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Unformatted text preview: 2 Fall 2009 – Final Exam Page 17 35. Suppose the purchaser is willing to pay $30 per pair for the special order boots. Should Alpine accept the
special order at that price? By how much will its profit change if it accepts the special order? Include
“increase” or “decrease” to indicate the direction of change.
Variable manufacturing cost
Variable selling and admin cost
Profit 1,500 @ $30
(from 34) $45,000
$12,750 Yes accept. Increase by $12,750. 36. Ignore the information in question 35. Assume that one of Alpine’s production machines is permanently
broken and that its production capacity is only 19,000 pairs of boots. Compute the minimum selling price
per pair that Alpine should be willing to accept for the special order.
Lost contribution margin
Minimum total revenue
Number of units in special order
Minimum selling price per pair (unit) $32,250
$29.00 6A:002 Fall 2009 – Final Exam Page 18 Use the following information about Mercury Property Management to answer questions 37 through 40.
Mercury Property Management manages a large office building complex. It is considering the installation of
heated sidewalks around its buildings so that it does not need to hire a snow removal firm in the winter.
Maintenance personnel developed the following estimates for the project.
Initial cost of sidewalk installation
Annual cash savings in snow removal cost
Salvage value of sidewalk project 8 years
$50,000 Mercury uses straight-line depreciation and pays no taxes. Management uses a 9% discount rate on investments
of this type.
37. Compute the present value of the project’s annual cash savings in snow removal costs.
$120,000 * 5.534 = $664,080 38. Compute the net present value of the sidewalk project.
Annual cash savings
Net present value Amount
$50,000 PV Factor
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This note was uploaded on 09/29/2011 for the course 06A 002 taught by Professor Stuff during the Spring '11 term at University of Iowa.
- Spring '11