Preston Petroleum has spent $200,000 to refine 60,000 gallons of petroleum distillate, which can be sold for $6.30 per gallon. Alternatively, Preston can process the distillate further and produce 55,000 gallons of cleaner fluid. The additionalprocessing will cost $1.75 per gallon of distillate. The cleaner fluid can be sold for $9.00 per gallon. To sell cleaner fluid, Preston must pay a sales commission of $0.11 per gallon and a transportation charge of $0.16 per gallon.Read the requirements......Requirement 1. Fill in the diagram for Preston's alternatives.Revenues fromselling as isJoint costsof producing60,000gallons ofpetroleumdistillateCost ofRevenues fromprocessingprocessingfurtherfurtherRequirement 2. Identify the sunk cost. Is the sunk cost relevant to Preston's decision?Theis a sunk cost thatdiffer between the alternatives of selling as is or processing further. Consequently, this sunk cost isto the sell-or-process-further decision.Requirement 3. Should Preston sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives. (For the difference in total net revenue, use a parentheses or a minus sign ifprocessing further will decrease total net revenue.)ProcessSell As IsFurtherDifference gallons ofpetroleumdistillateCost ofRevenues fromprocessingprocessingfurtherfurtherRequirement 2. Identify the sunk cost. Is the sunk cost relevant to Preston's decision?Theis a sunk cost thatdiffer between the alternatives of selling as is or processing further. Consequently, this sunk cost isto the sell-or-process-further decision.Requirement 3. Should Preston sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives. (For the difference in total net revenue, use a parentheses or a minus sign ifprocessing further will decrease total net revenue.)ProcessSell As IsFurtherDifferenceExpected revenue from selling 60,000 gallons of petroleum distillateExpected revenue from selling 55,000 gallons of cleaner fluidAdditional costs of processingTotal net revenueDecision:

Soltuion 1: Joint Cost of Producing 60000 gallons of petroleum distillate 200000 Revenue from…

Preston Petroleum has spent $200,000 to refine 60,000 gallons of petroleum distillate, which can be sold for $6.30 per gallon. Alternatively, Preston can process the distillate further and produce 55,000 gallons of cleaner fluid. The additional processing will cost $1.75 per gallon of distillate. The cleaner fluid can be sold for $9.00 per gallon. To sell cleaner fluid, Preston must pay a sales commission of $0.11 per gallon and a transportation charge of $0.16 per gallon. Read the requirements.

