Question and Answer - 47

accounts and notes receivable 150,000 Retailers' inventories 200,000 Prepaid expenses 8,000
Accounts and notes payable
Consider the cash flow: Year Cash Flow o -$100 1 +50 2 +60 3 +70 4 +80 5 +140 Which one of
the following is correct for this cash flow? (a) 100 = 50 + 10(A/G, i, 5) + 50(P/F.i,5) (b) 50(P/A,
i, 5) + 10(P/G, i, 5) + 50(P/F, i, 5)/100 = 1 (c) 100(Aj P, i, 5) = 50 + 10 (Aj G, i, 5) (d) None of
the equations are c
An engineering student bought a car at a local used car lot. Including tax and insurance, the total
price was $3000. He is to pay for the car in 12 equal monthly payments, beginning with the first
payment immediately (in other words, the first payment was the down payment). Nominal
interest on the loan is 12%, compound
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The following facts are to be used in solving Problems 17-4 through 17.7 in assembling data for
the Peabody Company annual capital budget five independent projects are being considered.
Detailed examination by the staff has resulted in the identification of three to six mutually
exclusive do something alternatives for
Derive an equation to find the end of year future sum F that is equivalent to a series of n
beginning-of-year payments B at interest rate i. Then use the equation to determine the future
sum F equivalent to six B payments of $100 at 8% interest.
A company deposits $2000 in a bank at the end of every year for 10 years. The company makes
no deposits during the subsequent 5 years. If ~e bank pays 8% interest, how much would be in
the account at end of 15 years?
For Sutton Manufacturing, determine the current ratio and the acid-test ratio. Are these values
acceptable? Why or why not? Sutton Manufacturing Balance Sheet Data (Thousands) Assets
Liabilities Current assets Current liabilities Cash $870 Notes payable $500 Account 450
Accounts payable 600 Recei
The contract offered by Taker Bros. is a favorable one, which Raleigh Soap plans to accept.
Raleigh management has set a 15% before-tax minimum attractive rate of return as the criterion
for any of the projects. Which projects should be undertaken? Ten capital spending proposals
have been made to the budget committee a
For an unlimited supply of money, and replacementAssumption2, which project alternatives

should Peabody select? Solve the problem by rate of return methods. (Hint: By careful inspection
of the alternatives, you should be able to reject about half) if them. Even then the problem
requires lengthy calculations) for a capi
Upon the birth of his first child, Dick Jones decided to establish a savings account to partly pay
for his son's education. He plans to deposit $20 per month in the account, beginning when the
boy is 13 months old. The savings and loan association has a current interest policy of 6% per
annum, compounded monthly, paid
The council members of a small town have decided that the earth levee that protects .the town
from a nearby river should be rebuilt and strengthened. The town engineer estimates that the cost
of the work at the end of the first year will be $85,000. He estimates that in subsequent years the
annual repair costs will dec
The general ledger of the Fly-Buy-Nite (FBN) Engineering Company contained the following
account balances (partial listing) at the end of June, 2004. Construct an income statement. What
is the net income before taxes and the net profit (or loss) after taxes? FBN has a tax rate of 27%.
Amount (Thousands) Admi
A company buys a machine for $12,000, which it agrees to pay for in five equal annual
payments, beginning one year after the date of purchase, at an interest rate of 4% per annum.
Immediately after the second payment, the terms of the agreement are changed to allow the
balance due to be paid off in a single payment the
Consider the following cash flow: Year Cash Flow 0 -$P 1 +1000 2 +850 3 +700 4 +550 5 +400
6 +400 7 +400 8 +400 Alice was asked to compute the value of P for the cash flow at 8%interest.
She wrote three equations: (a) P = 1000(P/A, 8%, 8) -150(P/G, 8%, 8) + 150(P / G, 8%, 4) (P / F,
8%,4) (
A bank recently announced an "instant cash" plan for holders of its bank credit cards. A
cardholder may receive cash from the bank up to a preset limit (about $500). There is a special
charge of 4% made at the time the "instant cash" is sent to the cardholders. The debt may be
repaid in monthly installments. Each month
How much must be deposited now at 5.25% interest to produce $300 at the end of ~very year for
10 years?
Using the loan and payment plan developed in Problem 4-40 determine the month that the final
payment is due, and the amount of the final payment, if $500 is paid for payment 8 and $280 is
paid for payment 10. This problem requires a separate amortization table giving the balance due,
principal payment, and interest pay
For an unlimited supply of money, and replacement Assumption 1, which project alternatives
should Peabody select? Solve the problem by present worth methods. (Answer: Alternatives 1B,
2A, 3F, 4A, and 5A) For an unlimited supply of money, and replacementAssumption2, which
project alternatives should Pea' ly select Solve
Find the value of P for the following cash flow diagram.
If i = 12%, what is the value of B in the diagram?
The Macintosh Company has an employee savings plan that allows every employee to invest up
to 5% of his or her annual salary. The money is invested in company common stock with the
company guaranteeing that the annual return 'rill never be less than 8%. Jill was hired at an
annual salary of $52,000. She immediately joi
In Table 3-1 in the text, four plans were presented for the repayment of $5000 in 5 years with
interest at 8%. Still another way to repay the $5000 would be to make four annual end-of-year
payments of $1000 each, followed by a final payment at the end of the fifth year. How much
would the final payment be?
What monthly interest rate is equivalent to an effective annual interest rate of 18%?
What is the present worth of cash flows that begin at $30,000 and decrease at 15%per year for 6
years? The interest rate is 10%.
A stonecutter, assigned to carve the headstone for a well-known engineering economist, began
with the following design.
A young engineer wishes to become a millionaire by the time he is 60 years old. He believes that
by careful investment he can obtain a 15% rate of return. He plans to add a uniform sum of
money to his investment program each year, beginning on his 20th birthday and continuing
through his 59th birthday. How much money m
A $ 150 bicycle was purchase don December 1with a $15 down payment the balance is to be
paid at the rate of $10 at the end of each month, with the first payment due on December 31. The
last payment may be some amount less than $10. If interest on the unpaid balance is computed at
11/2%per month, how many payments will
A bank advertises it pays 7% annual interest, compounded daily, on savings accounts, provided
the money is left in the account for 4 years. What effective annual interest rate do they pay?
For some interest rate i and some number of interest periods n, the uniform series capital
recovery factor is 0.1728 and the sinking fund factor is 0.0378. What is the interest rate?
In 1555, King Henry borrowed money from his bankers on the condition that he pay 5% of the
loan at each fair (there were four fairs per year) until he had made 40 payments. At that time the
loan would be considered repaid. What effective annual interest did King Henry pay?
The following beginning-of-month (BOM) and end of month (EOM) amounts are to be
deposited in a savings account that pays interest at 9% compounded monthly: Today (BOM 1)
$400 EOM2 270 EOM6 100 EOM7 180 BOM 10 200 Set up a spreadsheet to calculate the
account balance at the end of first year (EOM12). The spreads
Compute the value of P that is equivalent to the four cash flows in the following diagram.
The I've Been Moved Corporation receives a constant flow of funds from its worldwide
operations. This money (in the form of checks) is continuously deposited in many banks with the
goal of earning as much interest as possible for "IBM." One billion dollars is deposited each
month, and the money earns an average of 1/2%
Traffic at a certain intersection is currently 2000 cars per day. A consultant has told the city that
traffic is expected to grow at a continuous rate of 5%per year for the next 4 years.
A man buys a car for $3000 with no money down. He pays for the car in 30 equal monthly
payments with interest at 12% per annum, compounded monthly. What is his monthly loan
payment?
What is the value of P for the situation diagrammed?
A man has $5000 on deposit in a bank that pays 5% interest compounded annually. He wonders
how much more advantageous it would be to transfer his funds to another bank whose dividend
policy is 5% interest, compounded continuously. Compute how much he would have in his
savings account at the end of 3 years under each of
A homeowner may upgrade a furnace that runs on fuel oil to a natural gas unit. The investment
win be $2500 installed. The cost of the natural gas will average $60 per month over the year,
instead of the $145 per month that the fuel oil costs. If the interest rate is 9% per year, how long
will it take to recover the ini
A series of monthly cash flows is deposited into an account that earns 12% nominal interest
compounded monthly. Each monthly deposit is equal to $2100. The first monthly deposit
occurred on June 1, 1998 and the last monthly deposit will be on January 1, 2005. The account
(the series of monthly deposits, 12% nominal int
Compute the value of Q in the following diagram.

