Problem Set 1 Sugar Sweet (SS) Company produces and sells 7,000…

Question Answered step-by-step Problem Set 1 Sugar Sweet (SS) Company produces and sells 7,000… Problem Set 1 Sugar Sweet (SS) Company produces and sells 7,000 specialty Treats per year at a selling price of $850 each. Its current production equipment, purchased for $1,850,000 and with a five-year useful life, is only two years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $500,000. However, the emergence of a new technology has led SS to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: A B C 1 Choice Upgrade Replace 2 One-time equipment costs $3,000,000 $4,800,000 3 Variable manufacturing cost per Treat $150 $70 4 Remaining useful life of equipment (years) 3 3 5 Terminal disposal value of equipment 0 0 Required 1. Should SS upgrade its production line or replace it? Show your calculations. (10 Marks) 2. Suppose the one-time equipment cost to replace the production equipment is negotiable. All other data are as given previously. What is the maximum one-time equipment cost that SS would be willing to pay to replace the old equipment rather than upgrade it? (10 Marks) 3. Assume that the capital expenditures to replace and upgrade the production equipment are as given in the original exercise, but that the production and sales quantity is not known. For what production and sales quantity would SS: (i) upgrade the equipment or (ii) replace the equipment? (10 Marks) 4. Assume that all data are as given in the original exercise. Nick Son is SS’s manager, and his bonus is based on operating income. Because he is likely to relocate after about a year, his current bonus is his primary concern. Which alternative would Nick Son choose? Explain. (10 Marks) Problem Set 2 Cari Tank (CT) produces and sells water tanks for the Regional market. The following are estimates relating to its 2020 budget: Selling Price———————————$1000 Variable cost per Tank———————$500 Fixed annual cost—————————-$150000 Nett Profit (After tax)———————–$300000 Income tax rate——————————-25% The mid-year review of the income statement revealed that sales were not at the expected level. For the six months of the year to June 2020, 350 units were sold at the estimated selling price with variable cost as planned. However, the net profit projection for 2020 would not be achieved unless management decisions are made. The following mutually exclusive alternatives were presented to management: a) The selling price should be reduced by $100. This reduction in selling price will allow 1000 units to be sold for the balance of the year. The budgeted fixed cost and variable cost per unit will remain unchanged. b) The variable cost per unit will be reduced by $25 by sourcing less expensive direct material. Also, the selling price will be reduced by $150 and the expected sales for the balance of the year is 1200 units. c) The fixed cost would be reduced by$15000 and the selling price by 5%. Variable cost will remain unchanged and 1100 units are expected to be sold for the balance of the year. Required: 1) Assume that no changes are made to the selling price or costs, calculate the amount of units that CariTank must sell: i) To breakeven (2 Marks) ii) To attain the estimated net profit (6 Marks) 2) Determine the alternative that CariTank should select to achieve its Net profit goal. (12 Marks) 3) Explain cost-volume-profit analysis using the data in this question? (10 Marks) Accounting Business Cost Accounting ACCT 2017 Share QuestionEmailCopy link Comments (0)