Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 7.36AE
1.
To determine
To compute: The attractive lease option and total lease cost under both the options at current sales levels.
2.
To determine
To compute: The indifferent point of the company at the sales levels under both the options.
3.
To determine
To compute: The suitable lease cost options at a projected sales level of 500 candles.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A graphic designer needs a laptop for audio/video editing, and notices that they can elect to pay $3,200 for a Dell XPS laptop, or lease from the
manufacturer for monthly payments of $89 each for four years. The designer can borrow at an interest rate of 12% APR compounded monthly
What is the cost of leasing the laptop over buying it outright?
A. Leasing costs $144 more than buying.
B. Leasing costs $180 more than buying.
OC. Leasing costs $216 more than buying.
OD. Leasing costs $359 more than buying.
CITS
The store will sell specialty cupcakes for $5 per cupcake (each cupcake has a variable cost of $1.) The company is negotiating its lease for the new store. The landlord has offered two leasing options: 1) a lease of $3,500 per month; or 2) a monthly lease cost of $1,500 plus 8% of the company's monthly sales revenue.
Requirements
1. If the Factory plans to sell $4,500 cupcakes a month, which lease option would cost less each month? Why? 2. If the company plans to sell 7,000 cupcakes a month, which lease option would be more attractive? Why?
Requirement 1. If the Factory plans to sell cupcakes a month, which lease option would cost less each month? Why?
Begin by calculating the indifference point. Select the equation to determine the indifference point. (Abbreviations used: FC = Fixed costs, VCU = Variable costs per unit)
(VCU (option 1) × Units) + FC (option 1) = (VCU (option 2) × Units) + FC (option 2)
The indifference point (in number of cupcakes) is
Based on what was reviewed in class, please submit a BOE analysis for the multi tenant
retail center based on the information below. Please determine the Net Operating Income
of this property. Also, what price would you pay for this property, if you wanted to achieve a
5% Cap Rate (Capitalization Rate)? NOTE: Common Area Maintenance (CAM) paid by
tenants are $0.67 Per Square Foot, Per Month. Assume 5% Vacancy Rate. BOE Analysis -
Assignment.png
Chapter 7 Solutions
Managerial Accounting (5th Edition)
Ch. 7 - (Learning Objective 1) The contribution margin is...Ch. 7 - (Learning Objective 1) The contribution margin...Ch. 7 - (Learning Objective 2) The formula to find the...Ch. 7 - Prob. 4QCCh. 7 - Prob. 5QCCh. 7 - Prob. 6QCCh. 7 - (Learning Objective 4) Which of the following is...Ch. 7 - Prob. 8QCCh. 7 - Prob. 9QCCh. 7 - Prob. 10QC
Ch. 7 - Compute unit contribution margin and contribution...Ch. 7 - Prob. 7.2SECh. 7 - Prob. 7.3SECh. 7 - Find target profit volume (Learning Objective 2)...Ch. 7 - Prob. 7.5SECh. 7 - Prob. 7.6SECh. 7 - Prob. 7.7SECh. 7 - Prob. 7.8SECh. 7 - Compute margin of safety (Learning Objective 5)...Ch. 7 - Compute and use operating leverage factor...Ch. 7 - Calculate breakeven and target profit sales...Ch. 7 - Prob. 7.12SECh. 7 - Prob. 7.13SECh. 7 - Prob. 7.14SECh. 7 - Compute margin of safety (Learning Objective 5)...Ch. 7 - Compute and use operating leverage factor...Ch. 7 - Prob. 7.17SECh. 7 - Prob. 7.18SECh. 7 - Prepare contribution margin income statements...Ch. 7 - Work backward to find missing information...Ch. 7 - Find breakeven and target profit volume (Learning...Ch. 7 - Prob. 7.22AECh. 7 - Prob. 7.23AECh. 7 - Prob. 7.24AECh. 7 - Prob. 7.25AECh. 7 - Prob. 7.26AECh. 7 - Sustainability and CVP concepts (Learning...Ch. 7 - Prob. 7.28AECh. 7 - Calculate contribution margin and breakeven...Ch. 7 - Prob. 7.30AECh. 7 - Extension of E7-30A: Multiproduct firm (Learning...Ch. 7 - Prob. 7.32AECh. 7 - Breakeven and an advertising decision at a...Ch. 7 - Prob. 7.34AECh. 7 - Prob. 7.35AECh. 7 - Prob. 7.36AECh. 7 - Comprehensive CVP analysis (Learning Objectives 1,...Ch. 7 - Comprehensive CVP analysis (Learning Objectives 1,...Ch. 7 - Prob. 7.39AECh. 7 - Prob. 7.40BECh. 7 - Work backward to find missing information...Ch. 7 - Find breakeven and target profit volume (Learning...Ch. 7 - Prob. 7.43BECh. 7 - Prob. 7.44BECh. 7 - Prob. 7.45BECh. 7 - Prob. 7.46BECh. 7 - Continuation of E7-46B: Changing business...Ch. 7 - Sustainability and CVP (Learning Objective 