Michael Jacks deposited $500,000 into a bank for 6 months. At the end of that time, he withdrew
the money and received $520,000. If the bank paid interest based on continuous compounding:
(a) What was the effective annual interest rate? (b) What was the nominal annual interest rate?
PARC Company has money to invest in an employee benefit plan, and you have been chosen as
the plan's trustee. As an employee yourself, you want to maximize the interest earned on this
investment and have found an account that pays 14% compounded continuously. PARC is
providing you $1200 per month to put into your accou
The market volume for widgets is increasing by 15% per year from current profits of $200,000.
Investing in a design change will allow the profit per widget to stay steady; otherwise they will
drop 3% per year. What is the present worth of the savings over the next 5 years? Ten years? The
interest rate is 10%.
A local bank will lend a customer $1000 on a 2-year car loan as follows: Money to pay for car
$1000 Two years' interest at 7%: 2 x 0.07 x 1000 140 24 monthly payments = 1140/24 = $47.50
$1140 The first payment must be made in 30 days. What is the nominal annual interest rate the
bank is receiving?
Use a geometric gradient factor to solve the following diagram for P.
Our cat, Fred, wants to purchase a new litter box. The cost is $100 and he'll finance it over 2
years at an annual rate of 18% compounded monthly and to be repaid in 24 monthly payments.
(a) What is his monthly payment? (b) At the time of the thirteenth payment, Fred decides to
payoff the remainder of the loan. Using r
In a present worth analysis of certain equipment, one alternative has a net present worth of +420,
based on a 6-year analysis period that equals the useful life of the alternative. A 10% interest rate
was used in the computations. The alternative device is to be replaced at the end of the 6 years by
an identical item w
What amount will be required to purchase, on a man's 40th birthday, an annuity to provide him
with 30 equal semiannual payments of $1000 each, the first to be received on his 50th birthday,
if nominal interest is 4% compounded semiannually?
Calculate and print out the balance due, principal payment, and interest payment for each period
of a used-car loan. The nominal interest is 12% per year compounded monthly. Payments are
made monthly for 3 years. The original loan is for $11,000.
A 25-year old engineer is opening an individual retirement account (IRA) at a bank. Her goal is
to accumulate $1 million in the account by the time she retires from work in 40 years. The bank
manager estimates she may expect to receive 8% nominal annual interest, compounded quarterly,
throughout the 40 years. The engin
A contractor wishes to set up a special fund by making uniform semiannual end-of-period

deposits for 20 years. The fund is to provide $10,000 at the end of each of the last 5 years of the
20-year period is interest is 8%, compounded semiannually, what is the required semiannual
deposit?
A local finance company will loan $10,000 to a homeowner. It is to be repaid in 24 monthly

payments of $499 each. The first payment is due 30 days after the $10,000 is received. What
interest rate per month are they charging? (Answer: 11/2%)
Select the best alternative among the following five alternatives. Assume the investment is for a
period of 4 years and P = $10,000. (a) 11.98% interest rate compounded continuously (b)
12.00% interest rate compounded daily (c) 12.01% interest rate compounded monthly (d)
12.02% interest rate compounded quarterly (e) 12
A thousand dollars is invested for 7 months at interest rate of 1% per month. What is the nominal
interest rate? What is the effective interest rate?
A bank is offering to sell 6-month certificates of deposit for $9500. At the end of 6 months, the
b~ will pay $10,000 to the certificate owner. Based on a 6-month interest period, compute the
nominal annual interest rate and the effective annual interest rate
If i = 10%, what is the value of P?
A local lending institution advertises the "51-50 Club." A person may borrow $2000 and repay
$51 for the next 50 months, beginning 30 days after receiving the money. Compute the nominal
annual interest rate for this loan. What is the effective interest rate?
To repay a $1000 loan, a man paid $91.70 at the end of each month for 12 months. Compute the
nominal interest rate he paid.
The Bawl Street Journal costs $206, payable now, for a 2-year subscription. The newspaper is
published 252 days per year (5 days per week, except holidays). If a 10% nominal annual interest
rate, compounded quarterly, is used: (a) What is the effective annual interest rate in this
problem? (b) Compute the equivalent in
For some interest rate i and some number of interest periods n, the uniform series capital
recovery factor is 0.1728 and the sinking fund factor is 0.0378. What is the interest rate?
A group of 10 public-spirited citizens has agreed that they will support the local school hot lunch
program. Each year one of the group is to pay the $15,000 cost that occurs continuously and
uniformly during the year. Each member of the group is to underwrite the cost for one year. Slips
of paper numbered year 1 throu
Bart Simpson wishes to tour the country with his friends. To do this, he is saving money for a
bus. (a) How much money must Bart deposit in a savings account paying 8% nominal annual
interest, compounded continuously, in order to have $8000 in 41/2years? (b) A friend offers to
repay Bart $8000 in 41/2years if Bart give
One of the largest automobile dealers in the city advertises a 3-year-old car for sale as follows:
Cash price $3575, or a down payment of $375 with 45 monthly payments of $93.41. Susan
DeVaux bought the car and made a down payment of $800. The dealer charged her the same
interest rate used in his advertised offer. How
Two savings banks are located across the street from each other. The West Bank put a sign in the
window saying, "We pay 6.50%, compounded daily." The East Bank put up a sign saying, "We
pay 6.50%, compounded continuously." Jean Silva has $10,000 which she will put in a bank for
one year. How much additional interest wi
Our cat, Fred, has convinced me that I should set up an account that will assure him of his Meow
Mix for the next 4 years. I will deposit an amount P today that will permit Fred to make end-of-
the-month with-drawls of $10 for the next 48 months. Consider an interest rate of 6%
compounded monthly and that the account wi
Compute the value of P for the following diagram.
Compute P for the following diagram.
Your beginning salary is $50,000. You deposit 10% at the end of each year in a savings account
that earns 6% interest. Your salary increases by 5% per year. What value does your savings book
show after 40 years?
Barry, a recent engineering graduate, never took engineering economics. When he graduated, he
was hired by a prominent architectural firm. The earnings from this job allowed him to deposit
$750 each quarter into a savings account. There were two banks offering a savings account in his
town (a small town!). The first ba
Compute the value of P for the following diagram.

