Hello everyone, I am hoping someone out there understands how to do these problems and can guide me through step by step to understand how to get to the answer, because I have read the chapters in the book a few times and it goes in one ear and out the other. Not to mention my professor has a full time job as an accountant during the last period of tax season and we have to learn 16 weeks worth of information in 8 weeks with 1, 4 hour class a week. The terms in the book are so dry that I find myself getting lost. Anyway if you could help I would be more than grateful.
Problem 1 - Handy-Man Services is a repair-service company specializing in small household jobs. Each client pays a fixed monthly service fee based on the number of rooms in the house. Records are kept on the time and material costs used for each repair. The following profitability data apply to five customers.
Customer Revenues Customer Costs
Marveline Burnett $300 $225
J Jackson 200 305
Roger Jones 80 75
Paul Saas 75 110
Becky Stephan 350 220
Question 1: Compute the operating income for each of the five customers.
Question 2: What options should Handy-Man Services consider in light of the customer-profitability results?
Question 3: What problems might Handy-Man Services encounter in accurately estimating the operating costs of each customer?
Problem 2 - Gavin and Alex, baseball consultants, are in need of a microcomputer network for their staff. They have received three proposals, with related facts as follows:
Initial investment in equipment
Annual cash increase in operations:
The company uses straight-line depreciation for all capital assets.
Question 1: Compute the payback period, net present value, and accrual accounting rate of return with initial investment, for each proposal. Use a required rate of return of 14%.
Question 2: Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why?
Proposal A Proposal B Proposal C
Initial investment in equipment $90,000 $90,000 $90,000
Annual cash increase in operatons
Year 1 $80,000 $45,000 $90,000
Year 2 $10,000 $45,000 $ 0
Year 3 $45,000 $45,000 $ 0
Salvage value $ 0 $ 0 $ 0
Estimated life 3 yrs 3 yrs 1 yr