1. When two investment alternatives have the same total expected cash flows but differ in the timing of those flows, which method of evaluating those investments is superior, (a) accounting rate of return or (b) net present value?
2. A company receives a special order for 200 units that requires stamping the buyer’s name on each unit, yielding an additional fixed cost of $400 to its normal costs. Without the order, the company is operating at 75% of capacity and produces 7,500 units of product at the following costs:
|
irect materials |
$37,500 |
|
Direct labor |
60,000 |
|
Overhead (30% variable) |
20,000 |
|
Selling expenses (60% variable) |
25,000 |
The special order will not affect normal unit sales and will not increase fixed overhead and selling expenses. Variable selling expenses on the special order are reduced to one half the normal amount. The price per unit necessary to earn $1,000 on this order is (a) $14.80, (b) $15.80, (c) $19.80, (d) $20.80, or (e) $21.80.
3. What are the incremental costs of accepting additional business?