On February 1, the Miro Company needs to purchase some office equipment. The company is
presently short of cash and expects to be short for several months. The company treasurer has
indicated that he could pay for the equipment as follows: Date Payment April 1 $150 June 1 300
Aug. 1 450 Oct. 1 600 Dec. 1 750 A lo
Pete Sampras borrows $10,000 to purchase a car. He must repay the loan in 48 equal end-of-
period monthly payments. Interest is calculated at 1.25% per month. Determine the following:
(a) The nominal annual interest rate (b) The effective annual interest rate. (c) The amount of the
monthly payment
The Rule of 78's is a commonly used method of computing the amount of interest when the
balance of a loan is repaid in advance. Adding the numbers representing 12 months gives 1+ 2 +
3+ 4 + 5 +... . + 11+ 12= 78 If a 12-month loan is repaid at' the end of one month, for example,
the interest the borrower would be charg
For the new car loan of Problem 4-128, graph the monthly payment. (a) As a function of the
interest rate (4-14%). (b) As a function of the number of payments (36-84).
How long will it take for $10,000, invested at 5% per year, compounded continuously, to triple
in value?
A woman made 10 annual end-of-year purchases of $1000 worth of common stock. The stock
paid no dividends. Then for 4 years she held the stock. At the end of the 4 years she sold all the
stock for $28,000. What interest rate did she obtain on her investment?
Use the spreadsheet developed for Problem 4-135 to analyze 180-month and 360-month house
loan payments Analyze a $100,000mortgageloan at a nominal interest rate of 7.5% and submit a
graph of the interest and principal paid over time. You need not submit the printout of the 360
payments because it will not fit on one pa
What single amount on April 1, 1998, is equivalent to a series of equal, semiannual cash flows of
$1000 that starts with a cash flow on January 1, 1996, and ends with a cash flow on January 1,
2005? The interest rate is 14% and compounding is quarterly.
On January 1, Frank Jenson bought a used car for $4200 and agreed to pay for it as follows:
1/3down payment; the balance to be paid in 36 equal monthly payments; the first payment due
February loan annual interest rate of 9%, compounded monthly. (a) What is the amount of
Frank's monthly payment? (b) During the summer,
What single amount on October 1, 1997, is equal to a series of $1000 quarterly deposits made
into an account? The first deposit occurs on October 1, 1997 and the last deposit occurs on
January 1, 2011. The account earns 13% compounded continuously.
A forklift truck costs $29,000. A company agrees to purchase such a truck with the
understanding that it will make a single payment for the balance due in 3 years. The vendor
agrees to the deal and offers two different interest schedules. The first schedule uses an annual
effective interest rate of 13%. The second sche
A man decides to deposit $50 in the bank today and to make 10 additional deposits every 6
months beginning 6 months from now, the first of which will be $50 and increasing $10 per
deposit after that. A few minutes after making the last deposit, he decides to withdraw all the
money deposited. If the bank pays 6% nominal
If the nominal annual interest rate is 12% com pounded quarterly, what is the effective annual
interest rate?
Picabo Street borrows $1000. Torepay the amount she makes 12 equal monthly payments of
$90.30. Determine the following: (a) The effective monthly interest rate (b) The nominal annual
interest rate (c) The effective annual interest rate
Ann deposits $100 at the end of each month into her bank savings account. The bank paid 6%
nominal interest, compounded and paid quarterly. No interest was paid on money not in the
account for the full 3-month period. How much was in Ann's account at the end of 3 years?
If you want a 12% rate of return, continuously compounded, on a project that will yield $6000 at
the end of 21/2years, how much must you be willing to invest now?
A bank pays 10% nominal annual interest on special three-year certificates. What is the effective
annual interest rate if interest is compounded? (a) Every three months? (b) Daily? (c)
Continuously?
What is the present worth of a series of equal quarterly payments of $3000 that extends over a
period of 8 years if the interest rate is 10% compounded monthly?
By installing some elaborate inspection equipment on its assembly line, the Robot Corp. can
avoid hiring an extra worker who would have earned $26,000 a year in wages and an additional
$7500 a year in employee benefits. The inspection equipment has a 6-year useful life and no
salvage value. Use a nominall8% interest ra
The football coach at a Midwestern university was given a 5-year employment contract that paid
$225,000 the first year, and increased at an 8% uniform rate in each subsequent year. At the end
of the first year's football season, the alumni demanded that the coach be fired. The alumni
agreed to buy his remaining years o
Find P for the following cash flow diagram.
A project has a net present worth of -140 as of January 1, 2000. If a 10% interest rate is used,
what is the project NPW as of December 31, 1997?
Consider the following cash flow. At a 6% interest rate, what is the value of P, at the end of Year
1 that is equivalent to the benefits at the end of Years2 through 7? Year Cash Flow 1 -P 2 +100 3
+200 4 +300 5 +400 6 +500 7 +600
A manufacturer is considering purchasing equipment which will have the following financial
effects If money is worth 6%, should he invest in the equipment?
A friend was left $50,000 by his uncle. He has decided to put it into a savings account for the
next year or so. He finds there are varying interest rates at savings institutions: 43/8%
compounded annually, 41/4%compounded quarterly, and 41/8%compounded continuously. He
wishes to select the savings institution that wil
A bank is offering loan of $25,000 with a nominal interest rate of 18% compounded monthly,
payable in 60 months. (Hint: The loan origination fee of 2% will be taken out from the loan
amount.) (a) What is the monthly payment? (b) If a loan origination fee of 2% is charged at the
time of the loan, what is the effective
Develop a general-purpose spreadsheet to calculate A out the balance due, principal payment, ~d
interest payment for each period of a loan. The user inputs to the spreadsheet will be the loan
amount, the number of payments per year, the number of years payments are made, and the
nominal interest rate. Submit printouts
What effective interest rate per annum corresponds to a nominal rate of 12% compounded
monthly?
Paco's saving account earns 13% compounded weekly and receives quarterly deposits of
$38,000.His first deposit occurred on October 1, 1996, and the last deposit is scheduled for April
1, 2012. Tisha's account earns 13% compounded weekly. Semiannual deposits of $18,000 are
made into her account, with the first one occur
A student bought a $75 used guitar and agreed to pa for it with a single $85 payment at the end
of 6 months Assuming semiannual (every 6 months) compounding, what is the nominal annual
interest rate? What is the effective interest rate?
The first of a series of equal semiannual cash flows occurs on July 1, 1997, and the last occurs on
January 1, 2010. Each cash flow is equal to $128,000. The nominal interest rate is 12%
compounded semiannually. What single amount on July 1, 2001 is equivalent to this cash flow
system?
A college professor won $85,000 in the state lottery; income taxes will take about half the
amount. She plans to spend her sabbatical year on leave from the university on an around-the-
world trip with her husband, but she must continue to teach 3 more years first. She estimates the
trip will cost $40,000 and they will
You are taking a $2000 loan. You will pay it back in four equal amounts, paid every 6 months
starting 3 years from now. The interest rate is 6% compounded semiannually. Calculate: (a) The
effective interest rate, based on both semiannual and continuous compounding (b) The amount of
each semiannual payment (c) The total
Using 5% nominal interest, compounded continuously, solve for,
Calculate and print out the balance due, principal payment, and interest payment for each period
of a new car loan. The nominal interest is 9% per year, compounded monthly. Payments are
made monthly for 5 years. The original loan is for $17,000.
The annual income from a rented house is $12,000. The annual expenses are $3000. If the house
can be sold for $145,000 at the end of 10 years, how much could you afford to pay for it now, if
you considered 18% to be a suitable interest rate?
A loan company has been advertising on television a plan that allows people to borrow $1000
and make a payment of $10.87 per month. This payment is for interest only and includes no
payment on the principal. What is the nominal annual interest rate that they are charging?
What is the present worth of cash flows that begin at $10,000 and increase at 8% per year for 4
years? The interest rate is 6%
Sally Struthers wants to have $10,000 in a savings account at the end of 6 months. The bank pays
8%, - compounded continuously. How much should Sally deposit now?
The first of a series of equal, monthly cash flows of $2000 occurred on April 1, 1998, and the
last of the monthly cash flows occurred on February 1, 2000. This series of monthly cash flows
is equivalent to a series of semiannual cash flows. The first semiannual cash flow occurred on
July 1, 2001, and the last semi ann
What interest rate, compounded quarterly, is equivalent to a 9.31% effective interest rate?
Mr. San some withdrew $1000 from a savings account and invested it in common stock. At the
end of 5 years, he sold the stock and received a check for $1307. If Mr. Sansome had left his
$1000 in the savings account, he would have received an interest rate of 5%, compounded
quarterly. Mr. Sansome would like to compute a
A woman opened an account in a local store. In the charge account agreement, the store
indicated it charges 11/2% each month on the unpaid balance. What nominal annual interest rate
is being charged? What is the effective interest rate?
A firm charges its credit customers 13/4%interest pe month. What is the effective interest rate?
How much the owner of a building would be justified in paying for a sprinkler system that will
save $750 a year in insurance premiums if the system has to be Replace every 20 years and has a
salvage value equal to 10%ofits initial cost? Assume money is worth7%.
Net revenues at an older manufacturing plant will be $2 million for this year. The net revenue
will decrease 15% per year for 5 years, when the assembly plant will be closed (at the end of
Year 6). If the firm's interest rate is 10%, calculate the PW of the revenue stream.
Jerry Stands, a young industrial engineer, prepared an economic analysis for some equipment to
replace one production worker. The analysis showed that the present worth of benefits (of
employing one less production worker) just equaled the present worth of the equipment costs,
based on a l0-year useful life for the equ
A 30-year mortgage for $120,000 has been issued. The interest rate is 10% and payments are
made monthly. Print out the balance due, principal payment and interest payment for each
period.
The treasurer of a firm noted that many invoices were received with the following terms of
payment: "20/0- 10 days, net 30 days". Thus, if he were to pay the bill within 10 days of its date,
he could deduct 2%. On the other hand, if he did not promptly pay the bill, the full amount would
be due 30 days from the date of
When Jerry Garcia was alive he bought a house for $500,000 and made a $100,000 down
payment. He obtained a 30-year loan for the remaining amount. Payments were made monthly.
The nominal annual interest rate was 9%. After 10 years (120 payments) he decided to pay the
remaining balance on the loan. (a) What was is monthl
At the Central Furniture Company, customers purchase on credit pay an effective annual interest
rate of 16.1%, based on monthly compounding. What is the nominal annual interest rate that they
pay?
A department store charges 13/4%interest per month, compounded continuously, on its

