CHAP 22/26 **IF YOU'RE NOT GOING TO ANSWER ALL, PLEASE SKIP. THANK YOU**

1) Armstrong Bike Repair Shop has budgeted the following time and material for 2017.

Armstrong budgets 2,500 hours of repair time in 2017 and will bill a profit of $5 per labor hour along with a 15% profit markup on the invoice cost of parts. The estimated invoice cost for parts to be used is $75,000.

On January 5, 2017, Armstrong is asked to submit a price estimate to fi x a Superior Mountain bike. Armstrong estimates that this job will consume 4 hours of labor and $200 in parts.

Instructions

(a) Compute the labor rate for Armstrong Bike Repair Shop for the year 2017.

(b) Compute the material loading charge percentage for Armstrong Bike Repair Shop for the year 2017.

(c) Prepare a time-and-material price quotation for fixing the Superior Mountain bike.

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2)

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3) Ben Paul is an accounting major at a western university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Ben, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Ben has gathered the following investment information.

1. Five used vans would cost a total of $90,000 to purchase and would have a 3-year useful life

with negligible salvage value. Ben plans to use straight-line depreciation.

2. Ten drivers would have to be employed at a total payroll expense of $43,000.

3. Other annual out-of-pocket expenses associated with running the commuter service would

include Gasoline $26,000, Maintenance $4,000, Repairs $5,300, Insurance $4,500,

Advertising $2,200.

4. Ben desires to earn a return of 15% on his investment.

5. Ben expects each van to make ten round trips weekly and carry an average of six students

each trip. The service is expected to operate 32 weeks each year, and each student will be

charged $15 for a round-trip ticket.

Instructions

(a) Determine the annual:

(1) net income and

(2) net annual cash flows for the commuter service.

(b) Compute the:

(1) cash payback period and

(2) annual rate of return. (Round to two decimals.)

(NOT SURE IF I DID IT RIGHT)

Armstrong Bike Repair Shop Budgeted Costs for the Year 2017 Time Charges Material Loading Charges $36,000 Shop employees' wages and benefits Parts supervisor's salary and benefits Office employee's salary and benefits Overhead (supplies, depreciation, advertising, utilities) Total budgeted costs 15,000 19,000 $70,000 $20,000 10,000 15,000 $45,000 Total Cost Total Hours Per Hr Chge (a) Computation of Labor Rate Hourly Labor Rate for Repairs: Shop Employee Wages & Benefits Overhead Costs: Office Employee Wages & Benefits 36,000 2,500 14.4 15,000 19,000 70,0000 : 2,500 2,500 2,500 2,500 6 7.6 28 Rate Charged per Hour of Labor 33 (b) Computation of Material Loading Charge Material Loading Charge Total Invoice Cost, Parts & Materials Material Loading Percentage Overhead Costs: Parts Supervisor Salary & Benefits Parts Employee Salary & Benefits 20,000 10.000 30,000 75,000 75,000 40% 20% 15,000 60% Other Overhead Total Profit Margin Material Loading Percentage 15% 75% (c) Price Quotation for Time & Material Armstrong Bike Repair Shop Time & Material Price Quotation Job: Fix Superior Mountain Bike Labor Charge: Material Charges: Cost of Parts & Materials Material Loading Charge Total Price of Labor & Material E26-11 Drake Corporation is reviewing an investment proposal. The initial cost and esti- mates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Investment Proposal Initial Cost Annual Annual and Book Value Cash Flows Net Income $105,000 70,000 $45,000 $10,000 42,000 40,000 12,000 21,000 35,000 14,000 7,000 30,000 16,000 25,000 18,000 Drake Corporation uses an 11% target rate of return for new investment proposals. Year Instructions (a) What is the cash payback period for this proposal? (b) What is the annual rate of return for the investment? (c) What is the net present value of the investment? (a) Cash payback period is: (b-1) Average Investment is: (b-2) Annual Rate of Return is: (c) Net Cash Flows: Year # Present Value Discount Factor 11% 0.90090 Amount $ 45,000 $ 2 3 4 Total Present value cash inflows Less: ?? Net Present Value $ (a) (1) Annual Net Income 144,000 (2) Annual Cash Flow 144,000 Sales Expenses: Payroll Gas Total Expenses Net Income Cash Inflow (b) (1) Cash Payback Period = 1.53 years 32.22% Annual Rate of Return = Armstrong Bike Repair Shop Budgeted Costs for the Year 2017 Time Charges Material Loading Charges $36,000 Shop employees' wages and benefits Parts supervisor's salary and benefits Office employee's salary and benefits Overhead (supplies, depreciation, advertising, utilities) Total budgeted costs 15,000 19,000 $70,000 $20,000 10,000 15,000 $45,000 Total Cost Total Hours Per Hr Chge (a) Computation of Labor Rate Hourly Labor Rate for Repairs: Shop Employee Wages & Benefits Overhead Costs: Office Employee Wages & Benefits 36,000 2,500 14.4 15,000 19,000 70,0000 : 2,500 2,500 2,500 2,500 6 7.6 28 Rate Charged per Hour of Labor 33 (b) Computation of Material Loading Charge Material Loading Charge Total Invoice Cost, Parts & Materials Material Loading Percentage Overhead Costs: Parts Supervisor Salary & Benefits Parts Employee Salary & Benefits 20,000 10.000 30,000 75,000 75,000 40% 20% 15,000 60% Other Overhead Total Profit Margin Material Loading Percentage 15% 75% (c) Price Quotation for Time & Material Armstrong Bike Repair Shop Time & Material Price Quotation Job: Fix Superior Mountain Bike Labor Charge: Material Charges: Cost of Parts & Materials Material Loading Charge Total Price of Labor & Material E26-11 Drake Corporation is reviewing an investment proposal. The initial cost and esti- mates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Investment Proposal Initial Cost Annual Annual and Book Value Cash Flows Net Income $105,000 70,000 $45,000 $10,000 42,000 40,000 12,000 21,000 35,000 14,000 7,000 30,000 16,000 25,000 18,000 Drake Corporation uses an 11% target rate of return for new investment proposals. Year Instructions (a) What is the cash payback period for this proposal? (b) What is the annual rate of return for the investment? (c) What is the net present value of the investment? (a) Cash payback period is: (b-1) Average Investment is: (b-2) Annual Rate of Return is: (c) Net Cash Flows: Year # Present Value Discount Factor 11% 0.90090 Amount $ 45,000 $ 2 3 4 Total Present value cash inflows Less: ?? Net Present Value $ (a) (1) Annual Net Income 144,000 (2) Annual Cash Flow 144,000 Sales Expenses: Payroll Gas Total Expenses Net Income Cash Inflow (b) (1) Cash Payback Period = 1.53 years 32.22% Annual Rate of Return =