3)...Ch. 7 - Prob. 7.49BECh. 7 - Prob. 7.50BECh. 7 - Prob. 7.51BECh. 7 - Prob. 7.52BECh. 7 - Find breakeven for a multiproduct firm (Learning...Ch. 7 - Breakeven and an advertising decision at a...Ch. 7 - Compute margin of safety and operating leverage...Ch. 7 - Use operating leverage factor to find fixed costs...Ch. 7 - Prob. 7.57BECh. 7 - Comprehensive CVP analysis (Learning Objectives 1,...Ch. 7 - Prob. 7.59BECh. 7 - Comprehensive CVP analysis (Learning Objectives 1,...Ch. 7 - Find missing data in CVP relationships (Learning...Ch. 7 - Prob. 7.62APCh. 7 - Prob. 7.63APCh. 7 - Prob. 7.64APCh. 7 - Prob. 7.65APCh. 7 - Prob. 7.66APCh. 7 - Find missing data in CVP relationships (Learning...Ch. 7 - Prob. 7.68BPCh. 7 - Comprehensive CVP problem (Learning Objectives 1,...Ch. 7 - Prob. 7.70BPCh. 7 - Prob. 7.71BPCh. 7 - CVP analysis at a multiproduct firm (Learning...Ch. 7 - Prob. 7.73SCCh. 7 - Discussion Questions 1. Define breakeven point....Ch. 7 - Prob. 7.75ACTCh. 7 - Prob. 7.76ACTCh. 7 - Prob. 7.77ACT
Knowledge Booster
Similar questions
- A graphic designer needs a laptop for audio/video editing, and notices that they can elect to pay $3,500 for a Dell XPS laptop, or lease from the manufacturer for monthly payments of $96 each for four years. The designer can borrow at an interest rate of 10% APR compounded monthly. What is the cost of leasing the laptop over buying it outright? O A. Leasing costs $570 more than buying. B. Leasing costs $228 more than buying. OC. Leasing costs $342 more than buying. OD. Leasing costs $285 more than buying.arrow_forwardRamona Garcia will be remodeling her kitchen before she places her home on the market to sell. She researched what three local companies would charge her for the remodeling and their best financing option for each company. Her research revealed the following results. Company Total Remodeling Cost Financing Terms Ramona is Considering Large Home Improvement Store $13,200 Financing through the bank servicing the national home improvement company: 1 year 0% financing with a minimum monthly payment of $100; 16.99% APR for the remaining 3 years Local Small Business Home Improvement Company $11,800 Financing through her local credit union: 3% origination fee to be paid first then 7.5% APR for 5 years Online Construction Business $10,200 Financing through an online banking service: $1,000 applied toward the project before payback begins then 11.9% APR for 4 years. Calculate the monthly payments for 2 of these options given that interest is compounded monthly. What…arrow_forwardYou are currently working in a construction company. Your company have been appointed to a Build-Operate-Transfer project the school for the renovation of a student hostel. The contract involves an 80%-20% financing, in which your company will be financing 20% of the initial cost and will be allowed to collect the lease from the tenants for the first 7 years. You have received 3 different renovation designs for the hostel, each with different initial cost and projected yearly return from the concession as shown in Table 1 below. Table 1: Projected yearly return based on the design type (RM `million) Design A (Initial cost RM5 mil) 290,000 290,000 300,000 290,000 310,000 320,000 330,000 Design B (Initial cost RM4.8 mil) 300,000 290,000 290,000 280,000 290,000 280,000 300,000 Design C (Initial cost RM5.5 mil) 300,000 310,000 310,000 300,000 290,000 300,000 290,000 Year 1 2 3 4 6 7 Your boss had requested you to select the best design that will give the best profit to the company. For…arrow_forward
- You run a business out of your dorm room selling ACC2020 textbooks in both paper and digital versions. The paper version costs you $400 and you can sell it for $600. The digital version costs you $100 and you can sell it for $200. Last semester you sold 10 paper versions and 100 digital versions for total sales of $26,000. You expect that sales mix will continue this semester. - If your semester fixed costs are $6,000 for a publisher's license, what dollar amount of sales will you need to breakeven? - How many paper and digital books will you have to sell to break even? - How much operating income did you have last semester?arrow_forwardYou are currently working in a construction company. Your company have been appointed to a Build-Operate-Transfer project for UPM for the renovation of a student hostel. The contract involves an 80%-20% financing, in which your company