Arkansas State University Newport Financial Management Problems Discussion 1. A state highway patrol department spent $1,500,000 last year on patrol, which included, among others, the purchase of a new vehicle in the amount $65,000 with a salvage value of $7,500. It also spent $28,000 on materials and supplies, but used only 65% for the year, the rest it spent on wages and salaries. The vehicle has a life span of six years. What was the actual cost providing the service to the department, assuming a straight-line depreciation, with and without the salvage value?
2. A local public library has recently purchased a multi-purpose copying machine at a cost of $4,500. It has a standard life span of five years and a salvage value of $1,250. What would be the annual depreciation expense for the machine under (a) straight-line depreciation, (b) declining balance depreciation, and (c) the sum-of-the years’-digits depreciation, with and without the salvage value?
3. A local United Way has recently purchased a mini-van at a cost of $45,000 to provide free transportation services to elderly people who could not otherwise move around. The organization plans to trade it in for $10,000 after it has gone 80,000 miles. The following information is available on the vehicle for miles traveled over a five-year period: 15,000 miles in year 1, 17,000 miles in year 2, 20,000 miles in year 3, 15,000 miles in year 4, and 13,000 miles in year 5. Calculate the depreciation expense for each of the five years using the units of production method.
4. Define price. Why is it difficult to determine the price of public goods? What pricing method would you use for (a) public utilities, (b) recreation facilities, and (3) a toll road? Why?
5. The cost of heart procedures for a county-run hospital is $125,000, with a fixed cost of $50,000 and a variable cost of $75,000. The hospital completed 250 procedures last year.
[A] Assuming no changes in the number of procedures the hospital will perform next year, calculate the cost of surgery for next year, if (a) a 2% increase in variable and 1.5% increase in fixed costs, and (b) it wants to maintain 3.5% safety margin.
[B] What would be the cost if the number of procedures (1) will increase by 2%, and (2) will decrease by 4%, with and without safety margin, assuming no changes in cost conditions next year?
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