Rydingsward,Inc Prepare an Activity-Based Budget for the Following

question 93

Essay

Rydingsward,Inc.,has done a cost analysis for its production of reflectors.
The following activities and cost drivers have been developed:
$$\begin{array} { l l } \text { Activity } & \text { Cost Formula } \\\hline \text { Maintenance } & \$ 5,000 + \$ 8 \text { per machine hour} \\\text { Machining } & \$ 25,000 + \$ 4 \text { per machine hour } \\\text { Inspection } & \$ 90,000 + \$ 1,000 \text { per batch } \\\text { Setups } & \$ 5,000 \text { per batch } \\\text { Purchasing } & \$ 100,000 + \$ 100 \text { per purchase order }\end{array}$$ Prepare an activity-based budget for the following:
$$\begin{array} { l l } \text { 60,000 units: } & \text { 10,000 machine hours; } 30 \text { batches; } \\\text { 20,000 purchase orders } \\\text { 100,000 units: } & \text { 18,000 machine hours; 40 batches; } \\\text { 30,000 purchase orders }\end{array}$$

Evaluate the financial implications of replacing equipment.

Understand the impact of fixed and variable costs on product line decisions.

Recognize the components and significance of capital budgeting.

Calculate and interpret the cash payback period.

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Definitions:

Discount Rate

This rate is essential in discounted cash flow analysis for calculating the present value of future cash flows.

Present Value

The immediate financial worth of an expected future sum of money or cash flows, discounted with a predetermined rate of return.

Insurance Settlement

The payment made by an insurance company to a policyholder or claimant as compensation for a covered loss.

Discount Rate

in finance, refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.