Ans-1)
Cost
Direct/Indirect
Justification
Cost of material
Direct
An expense that goes directly producing goods
Cost of marketing product
Indirect
General business expense that aids selling of goods
Interest payments
Indirect
Business expense that keeps the firm operating but
does not directly go into product production
Cost of storing
Direct
Storing product is a key step of production and
therefore is a cost directly associated with it (Before
sale of finished good)
Machine depreciation
Indirect
Is not linked to product produced directly
Insurance cost
Indirect
Risk prevention is a general business expense
Product handling and
shipping costs
Direct
Price directly tied to product produced by firm.
Engineering drawing cost
Indirect
More difficult to assign, however such an expense is
not necessary for the main production stage of product
Machine operator wages
Direct
A cost directly traced to the production of product
Machine operator overtime
Direct
A cost directly traced to the production of product
Utility costs
Indirect
If this was utility for running the machinery required to
produce product it would be direct, however we
assume it is a general business expense such as utility
for offices etc.
Support staff salaries
Indirect
A cost not directly related to production of the product
(Assuming this is not manufacturing staff)
Cost of tooling and fixtures
Direct
A cost directly traced to the production of product
Ans-2)
a) Real Estate Investment Trusts (REIT’S)
REIT’s are “companies that own or finance income-producing real estate across a range
of property sectors”. REIT’s deliver competitive returns and high steady dividend
income, a form of long-term capital appreciation. There are several Canadian REIT’s
with varying levels of return, this can be averaged to about 5-6%.
From the options above, the minimum attractive rate of return would be from the Index
ETF’s at around 10% beating the current Canadian inflation rate of 6.8%.
b) Stock Market: Investing in the stock market offers the potential for long-term growth,
although it does come with some level of risk. To reduce risk, you can consider investing
in a mix of established companies and exchange-traded funds (ETFs) that track broad
market indices. Historical average returns for the stock market have been around 7-10%
per year, but it can vary significantly.
c) Bonds: Bonds are fixed-income securities issued by governments or corporations. They
provide a relatively lower risk compared to stocks. Treasury bonds are considered the
least risky. The potential returns from bonds are typically lower than those from stocks,
averaging around 2-5% per year, depending on the type of bond and prevailing interest
rates.
Ans-4)
a) Book value after 6 years: $310,000
Difference between book value and sold market value: $100,000
b) Loss on Disposal
c) Tax would be owed or credited to the firm due to the sale of the asset: $33,000