Question

1). Marin Products produces three products — DBB-1, DBB-2, and DBB-3 from a joint process. Each...

1).

Marin Products produces three products — DBB-1, DBB-2, and DBB-3 from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Key information about Marin's production, sales, and costs follows.

DBB-1 DBB-2 DBB-3 Total
Units Sold 17,000 26,000 39,000 82,000
Price (after addt’l processing) $ 85 $ 70 $ 95
Separable Processing cost $ 420,000 $ 171,000 $ 251,000 $ 842,000
Units Produced 17,000 26,000 39,000 82,000
Total Joint Cost $ 3,200,000
Sales Price at Split-off $ 10 $ 20 $ 40

The amount of joint costs allocated to product DBB-1 using the net realizable value method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

Multiple Choice

  • $861,120.

  • $305,110.

  • $535,360.

  • $663,360.

  • $1,803,520.

2).

Pique Corporation wants to purchase a new machine for $290,000. Management predicts that the machine can produce sales of $198,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $88,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 30%. Management requires a minimum after-tax rate of return of 14% on all investments.

What is the net after-tax cash inflow in Year 1 from the investment?

Multiple Choice

  • $70,400.

  • $94,400.

  • $106,400.

  • $110,400.

  • $118,400.

Homework Answers

Answer #1

1) Calculate net realizable value

Sale value after further process Separable cost Net realizable value
DBB-1 17000*85 = 1445000 420000 1025000
DBB-2 26000*70 = 1820000 171000 1649000
DBB-3 39000*95 = 3705000 251000 3454000
Total 6128000

Joint Cost allocated to DBB-1 = 1025000/6128000 = 16.73%*3200000 = 535360

So answer is c) $535360

2) Calculate after tax cash inflow for year 1

Sales 198000
Expense -88000
Depreciation expense (290000/5) -58000
Income before tax 52000
Income tax -15600
Net income 36400
Depreciation 58000
After tax Cash inflow 94400

So answer is b) $94400

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