Problem 1: (Ignore income taxes in this problem.) The following data concern an investment project:
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Investment in equipment....................
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$10,000
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Net annual cash inflows......................
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$2,400
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Working capital required....................
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$5,000
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Salvage value of the equipment..........
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$1,000
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Life of the project...............................
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8 years
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Required rate of return.......................
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10%
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The working capital will be released for use elsewhere at the conclusion of the project.
Required: Compute the project's net present value.
Problem 2: Spivey Company has two service departments and two operating departments. Budgeted costs and budgeted activity in the various departments for the current year are shown below:
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Service Departments
A B
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Operating Departments
1 2
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Departmental costs.....
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$126,000
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$70,000
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$300,000
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$500,000
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Square feet occupied.....
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1,000
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2,000
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8,000
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10,000
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Number of employees.
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20
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30
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150
|
200
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Machine hours......
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|
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40,000
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60,000
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The company uses the step method to allocate service department costs to operating departments. The costs of Service Department A are allocated first on the basis of square feet of space occupied. The costs of Service Department B are then allocated on the basis of number of employees in other departments. Predetermined overhead rates in the operating departments are based on machine hours.
Required:
a. Prepare a schedule showing the allocation of service department costs to other departments.
b. Compute the predetermined overhead rate for each operating department.