Assignment:
Boxx Corporation is considering the acquisition of new equipment. The equipment can be purchased from an overseas supplier for $6,500. The freight and installation costs for the equipment are $615. If purchased, annual repairs and maintenance are estimated to be $445 per year over the five-year useful life of the equipment. Alternatively, Boxx can lease the equipment from a domestic supplier for $1,850 per year for five years, with no additional costs.
Required:
Prepare a differential analysis to determine whether Boxx should lease or purchase the equipment.
Indicate specifically the company should lease or buy the equipment after completing the analysis. Explain.
Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the equipment user as opposed to the equipment owner.
A condensed income statement by product line for Astronomy Baking Inc. indicated the following for Moon Cookies for the past year:
| Sales |
$450,000 |
| Cost of goods sold |
205,000 |
| Gross profit |
245,000 |
| Operating expenses |
287,000 |
| Loss from operations |
($42,000) |
It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs, and that 30% of the operating expenses are fixed. Because Moon Cookies is only one of the many products, the fixed costs will not be materially affected if the product is discontinued.
Required:
Prepare a differential analysis to determine whether Moon Cookies should be continued or discontinued .
Should Moon Cookies be retained? Explain.
Use an Excel spreadsheet for each of the two problems.