customer's charge accounts. What is the nominal annual interest rate? What is the effective
interest rate?
A man makes an investment every 3 months at a nominal annual interest rate of 28%,
compounded quarterly. His first investment was $100, followed by investments increasing $20
each 3 months. Thus, the second investment was $120, the third investment $140, and so on. If
he continues to make this series of investments for
FIFO method, spoilage. Refer to the information in Problem 18-30. If you want to use Excel to
solve this problem, go to the Excel Lab at www.prenhall.com/horngren/cost13e and download
the template for Problem 18-30. Do Problem 18-30 using the FIFO method of process costing.
(Problem 18-33 explores additional facets of
Capital budgeting, income taxes. Assume the same facts as in Exercise 21-18 except that City
Hospital is a taxpaying entity. The income tax rate is 30% for all transactions that affect income
taxes. 1. Do requirement I of Exercise 21-18. 2. How would your computations in requirement 1
be affected if the special-purpo
Backflush, two trigger points, materials purchase and sale (continuation of 20-33). Assume that
the second trigger point for Acton Corporation is the saleâ€”rather than the completionâ€”of
finished goods. Also, the inventory account is confined solely to direct materials, whether these
materials are in a store-room, in
Selection of most profitable product. Body-Builders, Inc., produces two basic types of weight-
lifting equipment, Model 9 and Model 14. Pertinent data are as follows: The weight-lifting craze
is such that enough of either Model 9 or Model 14 can be sold to keep the plant operating at full
capacity. Both products are
On January 1, Laura Brown borrowed $1000 from the Friendly Finance Company. The loan is to
be repaid by four equal payments, which are due at the end of March, June, September, and
December. If the finance company charges 18% interest, compounded quarterly what is the
amount of each payment? What is the effective annua

