Problems
1. Assume that you have a company and have to make some decisions based on calculated costs for a line of products. You will have to pick your own numbers for the following costs and for the volume your company produces, and they will be your givens: Givens
Units produced & expected to sell
Direct labor
Direct Materials
Manufacturing Overhead:
Variable portion
Fixed portion
Selling and administrative costs:
Variable portion
Fixed portion
Based on your givens determine the following:
a)
b)
c)
d) The manufacturing cost per unit.
The break-even selling price per unit.
What should be your selling price per unit if you want to make a profit of $100,000?
What will be the unit contribution margin based on the selling price determined in question c)? 2. A construction firm is evaluating the purchase of a new semi-trailer truck. The truck’s base price is $80,000,
but the company will need to modify it at an additional cost of $20,000. The truck will be sold after three
years for $30,000; and it falls into the MACRS five-year class. The purchase of this semi-trailer will have
no effect on the firm’s revenues, but it is expected to save $45,000 per year in before-tax operating cost,
mostly in leasing expenses. The company’s marginal tax rate (federal plus state) is 40%, and its MARR is
13%.
Determine the following:
a) Is this project acceptable, based on the most likely estimates given in the problem?
Why yes or why not?
b) What is the break-even interest rate for this project?
c) Will the project be acceptable if the annual savings will be $40,000 instead of $45,000?
This problem will have to be solved by creating the Income and the Cash Flow Statements.