will be financing 20% of the initial cost and will be allowed to collect the lease from the tenants for the first 7 years. You have received 3 different renovation designs for the hostel, each with different initial cost and projected yearly return from the concession as shown in Table 1 below. Table 1: Projected yearly return based on the design type (RM 'million) Design A (Initial cost RM5 mil) 290,000 290,000 300,000 290,000 310,000 320,000 330,000 Design B (Initial cost RM4.8 mil) 300,000 290,000 290,000 280,000 290,000 280,000 300,000 Design C (Initial cost RM5.5 mil) 300,000 310,000 310,000 300,000 290,000 300,000 290,000 Year 1 3 4 6 7 Your boss had requested you to select the best design that will give the best profit to the company. For this…arrow_forwardLou Lewis, the president of Lewisville Company, has asked you to give him an analysis of the best use of a warehouse the company owns. Lewisville Company is currently leasing the warehouse to another company for $5,800 per month on a year-to-year basis. (Hint: Use the PV function in Excel to calculate, on an after-tax basis, the PV of this stream of monthly rental receipts.) Lewisville Company is seriously considering converting the warehouse into a factory outlet for furniture. The remodeling will cost $140,000 and will be modest because the major attraction will be rock-bottom prices. The remodeling cost will be depreciated over the next 5 years using the double-declining-balance method. (Note: Use the VDB function in Excel to calculate depreciation charges. The advantage of using the VDB, rather than the DDB, function is that there is a (default) option in the former that provides an automatic switch to the straight-line method when it is advantageous to do so.) The inventory and…arrow_forward
- You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,400,000; rents are estimated at $179,200 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What is…arrow_forwardYou are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,290,000; rents are estimated at $165,120 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 7 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What…arrow_forwardYou are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,290,000; rents are estimated at $165,120 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 7 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? Answer: 1.33 b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested…arrow_forward
- You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,280,000; rents are estimated at $163,840 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What is…arrow_forwardCurt Rugs is holding a 2-week carpet sale at Jean's Club, a local warehouse store. Curt Rugs plans to sell carpets for $1,000 each. The company will purchase the carpets from a local distributor for $400 each, with the privilege of returning any unsold units for a full refund. Jean's Club has offered Curt Rugs two payment alternatives for the use of space. Read the requirements. Requirement 1. Calculate the breakeven point in units for (a) option 1 and (b) option 2. Begin by determining the formula to calculate the breakeven point in units. Number of units to breakeven More Info • Option 1: A fixed payment of $17,400 for the sale period • Option 2: 20% of total revenues earned during the sale period Assume Curt Rugs will incur no other costs.arrow_forwardPLEASE ONLY ANSWER QUESTIONS 2,3 AND 4 Alameda Tile sells products to many people remodeling their homes and thinks that it could profitably offer courses on tile installation, which might also increase the demand for its products. The basic installation course has the following (tentative) price and cost characteristics. Tuition $ 430 per student Variable costs (tiles, supplies, and so on) 240 per student Fixed costs (advertising, salaries, and so on) 91,200 per year Required: a. What enrollment will enable Alameda Tile to break even? b. How many students will enable Alameda Tile to make an operating profit of $51,300 for the year? c. Assume that the projected enrollment for the year is 840 students for each of the following (considered independently): 1. What will be the operating profit (for 840 students)? 2. What would be the operating profit if the tuition per student (that is, sales price) decreased by 5 percent? Increased by 22 percent? 3.…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT