# Sven’s Component Sven Nys is a divisional manager of Vandelay Industries. Sven is considering introducing a...

###### Question:

Sven’s Component

Sven Nys is a divisional manager of Vandelay Industries. Sven is considering introducing a new component to the existing product line. Introducing the new component would require the purchase of new equipment. The equipment would cost $170,000, last for 2 years, and have zero salvage value at the end of the two years. Sven estimates that the variable overhead associated with the new component will be$95,000 a year and is allocated based on direct labor dollars. The new product will also require hiring a new employee at an annual wage of $30,000/year. This employee manufactures the new component. The new component consumes$20/unit of direct materials. The production volume, sales, and marketing costs for this new product line in each of the two years that the new component would be produced are as follows:

 Year 2012 2013 Production (units) 1,800 1,700 Sales (units) 1,200 2,300 Selling Price/u $150$150 Marketing Cost $10,000$10,000

Vandelay Industries uses full absorption for both book and tax purposes. It is company policy that straight-line depreciation is used for all production machinery, and that fixed overhead is allocated on the basis of units produced. Vandelay Industries uses LIFO (last in, first out) inventory flow assumption. Vandelay Industries uses a 12% discount rate for all net present value calculations and faces a tax rate of 30% of net income. Van delay industries has positive income elsewhere in the business, so the taxes associated with any losses result in cash saved.

The company must pay for the machine in cash upon delivery. For purposes of the analysis, assume that that all other expenses associated with producing the new component will be paid in cash at the end of the year in which they occur. Also, assume that all sales of the new component will be received in cash at the end of the year in which they occur. Assume that all units produced in the year are complete and ending balance of WIP is 0.

##### Question 5: A mathematics placement test is given to all 1st year students at a small...
Question 5: A mathematics placement test is given to all 1st year students at a small college. A student who receives a grade above 35 must take an extra mathematics course. The placement test scores and the final grades for 20 students who took the regular course were recorded. a. Find the equation...
##### Have you had a business presentation disturbed by a ringing cell phone? In a poll of...
Have you had a business presentation disturbed by a ringing cell phone? In a poll of 326 business men and women, 303 answered this question “yes” and only 23 answered “no” (“You Say,” Presentations: Technology and Techniques for Effective Communication, January 20...