Exercises cms-3

1. ABC Corporation has developed the following standards for one of its products:
Standard cost of materials $0.50 per pound
Materials purchased and used 20,000 pounds
Total paid to suppliers $11,000
Standard quantity allowed 18,000 pounds
a. Calculated ABC Company's actual cost per pound of materials must have been (round to the
nearest cent?)
b. Calculated ABC Company's material price variance ?
c. Calculated ABC Company's materials usage variance? All supporting calculations?

2. BIN’S Company has identified the following production activities in its firm:
Activities Activity Driver SQ AQ SP
Purchasing parts orders 2,000 2,200 $500
Scheduling production production runs 0 500 $200
Assembling parts labor hours 200,000 205,000 $15
Reworking parts rework hours 0 15,000 $10
Inspecting parts inspection hours 0 8,000 $12
a. Refer to Figure 2. Which of the activities would be NOT be considered to be nonvalue-added?
1) 500 production runs associated with scheduling production
2) 5,000 labor hours associated with assembling products. SUPPORTING CALCULATIONS
b. Refer to Figure 2. Calculate the total value-added costs.
1) $1,000,000
2) $1,100,000
3) $4,000,000 SUPPORTING CALCULATIONS
c. Refer to Figure 2. Calculate the total nonvalue-added costs?
1) $246,000
2) $346,000
3) $421,000
4) $521,000 SUPPORTING CALCULATIONS PLEASE.

II. Case Problem (score 50%)

1. Comparison of Capital Budgeting Methods;
Camar Company is considering a proyect that would have eight year life and require a
$ 2,400,000 investment in equipment. At the end of eight years, the proyect would terminate and
the equipment would no have salvage value. The proyect would provide net operating income
each year as follows:
Sales $ 3,000,000
Variable expences 1,800,000
Contribution margin $ 1,200,000
Fixed expences :
Advertising, salary and other fixed-out of pocket
cost 700,000
Depreciation 300,000
Total fixed expenses 1,000,000
Net Operating Income $ 200,000
The company discount rate is 12%
Required :
1) Compute the net annual cash inflow from the proyect?
2) Compute the proyect’s net present value. Is the proyect acceptable?
3) Find the proyect’s internal rate of return to the nearest whole present?
4) Compute the proyect’s payback period?
5) Compute the proyect’s simple rate of return?.
ANSWER:

1. The annual net cash inflow can be computed by deducting the cash expenses form
sales:

Sales $3.000.000
Variabel Expenses 1.800.000
Contribution Margin 1.200.000
Advertising, Salaries, and other fixed 770.000
Net operating income $500.000

Or, the annual net cash inflow can be computed by adding depreciation back to net
operating income:

Net operating income $ 200.000

Add: Noncash deducation for depreciation 300.000
Annual net cash inflow 500.000

2. The net present value is computed as follows:

Items Year (s) Amount of 12% Present Value

Cash Flow Factor of cash flow

Cost of new equipment Now ($2.400.000) 1.000 ($2.400.000)

Annual net cash inflow 1-8 $500.000 4.968 2.484.000
$84.000