UF Inc. is considering replacing (or keeping) some old equipment.
Equipment information is as follows:
Useful life in years
Current age in years
Net book value
Disposal value now
Disposal value in 5 years
Annual cash operating costs
1. Calculate the relevant (financial) advantage for the five year period
of “Replacing” over
“Keeping” the equipment.
Calculate the accounting cost difference in the first year
between “Replacing” and “Keeping”.
Use accrual-based accounting costs (performance model) and straight-line depreciation.
Alligator, Inc. uses a joint process to produce products A, B, and C.
Each product may be sold at the
split-off point or processed further and then sold.
costs were $200,000.
Other data were:
Costs after Split
Calculate the maximum operating income
Florida, Inc. manufactures a part used in a final product.
The costs for 1,000 units of the part are:
Variable factory overhead
Fixed factory overhead
Florida, Inc. can buy 1,000 units of the part from Seminole for $55 each.
The facilities currently used to
make the part could also be used
to make 1,000 units of a product that has a contribution margin of $20 per
No additional fixed costs would be incurred.
4. Calculate the relevant (financial) advantage of “Buying” over “Making” the part
Gator Industries produces and sells products A, B and C.
Production is limited by the availability of 25,000
machine hours and sales by product demand.
Other pertinent data are:
Contribution margin per unit
Machine hours per unit
5. Calculate the total contribution margin for the optimal production and sales plan.