Please show detail calculations for each question. 1) Marvel Company is consider

Question

Please show detail calculations for each question. 1) Marvel Company is considering the acquisition of two machines. Machine A Machine B Initial investment $200,000 $200,000 Annual operating revenues (end of year) $100,000 $160,000 Annual expenses (end of year) $25,000 $85,000 Terminal salvage value $10,000 $20,000 Estimated useful life 5 years 5 years Minimum desired rate of return 14% 14% Assume straight-line depreciation. Ignore income taxes. The present value of an ordinary annuity of one at 14% and 5 periods is 3.4331. The present value of one at 14% and 5 periods is 0.5194. A) Calculate the net present value for both machines. B) Assume there are enough funds to purchase both machines. Should both machines be purchased? C) Assume there are funds to purchase only one machine. Which machine should be purchased?

A carpenter company uses job-order costing.

The following is a summary of factory operations:

Direct materials purchased on account $125,000.00 Direct materials requisitioned $110,000.00 Direct labor costs incurred $256,000.00 Factory Overhead costs incurred (Depreciation Expense only) $150,000.00 Cost of goods completed $515,000.00 Cost of goods sold $$378,000.00 Sales on Account $430,000.00 Factory overhead applied ? Factory overhead costs are applied at 50% of direct labor costs. Required: a) Prepare the required journal entries for the above transactions b) Prepare the journal entry to dispose of the overhead variance using the immediate write-off method. c) Is the factory overhead overapplied or underapplied? d) What is the actual, correct amount of cost of goods sold?

Explanation / Answer

A.

NPV of both machines is calculated as under:

B.

Yes both can be purchased as NPV is positive.

C.

In this case Machine B should be purchased.

Note: Assumed depreciation is not shown in expense.

Machine A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cash Outflow ($2,00,000) Cash Inflow $1,00,000 $1,00,000 $1,00,000 $1,00,000 $1,10,000 Cash Outflow ($25,000) ($25,000) ($25,000) ($25,000) ($25,000) Net Cash Flow ($2,00,000) $75,000 $75,000 $75,000 $75,000 $85,000 Life 5 years Required Rate of Return is 14% Present Value factor 1 0.877 0.769 0.675 $1 0.519 Present Value of Cash outflow -2,00,000 Present Value of Cash inflow 65,775 57,675 50,625 44,400 44,115 Net Present value -2,00,000 65,775 57,675 50,625 44,400 44,115 62,590 Machine B Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cash Outflow ($2,00,000) Cash Inflow $1,60,000 $1,60,000 $1,60,000 $1,60,000 $1,80,000 Cash Outflow ($85,000) ($85,000) ($85,000) ($85,000) ($85,000) Net Cash Flow ($2,00,000) $75,000 $75,000 $75,000 $75,000 $95,000 Life 5 years Required Rate of Return is 14% Present Value factor 1 0.877 0.769 0.675 $1 0.519 Present Value of Cash outflow -2,00,000 Present Value of Cash inflow 65,775 57,675 50,625 44,400 49,305 Net Present value -2,00,000 65,775 57,675 50,625 44,400 49,305 67,780

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.