MRP, EOQ and JIT. MacroHard Corp produces J-Pods, music players that can download
thousands of songs. MacroHard forecasts that demand in 2010 will be 48,000 J-Pods. The
variable production cost of each J-Pod is $50. Due to the large $50,000 cost per setup,
MacroHard plans to produce J-Pods once a month in batches of 4,
Backflush costing, two trigger points, completion of production and sale (continuation of 20-23).
Assume the same facts as in Exercise 20-23, except now Road Warrior uses only two trigger
points, the completion of good finished units of product and the sale of finished goods. Any
under- or overallocated conversion cost
Economic order quantity for retailer. Fan Base (FB) operates a megastore featuring sports
merchandise. It uses an EOQ decision model to make inventory decisions. It is now considering
inventory decisions for its Los Angeles Galaxy soccer jerseys product line. This is a highly
popular item. Data for 2009 are: Each jer
1. The Woody Company manufactures slippers and sells them at $10 a pair. Variable
manufacturing cost is $4.50 a pair, and allocated fixed manufacturing cost is $1.50 a pair. It has
enough idle capacity available to accept a one-time-only special order of 20,000 pairs of slippers
at $6 a pair. Woody will not incur any
Make versus buy, activity-based costing opportunity costs. (N. Melumad and S. Reichelstein,
adapted) The Ace Company produces bicycles. This yearâ€™s expected production is 10,000
units. Currently, Ace makes the chains for its bicycles. Aceâ€™s management accountant reports
the following costs for making the 10,000 bic
Transferred-in costs, weighted-average method. Publish, Inc. has two departments: Printing and
Binding. Each department has one direct-cost category (direct materials) and one indirect-cost
category (conversion costs). This problem focuses on the Binding Department Books that have
undergone the printing process are imm
Special order, activity-based costing. The Award Plus Company manufactures medals for
winners of athletic events and other contests. Its manufacturing plant has the capacity to produce
10,000 medals each month. Current production and sales are 7,500 medals per month. The
company 9ormally charges $150 per medal. Cost in
New equipment purchase, income taxes. Innovation, Inc. is considering the purchase of a new
industrial electric motor to improve efficiency at its Fremont plant The motor has an estimated
useful life of 5 years. The estimated pretax cash flows for the motor are shown in the table that
follows, with no anticipated chang
Opportunity costs. The Wolverine Corporation is working at full production capacity producing
10,000 units of a unique product Rosebo. Manufacturing cost per unit for Rosebo is as follows:
Manufacturing overhead cost per unit is based on variable cost per unit of $2 and fixed costs of
$30,000 full capacity of 10,000 u
Dropping a product line, selling more units. The Northern Division of Grossman Corporation
makes and sells tables and beds. The following estimated revenue and cost information from the
divisionâ€™s activity-based costing system is available for 2008. Additional information
includes: a. On January 1, 2008, the equipm
EOQ for a retailer. The Cloth Center sells fabrics to a wide range of industrial and consumer
users. One of the products it carries is denim cloth, used in the manufacture of jeans and carrying
bags. The supplier for the denim cloth pays all incoming freight. No incoming inspection of the
denim is necessary because the
Capital budgeting methods, no income taxes. City Hospital, a non-profit organization, estimates
that it can save $28,000 a year in cash operating costs for the next 10 years if it buys a special-
purpose eye- testing machine at a cost of $110,000. No terminal disposal value is expected. City
Hospitalâ€™s required rate o
Weighted-average method, spoilage, equivalent units. (CMA, adapted) Consider the following
data for November 2009 from Gray Manufacturing Company, which makes silk pennants and
uses a process-costing system. All direct materials are added at the beginning of the process, and
conversion costs are added evenly during the
Transferred-in costs, FIFO method. Refer to the information in Problem 17-38. Suppose that
Publish, Inc. uses the FIFO method instead of the weighted-average method in all of its
departments. The only changes to Problem 17-38 under the FIFO method are that total
transferred-in costs of beginning work in process on Apri
Closing down divisions. Aristide corporation has four operating divisions. During the first
quarter of 2009, the company reported total income from operations of $61,000 and the
following results for each division: Further analysis of costs reveals the following percentages of
variable costs in each division Cost of g
Capital budgeting with uneven cash flows, no income taxes. Southern Cola is considering the
purchase of a special-purpose bottling machine for $23,000. It is expected to have a useful life of
4 years with no terminal disposal value. The plant manager estimates the following savings in
cash operating costs: Southern C
Relevant and irrelevant costs. Answer the following questions. 1. Dalton computers makes 5,000
units of a circuit board, CB76 at a cost of $230 each. Variable cost paâ€™ unit is $180 and fixed
cost per unit is $50. Peach Electronics offers to supply 5,000 units of CB76 for $210 If Dalton
buys from Peach it will be able
Product mix, constrained resource. Taylor Furniture produces and sells specialty mattresses.
Production is a machine-intensive process. Taylorâ€™s variable costs are direct material costs,
variable machining costs, and sales commissions. Marion Taylor, the owner, is planning
production for the coming tear and collects
Exercises in compound interest, no income taxes. To be sure that you understand how to use the
tables in Appendix B at the end of this book, solve the following exercises. Ignore income tax
considerations. The correct answers, rounded to the nearest dollar, appear on pages 766â€”767.
1. You have just won $5,000. How m
Supply chain effects on total relevant inventory cost. Cow Spot Computer Co. outsources the
production of motherboards for its computers. It has narrowed down its choice of suppliers to
two companies: Maji and Induk. Maji is an older company with a good reputation, while Induk is
a newer company with cheaper prices. Gi
Special Order Louisville Corporation produces baseball bats for kids that it sells for $32 each. At
capacity, the company can produce 50,000 bats a year. The costs of producing and selling 50,000
bats are as follows: 1. Suppose Louisville is currently producing and selling 40,000 bats. At this
level of production and
Payback and NPV methods, no income taxes. (CMA, adapted) Andrews Construction is
analyzing its capital expenditure proposals for the purchase of equipment in the coming year.
The capital budget is limited to $6,000,000 for the year. Lori Bart, staff analyst at Andrews, is
preparing an analysis of the three projects und
Backflush costing and JIT production. Road Warrior Corporation assembles handheld computers
that have scaled-down capabilities of laptop computers. Each handheld computer takes 6 hours to
assemble. Road Warrior uses a JIT production system and a backflush costing system with three
trigger points: Purchase of direct mat
Capital budgeting methods, no income taxes. Riverbend Company runs hardware stores in a tri-
state area. Riverbendâ€™s management estimates that if it invests $160,000 in a new computer
system, it can save $60,000 in annual cash operating costs. The system has an expected useful
life of 5 years and no terminal disposal
DCF, accrual accounting rate of return, working capital, evaluation of performance, no income
taxes. Century Lab plans to purchase a new centrifuge machine for its New Hampshire facility.
The machine costs $137,500 and is expected to have a useful life of eight years, with a terminal
disposal value of $37,500. Savings
Standard-costing with beginning and ending work in process. Paquitaâ€™s Pearls Company
(PPC) is a manufacturer of knock off jewelry. Paquita attends Fashion Week in New York City
every September and February to gauge the latest fashion trends in jewelry. She then makes
trendy jewelry at a fraction of the cost of those
FIFO method, spoilage. Refer to the information in Exercise 18-24. If you want to use Excel to
solve this exercise, go to the Excel Lab at www.prenhall.com/horngren/cos113e and download
the template for Exercise 18-24. Do Exercise 18-24 using the FlEO method of process costing.
Make versus buy, ethics. (CMA, adapted) Lynn Hart is a management accountant at Paibec
Corporation. Paibec is under intense cost competition. Hart has been asked to evaluate whether
Paibec should continue to manufacture MTR-2000 or purchase it from Marley Company. Marley
has submitted a bid to supply the 32,000 MTR-200
NPV and inflation. Cost-Less Foods is considering replacing all of its old cash registers with new
ones. The old registers are fully depreciated and have no disposal value. The new registers
cost$600,000 (in total). Because the new registers are more efficient than the old registers, Cost-
Less will have annual incremen
Equipment replacement, no income taxes. Pro Chips is a manufacturer of prototype chips based
in Dublin, Ireland. Next year, in 2010, Pro Chips expects to deliver 552 prototype chips at an
average price of $80,000. Pro Chipsâ€™ marketing vice president forecasts growth of 60
prototype chips per year through 2016. That i
Recognition of loss from spoilage. Arokia Electronics manufactures cell phone models in its
Walnut Creek plant. Suppose the company provides you with the following information
regarding operations for September 2009: Assume the spoiled units have no disposal value. 1.
What is the unit cost of making the 10,000 cell p
Net present value, Internal Rate of Return, Sensitivity Analysis. Francesca Freed wants a Burg-
N- Fry franchise. The buy-in is $500,000. Burg-N-Fry headquarters tells Francesca that typical
annual operating costs are $160,000 (cash) and that she can bring in â€œas much asâ€ $260,000
in cash revenues per year. Burg- N-
Standard costing method, spoilage, journal entries. Aaron, Inc., is a manufacturer of vents for
water heaters. The company uses a process-costing system to account for its work-in-process
inventories. When Job 512 was being processed in the machining department, a piece of sheet
metal was off center in the bending mach
EOQ for manufacturer. Lakeland Company, which produces lawn mowers, purchases 18,000
units of a rotor blade part each year at a cost of $60 per unit Lakeland requires a 15% annual rate
of return on investment In addition, the relevant carrying cost (for insurance, materials handling,
breakage, and so on) is $6 per unit
Weighted-average method, assigning costs (continuation of 18-17). For the data in Exercise 18-
17, summarize total costs to account for, calculate the cost per equivalent unit for direct materials
and conversion costs, and assign total costs to units completed and transferred out (including
normal spoilage), to abnormal
Backflush, two trigger points, completion of production and sale (continuation of 20-33).
Assume the same facts as in Problem 20-33 except now there are only two trigger points: the
completion of good finished units of product and the sale of finished goods. 1. Prepare summary
journal entries for August including the
FIFO method, spoilage, equivalent units. Refer to the information in Exercise 18-17. Suppose
Gray Manufacturing Company uses the FIFO method of process costing instead of the weighted-
average method. Compute equivalent units for direct materials and conversion costs. Show
physical units in the first column of your sche
Recognizing cash flows for capital investment projects, NPV. Met-All Manufacturing
manufactures over 20,000 different products made from metal, including building materials,
tools, and furniture parts. The manager of the furniture parts division has proposed that his
division expand into bicycle parts as well. The furn
JIT production, relevant benefits, relevant costs. The Champion Hardware Company
manufactures specialty brass door handles at its Lynchburg plant Champion is considering
implementing a JIT production system. The following are the estimated costs and benefits of JIT
production. a. Annual additional tooling costs would
Equipment replacement, income taxes (continuation of 21-27). Assume the same facts as in
Problem 21-27, except that the plant is located in Austin, Texas. Pro Chips has no special waiver
on income taxes. It pays a 30% tax rate on all income. Proceeds from sales of equipment above
book value are taxed at the same 30% ra
Product mix, relevant costs (N. Melumad, adapted) Pendleton Engineering makes cutting tools
for metalworking operations. It makes two types of tools: R3, a regular cutting tool, and HP6, a
high-precision cutting tool. R3 is manufactured on a regular machine, but HP6 must be
manufactured on both the regular machine and
Contribution approach, relevant costs. Air Frisco has leased a single jet aircraft that it operates
between San Francisco and the Fijian Islands. Only tourist-class seats are available on its planes.
An analyst has collected the following information: Assume that fuel costs are unaffected by the
actual number of passe
Backflushing. The following conversation occurred between Brian Richardson, plant manager at
Glendale Engineering, and Charles Cheng, plant controller. Glendale manufactures automotive
component parts, such as gears and crankshafts, for automobile manufacturers. Richardson has
been very enthusiastic about implementing
Spoilage and job costing. (L. Bamber) Bamber Kitchens produces a variety of items in
accordance with special job orders from hospitals, plant cafeterias, and university dormitories.
An order for 2,500 cases of mixed vegetables costs $6 per case: direct materials, $3; direct
manufacturing labor, $2; and manufacturing ov
Make versus buy, activity-based costing. The Svenson Corporation manufactures cellular
modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of
the cellular modem. It reports the following cost information about the costs of making CMCBs
in 2008 and the expected costs in 2009: Svenson
FIFO method, Packaging Department (continuation of 18-31). Refer to the information in

Problem 18-32 except for the transferred-in costs for May, which equal the total cost of good
units completed and transferred out in May from the Cleaning Department, which were
calculated in Problem 18-31 using the FIFO method of pr
Effect of different order quantities on ordering costs and carrying costs, EOQ. Koala Blue, a
retailer of bed and bath linen, sells 234,000 packages of Mona Lisa designer sheets each year
Koala Blue incurs an ordering cost of $81 per purchase order placed with Mona Lisa Enterprises
and an annual carrying cost of $11.70
Rework in job costing, journal entry (continuation of 18-35). Assume that the 5 spoiled units of
Whitefish Machine Shopâ€™s Job #10 can be reworked for a total cost $1,800. A total cost of
$5,000 associated with these units has already been assigned to Job #10 before the rework.
Prepare the journal entries for the rewo
Lean Accounting. Flexible Security Devices (FSD) has introduced a just-in-time production
process and is considering the adoption of lean accounting principles to support its new
production philosophy. The company has two product lines: Mechanical Devices and Electronic
Devices. Two individual products are made in each
Choosing customers. Broadway Printers operates a printing press with a monthly capacity of
2,000 machine-hours. Broadway has two main customers: Taylor Corporation and Kelly
Corporation. Data on each customer for January follows: Kelly Corporation indicates that it
wants Broadway to do an additional $80,000 worth of
Inventory decision, opportunity costs. Lawnox, a manufacturer of lawn mowers, predicts that it
will purchase 240,000 spark plugs next year. Lawnox estimates that 20,000 spark plugs will be
required each month. A supplier quotes a price of $9 per spark plug. The supplier also offers a
special discount option: If all 240
Physical units, inspection at various stages of completion (chapter appendix). Normal spoilage is
6% of the good units passing inspection in a forging process. In March, a total of 10,000 units
were spoiled. Other data include: units started during March, 120,000; work in process,
beginning, 14,000 units (20% completed
Product mix, constrained resource Westford Company produces three products, A110, B382 and
D657. Unit data for the three products follows: All three products use the same direct material,
Bistide. The demand for the products far exceeds the direct materials available to produce the
products. Bistide costs $3 per pound
NPV and AARR, goal-congruence issues. Nate Stately, a manager of the Plate Division for the
Great Slate Manufacturing Company, has the opportunity to expand the division by investing in
additional machinery costing $320,000. He would depreciate the equipment using the straight-
line method, and expects it to have no res
Weighted-average method, spoilage. The Boston Company is a food-processing company based

in San Francisco. It operates under the weighted-average method of process costing and has two
departments: Cleaning and Packaging. For the Cleaning Department conversion costs are added
evenly during the process, and direct materi
Which base to close, relevant-cost analysis, opportunity costs? The U.S. Defense Department has
the difficult decision of deciding which military bases to shut down. Military and political factors
obviously matter, but cost savings are also an important factor. Consider two naval bases located
on the West Coastâ€” one
Recognizing cash flows for capital investment projects. Ludmilla Quagg owns a fitness center
and is thinking of replacing the old Fit-0-Matic machine with a brand new Flab-Buster 3000. The
old Fit-O-Matic has a historical cost of $50,000 and accumulated depreciation of $46,000, but
has a trade-in value of $5,000. It cu
Backflush costing, two trigger points, materials purchase and sale (continuation of 20-23).
Assume the same facts as in Exercise 20-23, except that Road Warrior now uses a backflush
costing system with the following two trigger points: Purchase of direct materials Sale of
finished goods The Inventory Control account wi
Scrap, job costing. The Mendoza Company has an extensive job-costing facility that uses a
variety of metals. Consider each requirement independently. 1. Job 372 uses a particular metal
alloy that is not used for any other job. Assume that scrap is material in amount and sold for
$490 quickly after it is produced. Prep
NPV, inflation and taxes (continuation of 21-36). Refer to the information in the preceding
problem, but now assume that the tax rate is 30% and that you are not ignoring taxes. 1.
Calculate the NPV of the project without inflation. 2. Calculate the NPV of the project with
inflation. 3. Should Cost-Less buy the new
Spoilage in job costing. Whitefish Machine Shop is a manufacturer of motorized carts for
vacation resorts. Peter Cruz, the plant manager of Whitefish, obtains the following information
for Job #10 in August 2007. A total of 40 units were started, and 5 spoiled units were detected
and rejected at final inspection, yield
Effect of EOG ordering on supplier costs (continuation of Problem 20-29). IMBest Computers
supplies computers to Computers 4 U. Terry Moore, the president of IMBest, is pleased to hear
that Computers 4 U will be ordering 500,000 computers. Moore has asked his accounting and
production departments to team up and determi
Scrap at time of sale or at time of production, journal entries (continuation of 18-35). Assume
that Job #10 of Whitefish Machine Shop generates normal scrap with a total sales value of $300
(it is assumed that the scrap returned to the storeroom is sold quickly). Prepare the journal entries
for the recognition of scra
Replacement of a machine, income taxes, sensitivity. (CMA, adapted) The Smacker Company is
a family-owned business that produces fruit jam. The company has a grinding machine that has
been in use for three years. On January 1, 2009, Smacker is considering the purchase of a new
grinding machine. Smacker has two options:
FIFO method, assigning costs (continuation of 18-19). For the data in Exercise 18-17, use the
FIFO method to summarize total costs to account for, calculate the cost per equivalent unit for
direct materials and conversion costs, and assign total costs to units completed and transferred
out (including normal spoilage),
Reworked units, casts of rework. White Goods assembles washing machines at its Auburn plant.
In February 2009, 60 tumbler units that cost $44 each (from a new supplier who subsequently
went bankrupt) were defective and had to be disposed of at zero net disposal value. White Goods
was able to rework all 60 washing machi
Selling a plant income taxes. (CMA, adapted) The Crossroad Company is an international
clothing manufacturer. Its Santa Monica plant will become idle on December 31, 2008. Peter
Laney, the corporate controller, has been asked to look at three options regarding the plant
Option 1: The plant which has been fully deprecia
Equipment upgrade versus replacement (A. Spero, adapted) The TechMech Company produces
sells 6,000 modular computer desks per year at a selling price of $500 each. Its current
production equipment, purchased for $1,500,000 and with a five-year useful life, is only two
years old. It has a terminal disposal value of $0 a
Back flush costing and JIT production. The Acton Corporation manufactures electrical meters.
For August there were no beginning inventories of direct materials and no beginning or ending
work in process. Acton uses a JIT production system and backflush costing with three trigger
points for making entries in the account
Weighted-average method, spoilage. Chipcity is a fast-growing manufacturer of computer chips.

