Velshi Printers has contracts to complete weekly supplements required by forty−six customers. For the year 2015, manufacturing overhead cost estimates total $1,440,000 for an annual production capacity of 16 million pages.

For 2015 Velshi Printers has decided to evaluate the use of additional cost pools. After analyzing manufacturing overheadcosts, it was determined that number of design changes, setups, and inspections are the primary manufacturing overhead cost drivers. The following information was gathered during theanalysis:

Cost pool

Manufacturing overhead costs

Activity level

Design changes

$160,000

400 design changes

Setups

1,230,000

2,000 setups

Inspections

50,000

8,000 inspections

Total manufacturing overhead costs

$1,440,000

During 2015, two customers, Money Managers and HospitalSystems, are expected to use the following printing services:

Activity

Money Managers

Hospital Systems

Pages

100,000

116,000

Design changes

12

0

Setups

19

9

Inspections

27

35

Assuming activity−cost pools are used, what are the activity−cost driver rates for design changes, setups, and inspections cost pools?

Shrieves casting company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by sidney johnson, a recently graduated mba. the production line would be set up in unused space in the main plant. the machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. the machinery has an economic life of 4 years, and shrieves has obtained a special tax ruling that places the equipment in the macrs 3-year class. the machinery is expected to have a salvage value of $25,000 after 4 years of use. the new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. each unit can be sold for $200 in the first year. the sales price and cost are both expected to increase by 3% per year due to inflation. further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 12% of sales revenues. the firm’s tax rate is 40%, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project (r), is 10%. define “incremental cash flow.” (1) should you subtract interest expense or dividends when calculating project cash flow?