Posted: April 26th, 2016

Select the term from the list provided that best matches each of the following descriptions?

Current Machinery
Original cost $25,000
Accumulated depreciation 20,000
Annual operating costs 5,500
Current market value 750
Salvage value at the end of five years 0

New Machinery:
Cost $28,000
Annual operating costs 500
Salvage value at end of five years 0

1) Identify the sunk costs associated with this decision.
2) Compute the increase or decrease in total income over the five-year period if the company chooses to buy the new equipment.
3) What is your recommendation for this decision?

Problem #5
The budget director of Soto’s Flower Shop has prepared the following sales budget. The company had
$100,000 of accounts receivable at January 1. The company normally collects 100 percent of its accounts
receivable in the month following the sale.

Sales January February March
Cash sales $30,000 $66,000 $72,000
Sales on account 90,000 120,000 140,000
Total budgeted sales $120,000 $186,000 $212,000

Schedule of cash receipts
Current cash sales ? ? ?
Plus collection of accounts receivable ? ? ?
Total budgeted cash collections ? ? ?

a) Complete the schedule of cash receipts by filling in the missing amounts. What are the total budgeted cash receipts for the first quarter?
b) Determine the amount of accounts receivable that Flory’s should report on the first quarter pro forma balance sheet.

Problem #6
Matching. Select the term from the list provided that best matches each of the following descriptions.

Description or Definition
A. Costs incurred on behalf of the whole company .
B. An offer from someone other than a regular customer buy goods or services at below normal selling prices.
C. The numbers in decision making that are subject to mathematical manipulation.
D. The attainment of control over the entire spectrum of business activity from production to sales.
E. Companies that provide buyers with preferred customer status in exchange for guaranteed purchase quantities and prompt payment schedules.
F. Evaluating whether an existing machine should be traded in for a newer machine.
G. Decision whether to make a component or product or to acquire it from a supplier.
H. Costs that increase each time another unit of a product is made.

1. Outsourcing decision
2. Certified suppliers
3. Equipment replacement decisions
4. Facility-level costs
5. Unit-level costs
6. Quantitative characteristics
7. Special-order decision
8. Vertical integration

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