ACCT 386 - Week 7 - Homework - Question 7

ACCT 386 - Week 7 - Homework - Question 7
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ACCT 386 - Week 7 - Homework - Question 7

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Question 7

Nagoya Amusements Corporation places electronic games and other amusement devices in supermarkets and similar outlets throughout Japan. Nagoya Amusements is investigating the purchase of a new electronic game called Mystic Invaders. The manufacturer will sell 20 games to Nagoya Amusements for a total price of ¥166,000. (The Japanese currency is the yen, which is denoted by the symbol ¥.) Nagoya Amusements has determined the following additional information about the game:


The game would have a 5-year useful life and a negligible salvage value. The company uses straight-line depreciation.


The game would replace other games that are unpopular and generating little revenue. These other games would be sold for a total of ¥23,000.


Nagoya Amusements estimates that Mystic Invaders would generate annual incremental revenues of ¥209,000 (total for all 20 games). Annual incremental out-of-pocket costs would be (in total): maintenance, ¥44,000; and insurance, ¥8,000. In addition, Nagoya Amusements would have to pay a commission of 48% of total revenues to the supermarkets and other outlets in which the games were placed. (Ignore income taxes.)