(2) "In job costing, the costs of normal spoilage that occur while a specific job is being done are charged to the specific job." Do you agree? Explain. (5%)

3. APPLE is in need of a microcomputer network for its staff. The company uses straight-line depreciation for all capital assets. Annual required rate of return is 14%. The company has received three proposals, with related facts as follows: | | Proposal A | Proposal B | Proposal C | | --- | --- | --- | --- | | Initial investment in equipment | $90,000 | $90,000 | $90,000 | | Annual cash increase in operations: | | | | | 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 years | 3 years | 1 year | Required: Compute the payback period, net present value, and accrual accounting rate of return with initial investment, for each proposal. Show computations. Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? Why? (15%)

4. Taipei Company manufactures and sells product A. In 2019, it reported the following: | Units produced and sold | 3,200 | | --- | --- | | Investment | $2,400,000 | | Markup percentage on full cost | 8% | | Rate of return on investment | 12% | | Variable cost per unit | $500 | Required: (1) What was the full cost per unit? What was the selling price? (12%)

(2) Taipei is considering increasing the annual spending on advertising by $175,000. The managers believe that the investment will translate into 10% increase in unit sales. Should Taipei make the investment? Show your calculations. (8%)

(3) In 2020, Taipei believes that it will only be able to sell 2,900 units at the price calculated in requirement (1). Managers have identified $125,000 in fixed cost that can be eliminated. If Taipei wants to maintain at an 8% markup on full cost, what is the target variable cost per unit? (10%)

5. AB Company is considering replacement of its old machine with a new, more cost-saving one. Information related to the old and new machines follows: | Original cost---old machine | $60,000 | | --- | --- | | Book value---old machine | $50,000 | | Current market value---old machine | $42,000 | | Annual operating cost---old machine | $14,000 | | Purchase price---new machine | $75,000 | | Installation cost---new machine | $2,000 | | Annual operating cost---new machine | $6,000 | The old machine had been purchased a year ago. AB estimates that either machine has a remaining useful life of 5 years. At the end of 5 years, either machine would have a salvage value of zero. Ignore the effect of income taxes and the time value of money. Required: (1) Should AB purchase the new machine? Show your calculations. (10%)

(2) Is there any conflict between the decision model and the incentives of the manager who has purchased the old machine and is considering replacing it a year later? (5%)

(3) At what purchase price would AB be indifferent between purchasing the new machine and continuing to use the old machine? (5%)

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