Preston Petroleum has spent $200,000 to refine 60,000 gallons of petroleum distillate, which can be sold for $6.30 per gallon. Alternatively, Preston can process the distillate further and produce 55,000 gallons of cleaner fluid. The additional processing will cost $1.75 per gallon of distillate. The cleaner fluid can be sold for $9.00 per gallon. To sell cleaner fluid, Preston must pay a sales commission of $0.11 per gallon and a transportation charge of $0.16 per gallon. Read the requirements.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Big Blue Granite (BBC) needs to purchase a new saw for creating their top quality countertops. Saw A costs $300, 000 with S6, 000 of annual maintenance costs for the first year that will increase by 7.5% each year for the 9 - year life of the saw. Saw B costs $150, 000 with SII, 000 of annual maintenance costs for the first year that will increase by 11.0% each year for the 4 - year life of the saw. Which saw should BBG choose? What is the annualized cost of this choice? Assume a discount rate of 14.0 % , and ignore all taxes
Graham Corporation has 1,000 cartons of oranges that were harvested at a cost of $30,000. The oranges can be sold as is for $35,760. The oranges can be processed further into orange juice at an additional cost of $12,950 and be sold at a price of $52,300. The incremental income (loss) from processing the oranges into orange juice would be: Multiple Choice $16,540. $(16,540). $(3,590). $3,590. $39,350.
The Metropolitan Bus Company (MBC) purchases diesel fuel from American Petroleum Supply. In addition to the fuel cost, American Petroleum Supply charges MBC $1,500 per order to cover the expenses of delivering and transferring the fuel to MBC’s storage tanks. The cost of holding a gallon of fuel in the storage tank is $200 per gallon, per month; and annual fuel usage is 125,000 gallons. Problem: The MBC storage tanks have a capacity of 500 gallons. What would be the variable annual cost if MBC fills the tanks completely each time, they place an order (nearest dollar)?
The Elberta Fruit Farm of Ontario is considering buying a cherry-picking machine to replace the part-time workers it usually hires to harvest its annual cherry crop. The machine shakes the cherry tree, causing the cherries to fall onto plastic tarps that funnel the cherries into bins. The company gathered the following information: The farm pays part-time workers $200,000 per year to pick the cherries. The cherry picker would cost $540,000, have a 8-year useful life with no salvage value, and be depreciated using the straight-line method. The cherry picker’s annual out-of-pocket costs would be cost of an operator and an assistant, $85,000; insurance, $4,000; fuel, $12,000; and a maintenance contract, $15,000. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate the annual savings in cash operating costs provided by the cherry picker. 2a. Compute the cherry picker’s simple rate of return. 2b. Would…
Division G has asked Division F of the same company to supply it with 5,000 units of part WD26 this year to use in one of its products. Division G has received a bid from an outside supplier for the parts at a price of $19.00 per unit. Division F has the capacity to produce 25,000 units of part WD26 per year. Division F expects to sell 21,000 units of part WD26 to outside customers this year at a price of $18.00 per unit. To fill the order from Division G, Division F would have to cut back its sales to outside customers. Division F produces part WD26 at a variable cost of $12.00 per unit. The cost of packing and shipping the parts for outside customers is $2.00 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division G. 1.What is the lowest price the F Division should charge for the internal transfers of its goods? 2.What is the highest price the G Division should charge for the internal transfers of its goods?
Beryl's Iced Tea currently rents a bottling machine for $55,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $160,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $39,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a ten-year life with a negligible salvage value. The corporate tax rate is 20%. Should Beryl's Iced Tea continue…
. In connection with surfacing a new highway, acontractor has a choice of two sites on which toset up the mixing plant equipment.The contractor estimates that it will cost P51.75per cubic meter per kilometer to haul the asphaltpaving material from the mixing plant to the jobsite.If site B is selected, there will be an addedcharge of P600 per day for a flagman and it needs 2 flagman.The job requires 50,000 cubic meters of mixedasphalt paving material. It is estimated that fourmonths (17 weeks of five working days perweek) will be required for the job.
Lim has already spent $30,700 to manufacture a hamster food product called Pet Health. Lim currently has 10,000 bags of Pet Health on hand that can be sold for $94,480. Alternatively, Lim can process it further into a different product, Premium Pet, at an additional cost of $6,350. If Lim processes further, the Premium Pet can be sold for $102,900. This would result in revenue of: Multiple Choice $102,900. $100,830. $8,420. $2,070. $6,350.
Big Rock Brewery currently rents a bottling machine for $55,000 per year, including all maintenance expenses. The company is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $165,000. This machine will require $20,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $39,000 will be spent upfront in training the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines are subject to a CCA rate of 45% and there will be a negligible salvage value in ten year's time (the end of each machine's life). The marginal corporate tax rate is 35%. Should Big Rock…
Hannah Ortega is considering expanding her business. She plans to hire a salesperson to cover trade shows. Because of compensation, travel expenses, and booth rental, fixed costs for a trade show are expected to be $10,660. The booth will be open 26 hours during the trade show. Ms. Ortega also plans to add a new product line, ProOffice, which will cost $190 per package. She will continue to sell the existing product, EZRecords, which costs $103 per package. Ms. Ortega believes that the salesperson will spend approximately 16 hours selling EZRecords and 10 hours marketing ProOffice. Required a. Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 73 units of EZRecords and 59 units of ProOffice.
Crazy Burger Shop has the following investment opportunity: Burger machinery at t=0 costs $6,000. The cost of making burgers is $2,000 per year at t=1, t=2, and t=3. The burger machinery is depreciated using the straight-line method to $1,500 over 3 years. The market value of the burger machinery after three years is $2,600. Estimated annual sales are $4,500 per year at t=1, t=2, and t=3. The required return is 15%. The tax rate is 18%. Assume no working capital requirements. What is the NPV of this project? A. $259.97 B. $1,006.62 C. $876.44 D. $-702.92
A production company is planning to produce an educational DVD. The producer estimates that it will cost 1400 dollars to prepare the lectures for the DVD and 25 dollars per unit to copy and distribute the DVDS. The wholesale price of one DVD is $50 per unit. How many DVDS must be sold for the company to break even?