Paul is tired of sitting in the freezing minnesota winter and is considering insulating his home. it would cost him $4,000 this year to insulate, and the estimated reduction in his yearly fuel costs would be $350 per year. the insulation can be installed immediately and will require a maintenance expense of $1,000 exactly 15 years from today. assume the discount rate is 5%. paul plans to live in the house until he retires, 30 years from today, at which point he will sell the house and move to someplace warmer. he has already consulted a real estate agent for advice and was told that insulation will not add anything at all to the value of the house when it is sold. (a) calculate the present value of net benefits of insulation assuming that the benefits are realized at the end of each year. (b) calculate what the house will be worth 23 years from today with insulation. assume the benefits are realized at the end of each year. (c) what is tin- net present value of insulating the house today, allowing for both the reduction in costs and increased value of the house when sold? assume the benefits are realized at the end of each year.

Zachary company produces commercial gardening equipment. since production is highly automated, the company allocates its overhead costs to product lines using activity-based costing. the costs and cost drivers associated with the four overhead activity cost pools follow: activities unit level batch level product level facility level cost $ 64,800 $ 27,730 $ 15,000 $ 154,000 cost driver 2,400 labor hrs. 47 setups percentage of use 11,000 units production of 780 sets of cutting shears, one of the company’s 20 products, took 240 labor hours and 7 setups and consumed 15 percent of the product-sustaining activities. required: (a) had the company used labor hours as a company wide allocation base, how much overhead would it have allocated to the cutting shears? (b) how much overhead is allocated to the cutting shears using activity-based costing? (c) compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 780 units are produced. if direct product costs are $150 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system? (d) assuming that activity-based costing provides a more accurate estimate of cost, indicate whether the cutting shears would be over- or underpriced if direct labor hours are used as an allocation base. explain how over-or undercosting can affect vaulker's profitability. (e) comment on the validity of using the allocated facility-level cost in the pricing decision. should other costs be considered in a cost- plus pricing decision? if so, which ones? what costs would you include if you were trying to decide whether to accept a special order?