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Illinois Power & Heat just spend $5 million repairing one of its electrical generating stations that was damaged by a tornado. The loss was uninsured. Management has asked the public service commission for approval to treat the $5 million as an asset for rate making purpose rather than as an allowed expense. What difference will this make to customer and shareholders?

Sales for Ross Pro s Sports Equipment are expected to be 4,800 units for the coming month. The company likes to maintain 10 percent of unit sales for each month in ending inventory. Beginning inventory is 300 units. How many units should the firm produce for the coming month?

1) You are considering partial retirement. To do so you need to use part of your savings to supplement your income for the next five years. Suppose you need an extra $15,000 per year. What lump sum do you have to invest now to supplement your income for five years? Assume that your minumum desired rate of return is 16% compounded annually.

2) You have always dreamed of taking a trip to Machu Pichu. What lump sum do you have to invest today to have the $12,000 needed for the trip in three years? Assume that you can invest the money at 10%.

Prepare a statement showing the incremental cash flows for this project over an 8 year period.

Superior Manufacturing is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project requires a new plant that will cost a total of $1,000,000, which will be depreciated straight line over the next five years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000. Assume there is no need for additional investment in building and land for the project. The firm s marginal tax rate is 35%, and its cost of capital is 10%. Based on this information you are to complete the following tasks.

Farrell Company manufactures a product that sells for $50 per unit. Farrell incurs a variable cost per unit of $30 and $3,400,000 in total fixed costs to produce this product. They are currently selling 200,000 units.

Instructions: Complete each of the following requirements, presenting labeled supporting computations.

(a) Compute and label the contribution margin per unit and contribution margin ratio.

(b) Using the contribution margin per unit, compute the break even point in units.

(c) Using the contribution margin ratio, compute the break even point in dollars.

(d) Compute the margin of safety and margin of safety ratio.

(e) Compute the number of units that must be sold in order to generate net income of $400,000 using the contribution margin per unit.

(f) Should Farrell give a commission to its salesmen based on 10% of sales, if it will decrease fixed costs by $400,000 and increase sales volume 10%? Support your answer with labeled computations.

Superior Lighting, Inc., mass produces reading lamps. Materials used in constructing the body of the lamp are added at the start of the process, while the materials used in wiring the lamps are added at the halfway point. All labor and overhead are added evenly throughout the manufacturing process. Superior uses process costing and had the following unit production information available for the monts of June and July:
June July
Number of lamps in beginning work in process 850 1,200
Lamps transferred to finished goods 3,500 3,300
Number of lamps in ending work in process 1,200 900

In June, the lamps in beginning work in process were approximately 80 percent complete, while those in ending work in process were only 30 percent complete. In July, the units remaining in ending work in process were 60 percent complete. all lamps in ending work in process are finished during the next month.

a.
For the month of June, calculate the equivalent units produced for the three major cost categories body material, wiring materials, and labor and overhead.

b.
For the month of July, calculate the equivalent units produced for the three major cost categories body materials, wiring materials, and labor and overhead.