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    NPV, Equivalent Units for Materials & Relevant Cost Questions

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    1. (TCO F) Loxham Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below:
    Work in process, beginning:
    Units in beginning work in process inventory 400
    Materials costs $6,900
    Conversion costs $2,500
    Percent complete for materials 80%
    Percent complete for conversion 15%
    Units started into production during the month 6,000
    Units transferred to the next department during the month 5,400
    Materials costs added during the month $112,500
    Conversion costs added during the month $210,300
    Ending work in process:
    Units in ending work in process inventory 1,000
    Percent complete for materials 80%
    Percent complete for conversion 30%
    Required: calculate the equivalent units for materials for the month in the first processing department

    2. (Ignore income taxes in this problem) Axillar beauty Products Corporation is considering the production of new conditioning shampoo which will require the purchase of new mixing machinery. The machinery will cost $375,000, is expected to have a useful life of 10 year, and is expected to have a salvage value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of year 6. A $40,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $85,000 per year for each of the 10years. Axillar's discount rate is 16%

    What is the net present value of this investment opportunity?

    Based on the answer above sure Axillar's go ahead with the new conditioning shampoo?

    Hanson, Inc makes 1000 units per year of a part called a positron for use in one of its products. Data concerning the unit production cost of the position follow
    Direct Materials $342
    Direct Labor 80
    Variable Manufacturing OH 48
    Fixed Manufacturing OH 520
    Total $990

    An outside supplier has offered to sell Hanson, Inc all of the positron it requires. If Hanson, Inc decided to discontinue making the positrons, 10% of the above fixed manufacturing overhead cost could be avoided.

    Required: Assume Hanson, Inc has no alternative use for the facilities presently devoted to production of the positrons. If the outside supplier offers to sell the positron for $850 each should Hanson, Inc accept the offer? Support with appropriate calculations.

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    Solution Summary

    Excel file contains rows computations of net present value and equivalent units for materials for the month in the first processing department and solution of relevant costing problem.