1) The minimum average total cost occurs when Ted catches and processes 2,000 fish, leading to a cost of $45 per fish. 2) When the market price is set at $51 per fish, Ted's optimal output is 3,000 fish, yielding a profit of $12,990. 3) At a market price of $45 per fish, Ted would again produce 2,000 fish but would not earn any profit.
$8,400
The calculation for the annual financial benefit (loss) for the organization is detailed below:
Particulars Make Buy
Direct material $53,600 (8,000 units × $6.70)
Direct labor $64,800 (8,000 units × $8.10)
Variable manufacturing overhead $8,800 (8,000 units × $1.10)
Supervisor's salary $16,000 (8,000 units × $2)
Fixed manufacturing overhead $2,000
Opportunity cost $16,000
Purchase cost $169,600 (8000 × $21.20)
Total relevant cost $161,200 $169,600
Financial (loss) is = $161,200 - $169,600 = -$8,400
We simply compared the make and buy costs and found that purchasing incurs a higher cost than manufacturing, leading to an excess expense of $8,400 if the external supplier is chosen.
a. Determine the initial investment tied to replacing the current grinder with the new one.
Initial investment = cost of the new grinder + installation costs of the new grinder - after-tax revenue from selling the old grinder + increase in net working capital.
Cost of the new grinder = $105,000.
Cost to install the new grinder = $5,000.
After-tax revenue from the old grinder = $70,000 - ($70,000 - {$60,000 x (1 - 52%)] x 40%} = $70,000 - $16,480 = $53,520.
Increase in net working capital = $40,000 + $30,000 - $58,000 = $12,000.
Thus, initial investment = $105,000 + $5,000 - $53,520 + $12,000 = $68,480.
b. Assess the incremental operating cash inflows related to the new grinder installation. (Remember to factor in depreciation in year 6.)
New grinder cash flows:
Year 1 = [($43,000 - $22,000) x (1 - 40%)] + $22,000 = $34,600.
Year 2 = [($43,000 - $35,200) x (1 - 40%)] + $35,200 = $39,880.
Year 3 = [($43,000 - $21,120) x (1 - 40%)] + $21,120 = $34,248.
Year 4 = [($43,000 - $12,672) x (1 - 40%)] + $12,672 = $30,868.80.
Year 5 = [($43,000 - $12,672) x (1 - 40%)] + $12,672 + $18,000 (NWC) + $19,934.40 (after-tax salvage value) = $68,803.20.
Old grinder cash flows:
Year 1 = [($26,000 - $11,520) x (1 - 40%)] + $11,520 = $20,208.
Year 2 = [($24,000 - $6,912) x (1 - 40%)] + $6,912 = $15,964.80.
Year 3 = [($22,000 - $6,912) x (1 - 40%)] + $6,912 = $15,964.80.
Year 4 = [($20,000 - $3,456) x (1 - 40%)] + $3,456 = $13,382.40.
Year 5 = $18,000 x (1 - 40%) = $10,800.
Incremental cash flows:
Year 1 = $34,600 - $20,208 = $14,392.
Year 2 = $39,880 - $15,964.80 = $23,915.20.
Year 3 = $34,248 - $15,964.80 = $18,283.20.
Year 4 = $30,868.80 - $13,382.40 = $17,486.40.
Year 5 = $68,803.20 - $10,800 = $58,003.20.
c. Determine the expected terminal cash flow at the end of year 5 from the grinder replacement.
Terminal cash flow = regaining net working capital + after-tax salvage value = $18,000 + $19,934.40 = $37,934.40.
d. Show a timeline displaying the relevant cash flows for the proposed grinder replacement decision.
Year 0 = -$68,480.
Year 1 = $34,600.
Year 2 = $39,880.
Year 3 = $34,248.
Year 4 = $30,868.80.
Year 5 = $68,803.20.
The definitions are accurately paired with their corresponding terms
Explanation:
1. Operating cycle - C. The duration necessary to procure goods or services from suppliers, distribute them to customers, and collect payment from those customers.
2. Accrual basis accounting- B. Record expenses when they are incurred to generate revenue.
3. Retained Earnings = Beginning Retained Earnings + Net Income - Dividends Declared - J. This represents the equation from the income statement.
4. Unearned revenue - F. This asset account captures cash paid in advance of incurred expenses.
5. Revenues - Expenses = Net Income - L. This is known as the retained earnings equation.
6. Expenses - I. Record revenues when received and expenses when they are disbursed.
7. Prepaid Expenses - A. To report the longevity of a business over shorter periods.
8. Gains - E. These are increases in assets or reductions in liabilities resulting from peripheral transactions.
9. None of these are accurate
