new machine, operating revenues and costs for the year are estimated to be as shown below.

Revenues and fixed and variable operating costs are all cash.
Sales revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,800,000
Variable operating costs . . . . . . . . . . . . . . . . . . . . 600,000
Fixed operating costs . . . . . . . . . . . . . . . . . . . . . . 2,250,000
Equipment depreciation. . . . . . . . . . . . . . . . . . . . . 450,000
Other depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 375,000

If you rent the new testing equipment, DSD will have to write off the cost of the automated testing equipment this year because it has no salvage value. Equipment depreciation shown in the income statement is for this automated testing equipment. Equipment losses are included in the bonus and operating profit computation. Because the new machine will be installed on a company holiday, there will be no effect on operations from the changeover. Ignore any possible tax effects. Assume that the data given in your expected income statement are the actual amounts for this year and next year if the current equipment is kept.

Required

a. Assume the new testing equipment is rented and installed on December 31. What will be the impact on this year's divisional operating profit?

b. Assume the new testing equipment is rented and installed on December 31. What will be the impact on next year's divisional operating profit?

c. Would you rent the new equipment? Why or why not?

Reference no: EM13514677

Questions Cloud

Define what is the concentration of h+(aq) ions : The pH of a certain solution is 4.5. What is the concentration of H+(aq) ions in the solution. A) 3.16 x 10^-5 M B) 3.16 x 10^4 M
What is the direct material cost for 2010 : Forham Inc. manufactures stainless steel knives. Following are factory costs incurred during 2010 - What is the direct material cost for 2010 and what is the direct labor cost for 2010
Determine the thickness of the shell : Bowling balls can be made from a variety of substances and are required to have a circumference of roughly 27.0 inches. calculate the thickness of the shell
What is the number of moles in the sample of gas : A sample of an ideal gas has a volume of 0.0100 m3, a pressure of 100 103 Pa, and a temperature of 300 K. What is the number of moles in the sample of gas
Impact on this years divisional operating profit : Assume the new testing equipment is rented and installed on December 31 - What will be the impact on this year's divisional operating profit?
How to calculate the h+ of the resulting solution : 100 mL of 0.150 M acid H2A are mixed with 100 mL of 0.1600 M NaOH. Calculate the [H+] of the resulting solution at equilibrium. Ka1 = 1.0 x 10^-5 Ka2 = 1.0 x 10^-7
Calculate the heaviest bowling ball : Bowling balls are roughly the same size, but come in a variety of weights. Given its official circumference of roughly 27.2 inches, calculate the heaviest bowling ball
How to calculate the titration constant : 200 mL of 0.150 M acid HA are mixed with 100 mL of 0.0800 M NaOH. Calculate the titration constant, kt, of the resulting reaction. Ka = 1.0 x 10^-5
How many times greater is the speed of sound in the rail : Have you ever listened for an approaching train by kneeling next to a railroad track and putting your ear to the rail. how many times greater is the speed of sound in the rail than in the air

Reviews

Write a Review

Cost Accounting Questions & Answers

  Explain gasb reporting requirements related to fair value

Explain the GASB reporting requirements related to fair value. How do these requirements differ from reporting requirements for corporate entities?

  Calculate interest revenue on notes receivable

Calculate interest revenue on notes receivable

  Difference in treatment of identifiable and unidentifiable

How much depreciation will be taken each year if the straight-line method of depreciation is used? Show calculations. "

  Commencement of business1 what date did business

commencement of business1. what date did business commence?2.work out how much it will cost to commence business.3.the

  Balance sheet for the bryan corporation

The balance sheet for the Bryan Corporation is shown below. Sales for the year were $3,680,000, with 75 percent of sales sold on credit and income statement for J. Lo Wedding Gowns, compute the following ratios:

  How much can clark claim as a child care credit in 2013

Clark, a widower, maintains a household for himself and his two dependent preschool children. For the year ended December 31, 2013, Clark earned a salary of $36,000. He paid $3,500 to a housekeeper to care for his children in his home.

  What was the amount of net sales

For the fiscal year, sales were $4,125,800, sales discounts were $380,000, sales returns and allowances were $186,750, and the cost of merchandise sold was $2,475,500.

  Explain why the two amounts differ

Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ.

  Calculate the breakeven point in patient days

Develop a template of costs. You should separate expenses into variable and fixed expenses. The SMH data file contains a template to provide some guidance and calculate the breakeven point in patient days.

  Eveluate the margin of safety - percentage of sales

Cost-volume-profit analysis cannot be used if which of the following occurs and eveluate the margin of safety expressed as a percentage of sales?

  Determine the payback period for the investment

Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $250,000 and will yield the following expected cash flows. Management requires investments to have a payback pe..

  Questionmanagement is trying to decide what transfer price

questionmanagement is trying to decide what transfer price to use for sales from the acquired company to the cooking

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd