ACC 227 ACC227 Module 7 Homework Assignment Solution (AAU Online)

ACC 227 ACC227 Module 7 Homework Assignment Solution (AAU Online)

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Part I: Short Response

1.What is a differential cost?  Give an example of how differential costs are used by managers making product and process decisions.

2.Distinguish between variable costs and differential costs.  Why is the distinction important?

3.Why must business decisions be based on qualitative as well as quantitative information?  Explain.

4.Why is the time value of money so important in capital budgeting decisions?

5.Identify four capital budgeting methods and explain why some are considered better than others.

6.Define capital budgeting.  Give two examples of long-term investment decisions that require capital budgeting.

7.Casper Company is deciding whether to accept a special order.  The company's costs for the most recent year are indicated in the chart below.  Casper produced 100,000 units in the most recent year.  What is the minimum price per unit at which the company should accept the special order (ignoring any qualitative factors)?

8.At the end of a very mild winter, Alaska Apparel, Inc. has enough raw materials to produce 1,000 coats and the materials can be used only for coats.  The material is very sensitive and will not be usable if it is not used immediately.  Alaska Apparel does not expect to be able to receive the full sales price of $120 per coat and the company needs production storage space to make room for the raw materials for its summer clothes inventory production.  Alaska Apparel has received a special order from one of its customers for 1,000 coats at $70 per coat.  The cost of making one coat (assuming a production run of 1,000 coats) is indicated in the chart below.  For the manufacturing overhead, $15 per coat relates to the fixed overhead of primarily wages paid to special technicians who repair the equipment used to make the coats.  These technicians are hired from an outside company and will not be hired if the coats are not made.  Should the company accept the special order?

9.J.H. Physical Therapy Equipment, Inc. is deciding whether to invest in a certain capital investment.  The investment requires an initial outlay of $55,000 and annual payments of $12,000 made at the end of the year for five years.  J.H.'s discount rate is 14%.  What is the present value of cash outflows related to this investment?

10.Casper Company paid $25,000 cash for a capital investment.  The company expects the investment to generate net cash inflows of $5,500 per year.  What is the payback period of this investment?

Part II: Application

1.Problem 22-14 “Relevant Costs” (p. 1160)

2.Problem 22-28 “Special Order Pricing” (p. 1164)

3.Exercise 23-15 “Present Values” (p. 1213)

4.Problem 23-29 “Internal Rate of Return” (p. 1215)


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