Direct materials are added at the start of the production process. Conversion costs are added
evenly during the process. Some units of this product are spoiled as a result of defects not
detectable before inspection of finishe
Relevant costs, contribution margin, product emphasis. The Beach Comber is a take-out food
store at a popular beach resort. Susan Sexton, owner of the Beach Comber, is deciding how
much refrigerator space to devote to four different drinks. Pertinent data on these four drinks are
as follows: Sexton has a maximum fr
EOQ, uncertainty, safety stock, reorder point, Clarkson Shoe Co. produces and sells excellent
quality walking shoes. After production, the shoes are distributed to 20 warehouses around the
country. Each warehouse services approximately 100 stores in its region. Clarkson uses an EGG
model to determine the number of pair
Standard-costing method, spoilage. Refer to the information in Exercise 18-24. Suppose Chipcity
determines standard costs of $200 per equivalent unit for direct materials and $75 per equivalent
unit for conversion costs for both beginning work in process and work done in the current period.
Do Exercise 18-24 using the
Normal and abnormal spoilage in units. The following data, in physical units, describe a grinding
process for January: Inspection occurs at the 100% completion stage. Normal spoilage is 5% of
the good units passing inspection. 1. Compute the normal and abnormal spoilage in units. 2.
Assume that the equivalent-unit c
Payback, even and uneven cash flows. You have the opportunity to expand your business by
purchasing new equipment for $159,000. You expect to incur cash fixed costs of $96,000 per
year to use this new equipment, and you expect to incur cash variable costs in the amount of 10%
of cash revenues. 1. Calculate the payback
Comparison of projects, no income taxes. (CMA, adapted) New Rio Corporation is a rapidly
growing biotech company that has a required rate of return of 12%. It plans to build a new
facility in Santa Clara County. The building will take two years to complete. The building
contractor offered New Rio a choice c three payme
Inventory management and the balanced scorecard. Devin Sports Cars (DSC) has implemented a
balanced scorecard to measure and support its just-in-time production system. In the learning and
growth category, DSC measures the percentage of employees who are cross-trained to perform a
wide variety of production tasks. Inte
Operation costing (chapter appendix). Farkas Shoes, a high-end shoe manufacturer, produces two
lines of shoes for women. The shoes are identical in design, but differ in the materials used and
the trim added to the shoes. The basic shoes are made from a synthetic leather, have a synthetic
insole, and have plain buttons
Economic order quantity, effect of parameter changes (continuation of 20-16). Athletic Textiles
(AT) manufactures the Galaxy jerseys that Fan Base (FB) sells to its customers. AT has recently
installed computer software that enables its customers to conduct â€œone-stopâ€ purchasing
using state-of-the-art Web site tech
JIT purchasing, relevant benefits, relevant costs. (CMA, adapted) The Margro Corporation is an
automotive supplier that uses automatic turning machines to manufacture precision parts from
steel bars. Margroâ€™s inventory of raw steel averages $600,000. John Dates, president of
Margro, and Helen Gorman, Margroâ€™s contr
Relevance of equipment costs. The Auto Wash Company has just today paid for and installed a
special machine for polishing cars at one of its several outlets. It is the first day of the
companyâ€™s fiscal year. The machine costs $20,000. Its annual cash operating costs total $1
5,000. The machine will have a four-year u
Optimal product mix (Chapter Appendix) Della Simpson, Inc., sells two popular brands of
cookies: Dellaâ€™s Delight and Bonnyâ€™s Bourbon. Dellaâ€™s Delight goes through the
Mixing and Baking departments, and Bonnyâ€™s Bourbon, a filled cookie, goes through the
Mixing, Filling, and Baking departments. Michael Shirra, vi
DCF, sensitivity analysis, no income taxes. (CMA, adapted) Landom Corporation is an
international manufacturer of fragrances for women. Management at Landom is considering
expanding the product line to menâ€™s fragrances. From the best estimates of the marketing and
production managers, annual sales (all for cash) for
New equipment purchase, income taxes Annaâ€™s Bakery plans to purchase a new oven for its
store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the
oven are as shown in the table that follows, with no anticipated change in working capital.
Annaâ€™s Bakery has a 12% after-tax requi
Weighted-average method, spoilage. Appleton Company makes wooden toys in its Forming
Department, and it uses the weighted-average method of process costing. All direct materials are
added at the beginning of the process, and conversion costs are added evenly during the process.
Spoiled units are detected upon inspectio
Sensitivity of EOQ to changes in relevant ordering and carrying costs. Alyia Companyâ€™s
annual demand for Model X253 is 10,000 units. Alyia is unsure about the relevant carrying cost
per unit per year and the relevant ordering cost per purchase order. This table presents six
possible combinations of carrying and order
Job-costing spoilage and scrap. (F Mayne) Santa Cruz Metal Fabricators, Inc., has a large job,
No. 2734, that calls for producing various ore bins, chutes, and metal boxes for enlarging a
copper concentrator. The following charges were made to the job in November 2009: The
contract with the customer called for the tot
Multiple choice comprehensive problem on relevant costs. The following are the Class
Companyâ€™s unit costs of manufacturing and marketing a high-style pen at an output level of
20,000 units per month: The following situations refer only to the preceding data; there is no
connection between the situations. Unless s
Effect of management evaluation criteria on EOQ model. Computers 4 U is an online company

that sells computers to individual consumers. The annual demand for one model that will be
shipped from the northeast distribution center is estimated to be 500,000 computers. The
ordering cost is $800 per order. The cost of carry
Relevant costs, opportunity costs. Larry Miller, the general manager of Basil Software, must
decide when to release the new version of Basilâ€™s spreadsheet package, Easyspread 2.0.
Development of Easyspread 2.0 is complete; however, the diskettes, compact discs, and user
manuals have not yet been produced. The product

NPV, IRR, and sensitivity analysis. Crumbly Cookie Company is considering expanding by
buying a new (additional) machine that costs $42,000, has zero terminal disposal value and a 10-
year useful life. It expects the annual increase in cash revenues from the expansion to be $23,000
per year. It expects additional annual
Disposal of assets answers the following questions. 1. A company has an inventory of 1,000
assorted parts for a line of missiles that has been discontinued. The inventory cost is $75,000.
The parts can be either (a) re-machined at total additional costs $25,000 and then sold for
$30,000 or (b) sold as scrap for $3,000.
Closing and opening stores Sanchez Corporation runs two convenience stores, one in
Connecticut and one in Rhode Island. Operating income for each store in 2009 is as follows: The
equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the
management accountant at Sanchez Corporation, makes th
Transferred-in costs, weighted-average and FIFO methods. Frito-Lay, Inc., manufactures

convenience foods, including potato chips and corn chips. Production of corn chips occurs in
four departments: Cleaning, Mixing, Cooking, and Drying and Packaging. Consider the Drying
and Packaging Department, where direct materials
Make or buy unknown level of volume. (A. Atkinson) Oxford Engineering manufactures small
engines. The engines are sold to manufacturers who install them in such products as lawn
mowers. The company currently manufactures all the parts used in these engines but is
considering a proposal from external supplier who wishes
Weighted-average method, Packaging Department (continuation of 18-30). In Boston

