Question

The College of Westchester ACC320 Managerial Mr. Paris Instructor Review for Final Exam Additional Problems 1. The Co. manufactures Zeon for its product. The Mfg. cost is $78 per batch including Fixed Costs of $22 per batch. A proposal is made from an outside source for $48 per Batch plus $10 freight. Prepare a differential analysis for the outside purchase proposal. 2. Product Zeon is normally sold for $97 per unit. A special price of $84 is offered for the export market. The variable production cost is $68 per unit. An additional export tari of 25% of the sales price must be paid on all export products. Calculate the differential ff income or loss per unit from selling Zeon for export. 3. A project has estimated annual cash flows of $71500 for 8 years and is estimated to cost $365400. Assume a minimum desired rate of return of 10%, using the present value of an Annuity of $1 at compound interest table, determine A) the net present value of the project and B) the present value index, rounded to two decimal places.

Answer 1

	Make	Buy	Difference (Buy-Make)
Variable cost of manufacture	56	0	-56
Fixed cost of manufacture	22	22	0
Purchase	0	58	58
	78	80	2
As the differential cost for Buy is $2 (higher by $2), the Co. should manufacture Zeon.
Variable cost of manufacture per unit	68
Net revenue from export, per unit = 84*(1-25%) =	63
Loss per unit	-5
PV of annual cash inflows = 71500*5.3349 =	$      3,81,445
Less: Initial investment	$      3,65,400
NPV	$          16,045
PI = 381445/365400 =	1.04