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Lovitz and Rondello Company

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E25-1 Lovitz Company is planning to produce 2,000 units of product in 2010. Each unit
requires 3 pounds of materials at $6 per pound and a half hour of labor at $14 per hour.The overhead
rate is 70% of direct labor.

(a) Compute the budgeted amounts for 2010 for direct materials to be used, direct labor, and
applied overhead.
(b) Compute the standard cost of one unit of product.

E26-13 Rondello Company is considering a capital investment of $150,000 in additional
productive facilities.The new machinery is expected to have a useful life of 5 years with no salvage
value. Depreciation is by the straight-line method. During the life of the investment, annual
net income and cash inflows are expected to be $18,000 and $48,000, respectively.
Rondello has a 12% cost of capital rate, which is the minimum acceptable rate of return on the

(Round to two decimals.)
(a) Compute (1) the annual rate of return and (2) the cash payback period on the proposed
capital expenditure.
(b) Using the discounted cash flow technique, compute the net present value.

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