Companyâ€™s Packaging Department, conversion costs are added evenly during the process,
and direct materials are added at the end of the process. Spoiled units are detected upon
inspection at the end of the process and are disposed of at z
How does a synopsis differ from an executive summary?
Read the step by- step hints and examples for writing a funding proposal at
www.learnerassociates.net/proposal. Review the entire sample proposal online. What details did
the writer decide to include in the appendixes? Why was this material placed in the appendixes
and not the main body of the report? According to the
Using Figure 2.2, suggest the best communication channels for the following messages. Assume
that all channels shown are available. Be prepared to explain your choices. Channel
___________________________________________ Best Use Blog When one person needs to
present digital information easily so that it is availabl
What navigational elements can you use to help readers follow the structure and flow of
information in a long report?
Revise the following statements to make them more positive. 1. Customers are ineligible for the
10 percent discount unless they show their membership cards. 2. Titan Insurance Company will
not process any claim not accompanied by documented proof from a physician showing that the
injuries were treated. 3. If you fai
From the choices in parentheses, select the most precise, vigorous words. 1. Management is
predicting a (change, difference, drop) in earnings after the first of the year. 2. Experts (predict,
hypothesize, state) that the economy will (change, moderate, stabilize) by next year. 3. We plan
to (acknowledge, announce,
How is the writing that you and your peers are practicing every day by texting, e-mailing, or
instant messaging different from the writing business professionals expect in the workplace?
Will your employer benefit from your informal writing?
Because of a mix-up in your job application scheduling, you accidentally applied for your third-
choice job before going after the one you really wanted. What you want to do is work in retail
marketing with the upscale department store Neiman Marcus in Dallas; what you have been
offered is a job with Longhorn Leather an
How is a compound sentence different from a complex sentence? Give an example of each.
What information or questions can you use when writing a follow-up message after submitting a
rÃ©sumÃ©?
List six factors that writers should consider when selecting an appropriate communication
channel. Name one additional factor that you might consider in your business messages?
You and a classmate are helping Linda Moreno prepare her report on Electrovision's travel and
entertainment costs. This time, however, the report is to be informational rather than analytical,
so it will not include recommendations. Review the existing report and determine what changes
would be needed to make it an inf
Explain the three steps in the writing process?
Revise the following to make the tone conversational yet professional. 1. Pertaining to your
request, the above-referenced items (printer toner and supplies) are being sent to your Oakdale
office, as per your telephone conversation of April 1. 2. Kindly inform the undersigned whether
or not your representative will b
List seven trends in the workplace that affect business communicators. Be prepared to discuss
how they might affect you in your future career?
Revise the following sentences to use plain language and familiar words. 1. We are offering a
pay package that is commensurate with other managers' remuneration. 2. The seller tried to
obfuscate the issue by mentioning closing and other costs. 3. Even after officers interrogated the
suspect, solid evidence failed to
In an effort to promote peace and tranquility on the highways, motorists submitted the following
suggestions to a newspaper columnist. In small groups consider the pros and cons of each of the
following gestures intended as an apology when a driver makes a mistake. Why would some
fail? a. Lower your head slightly and
Why must the introduction of an unsolicited proposal include a statement of the problem or
opportunity that the proposal addresses?
In what ways do communication skills act as a career filter?
How can you distinguish yourself from other candidates in a screening interview and still keep
your responses short and to the point? Explain.
Of the organizational approaches introduced in the chapter, which is best suited for writing a
report that answers the following questions? Briefly explain why. a. In which market segment-
energy drinks or traditional soft drinks-should Fizz Drinks, Inc., introduce a new drink to take
advantage of its enlarged researc
Presentations can make-or break-both careers and businesses. A good presentation can bring in
millions of dollars in new sales or fresh investment capital. A bad presentation might cause any
number of troubles, from turning away potential customers to upsetting fellow employees to
derailing key projects. To help busine
Review a long business article in a journal or newspaper. Highlight examples of how the article
uses headings, transitions, previews, and reviews to help the readers find their way.
What is bias-free language? Provide several examples of biased language and bias-free
alternatives.
List 11 techniques for improving your listening skills.
Would your culture be classified as high-or low-context? Why?

Does the writing process always proceed from Step 1 through Step 3? Explain.
Is it necessary to follow a writing process in preparing a short message? A long message? Why
or why not?
As a researcher in your state's consumer protection agency, you're frequently called on to

investigate consumer topics and write reports for the agency's website. Thousands of consumers
have arranged the purchase of cars online, and millions more do at least some of their research
online before heading to a dealership.
Distinguish between the direct and the indirect strategies. When is each appropriate?
Will the time and money spent on your college education and writing training most likely pay
off?
If you wanted to compare average monthly absenteeism for five divisions in your company over
the course of a year, which type of visual would you use? Explain your choice.
Some people don't have a clear career path when they enter the job market. If you're in this
situation, how would your uncertainty affect the way your write your rÃ©sumÃ©?
How does a structured interview differ from an open ended interview?
If you were a team leader at a summer camp for children with special needs, should you include
this in your employment history if you are applying for work that is unrelated? Explain your
answer.
You're preparing the annual report for FretCo Guitar Corporation. For each of the following
types of information, select the appropriate chart or visual to illustrate the text. Explain your
choices. a. Data on annual sales for the past 20 years b. Comparison of FretCo sales, product by
product (electric guitars, bass
Have you ever consciously observed the listening habits of others? In one of your classes, study
student listening habits for a week. What barriers to effective listening did you observe? How
many of the suggestions described in this chapter are being implemented by listeners in the
class? Write a memo or an e-mail to
You just gave an in-depth presentation on the company's new marketing programs, intended for
the specialists in the marketing department. The marketing manager then asked you to give a
shorter version of the presentation to the company's top executives. Generally speaking, how
should you modify the scope of your presen
Revise this message so that it follows this chapter's guidelines. Thank you for the really
marvelous opportunity to meet you and your colleagues at Starret Engine Company. I really
enjoyed touring your facilities and talking with all the people there. You have quite a crew!
Some of the other companies I have visited ha
Use one of the websites listed in Table 13.1 on page 357 to find a job opening in your target
profession. If you haven't narrowed down to one career field yet, chose a business job for which
you will have at least some qualifications at the time of your graduation. Your task Write an
email message that would serve as y
To focus firmly on the "you" view, writers should scrub all uses of I and we from their writing.
Do you agree or disagree? Why?
One of the banes of apartment living is those residents who don't care about the condition of their
shared surroundings. They might leave trash all over the place, dent walls when they move
furniture, spill food and beverages in common areas, destroy window screens, and otherwise
degrade living conditions for everyone.
Revise this message so that it follows this chapter's guidelines. I'm writing to let you know about
my availability for the brand manager job you advertised. As you can see from my enclosed
rÃ©sumÃ©, my background is perfect for the position. Even though I don't have any real job
experience, my grades have been outstan
Your company is the largest private employer in your metropolitan area, and the 43,500
employees in your workforce have a tremendous impact on local traffic. A group of city and
county transportation officials recently approached your CEO with a request to explore ways to
reduce this impact. The CEO has assigned you th
You've put a lot of work into your college classes so far-make sure you don't have any glitches as
you get ready to claim your certificate or degree. Your task Prepare an interim progress report
that details the steps you've taken toward completing your graduation or certification
requirements. After examining the r
Revise this message so that it follows this chapter's guidelines. Did you receive my rÃ©sumÃ©?
I sent it to you at least two months ago and haven't heard anything. I know you keep
rÃ©sumÃ©s on file, but I just want to be sure that you keep me in mind. I heard you are hiring
health-care managers and certainly would lik
Your boss has asked you to prepare a feasibility report to determine whether the company should
advertise its custom-crafted cabinetry in the weekly neighborhood newspaper. Based on your
primary research, you think it should. As you draft the introduction to your report, however, you
discover that the survey administer
If you want to know whether job candidates can express themselves clearly on Twitter, why not
test them as part of the application process? That's exactly what the Minneapolis advertising
agency Campbell Mithun does. Rather than having them using conventional application
methods, the company asks intern candidates to t
Fortunately for you, your interview with Neiman Marcus went well, and you've just received a
job offer from the company. Write a letter to R. P. Bronson at Longhorn Leather and Lumber,
declining his job offer, and write an email message to Clarissa Bartle at Neiman Marcus,
accepting her job offer. Make up any informati
When asked what business schools should teach more or less of, venture capitalist Guy
Kawasaki said, "They should teach students how to communicate in five-sentence e-mails and
with 10-slide PowerPoint presentations. If they just taught every student that, American business
would be much better off."3 Do you agree or d
What techniques can you use to get an audience's attention during your introduction?
What should your objective be for an interview during the selection stage?
Name examples that illustrate the nonverbal cues we send by our use of time, space, or territory.
How does our need for personal space or territory, for example, play out in the new, flexible
"anytime, anywhere" workplace?
Name four goals that business writers have when they prepare oral presentations and business
messages?
List seven or more suggestions for enhancing comprehension when you are talking with non-
native speakers of English be prepared to discuss each?
Spurred in part by the success of numerous do-it-yourself (DIY) TV shows, homeowners across
the country are redecorating, remodeling, and rebuilding. Many people are content with
superficial changes, such as new paint or new accessories, but some are more ambitious. These
homeowners want to move walls, add rooms, redes
Assume that your college president has received many student complaints about campus parking
problems. You are appointed to chair a student committee organized to investigate the problems
and recommend solutions. The president gives you a file labeled "Parking: Complaints from
Students," and you jot down the essence o

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