P2 Exam Dumps : Advanced Management Accounting

A very large organization is financed by both debt and equity. It evaluates all projects on the basis of their net present value (NPV) using an organization wide weighted average cost of capital as the discount rate.

For a small project, which TWO of the following would affect the project's cash flows AND the discount rate?

A company has invested $500,000 in developing a new product and requires a return of 12% on this investment.

The company has researched the market and has set the selling price for the new product at $300 per unit. At this price, sales volume for next year is forecast to be 500 units. The forecast unit cost is $210.

What is the target cost gap per unit for the coming year?

Give your answer to the nearest whole $.

An investment centre manager is considering the purchase of a new machine. If purchased, the new machine would replace an existing one that is used to manufacture one of the investment centre's existing products.

The new machine would incur $800 per month additional running costs; this includes $300 per month of additional depreciation.

The new machine would save on direct labor time. This means that the fixed production overhead absorbed by the product on the basis of direct labor hours would reduce by $100 per month.

What is the total cost of the above that is relevant to the decision to purchase the machine?