Accounting Three Problems Solution

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Description

Q1) Foto Company manufactures and sells a product called JYMP. Results from last year from the sale of JYMP appear below:
Sales revenue (8,000 JYMPs @ $120 each) ………….. $960,000
Variable costs ………………………………… 640,000
Contribution margin ……………………………. 320,000
Fixed costs:
Salaries of line supervisors ……………………. 100,000
Advertising expense ……………………………. 160,000
Allocated general overhead ……………………… 132,000
Net loss ……………………………………… <72,000>
Foto Company is considering eliminating the JYMP product line. The company has determined that if the JYMP product line is discontinued, the contribution margin of its other products will increase by $120,000.
Calculate the increase in company profits if the JYMP product line is discontinued.

Q2) Orr Company makes and sells a single product called a Bik. It takes three yards of Material A to
make one Bik. Budgeted production of Biks for the next three months is as follows:
Budgted Biks to be Produced
February 15,000 units
March 18,500 units
April 12,700 units
The company wants to maintain monthly ending inventories of Material A equal to 25% of the next month’s production needs. The cost of material A is $1.20 per yard. The company is in the process of preparing a direct materials purchases budget.
Calculate the total cost of material A budgeted to be purchased in March.

Q3) Apnea Video Rental Store is considering the purchase of an almost new minivan to deliver and pick up video tapes from customers. The minivan will cost $95,000 and is expected to last 10 years. However, the minivan’s engine will need to be overhauled at a cost of $5,000 at the end of year 3. In addition, purchasing this minivan would require an immediate investment of $15,000 in working capital which would be released for investment elsewhere at the end of the 10 years. The minivan is expected to have a $10,000 salvage value at the end of 10 years. This delivery service is expected to generate net cash inflows of $20,000 per year in each of the 10 years. Apnea’s cost of capital is 9%.

Calculate the net present value (NPV) of this investment opportunity. Do not use decimals in
your answer.

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