A company is going to buy a new equipment for manufacturing its product. Four different equipment's are available; costs, operating and other 4. expenses are as follows: Equipment A B D First Cost Php 24,000 Php 30,000 Php 49,600 Php 52,000 Power per year Php 1300 Php 1360 Php 2400 Php 2520 Labor per year Php 10,600 Php 9320 Php 4200 Php 2700 Maintenance/year Php 2800 Php 1900 Php1300 Php 700 Taxes & Insurance 2% 2% 2% 2% Life; years 5 5 5 Money is worth 10% before taxes to the company. Which equipment should be purchased ? Choose which method is applicable.

A company is going to buy a new equipment for manufacturing its product. Four different equipment's are available; costs, operating and other 4. expenses are as follows: Equipment A B D First Cost Php 24,000 Php 30,000 Php 49,600 Php 52,000 Power per year Php 1300 Php 1360 Php 2400 Php 2520 Labor per year Php 10,600 Php 9320 Php 4200 Php 2700 Maintenance/year Php 2800 Php 1900 Php1300 Php 700 Taxes & Insurance 2% 2% 2% 2% Life; years 5 5 5 Money is worth 10% before taxes to the company. Which equipment should be purchased ? Choose which method is applicable.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter12: Activity-based Management

Section: Chapter Questions

Problem 19E: A company is spending 70,000 per year for inspecting, 60,000 per year for purchasing, and 56,000 per...

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Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
A company is spending 70,000 per year for inspecting, 60,000 per year for purchasing, and 56,000 per year for reworking products. What is a good estimate of non-value-added costs? a. 126,000 b. 70,000 c. 56,000 d. 130,000
Suppose that a company is spending 60,000 per year for inspecting, 30,000 for purchasing, and 40,000 for reworking products. A good estimate of nonvalue-added costs would be a. 70,000. b. 130,000. c. 40,000. d. 90,000. e. 100,000.
What is the conversion cost to manufacture insulated travel cups if the costs are: direct materials, $17,000; direct labor, $33,000; and manufacturing overhead, $70,000? A. $16,000 B. $50,000 C. $103,000 D. $120000
A company is going to buy a new equipment for manufacturing itsproduct. Four different equipment’s are available; costs, operating and otherexpenses are as follows:Equipment A B C DFirst Cost Php 24,000 Php 30,000 Php 49,600 Php 52,000Power per year Php 1300 Php 1360 Php 2400 Php 2520Labor per year Php 10,600 Php 9320 Php 4200 Php 2700Maintenance/year Php 2800 Php 1900 Php1300 Php 700Taxes & Insurance 2% 2% 2% 2%Life; years 5 5 5 5 Money is worth 10% before taxes to the company. Which equipment shouldbe purchased ? Choose which method is applicable.
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Smithy Ltd wants to invest in a new machine cooling system. There are three different systems currently in the market: Water-cooled Refrigerant Air-cooled Initial investment 488,000 990,000 1,020,000 Regular maintenance costs per annum 86,000 27,000 80,000 Scheduled major maintenance costs 46,000 72,000 44,000 Energy cost per annum 90,000 60,000 75,000 Other operating cost per annum 107,000 45,000 - Waste per annum 230,000 kilolitres of water* 50 litres of NH3** - Sound tiers (decibels)*** 95 55 85 The water-cooled system and refrigerant system requires a major maintenance at the end of every five years, while the air-cooled system requires a major maintenance at the end of every 10 years. The required rate of return is 10% for all capital investments. Assume a time horizon of 12 years. Ignore tax effects. Required: Calculate the net present value of the three systems. Which option is superior on…
A manufacturing plant produces 5,000 units per year. The capital investment, annual expenses, salvage value, and reject rate are as follows: Capital investment $ 100,000 Useful life (years) 7 Annual expenses $ 15,000 Salvage value $ 7000 Reject rate 8.5% Non-defective units can be sold for $5 per unit and defective units can be sold for $1 per unit. The MARR = 9%. Use at least 3 decimal places for each factor. A- Find the PW for this project? B- Determine how sensitive the decision to invest in this project to the estimates of initial investment and salvage value?
1) A manufacturing plant manager has purchased a new bologna slicing machine for $24,500. The new machine is expected to produce an extra $8,000 of revenue and have an annual operating expense of $3,000. If the useful life is expected at 6 years and i = 7% per year, what is the PW? Select one: a. $35000 b. $23835 c. $ 25000 d. $50000
A company with a MARR of 15% must install one of two production machines, X or Y. Machine X has an initial cost of $40,000 with an annual operating and maintenance (O&M) cost of $30,000 and a salvage value of $5,000 after its 5-year life. It will generate an annual benefit of $150,000. Machine Y’s benefits and costs differ from machine X’s. Hint: NPW = PW (benefits) − PW (costs) Group of answer choices NPW = [$150,000(P/A, 15%, 5)] + [$40,000 + $30,000(P/A, 15%, 5) + $5,000(P/F, 15%, 5)] NPW = [$150,000(P/A, 15%, 5)] − [$40,000 + $30,000(P/A, 15%, 5) − $5,000(P/F, 15%, 5)] NPW = [$150,000(P/A, 15%, 5)] − [$40,000 + $30,000(P/A, 15%, 5) + $5,000(P/F, 15%, 5)] NPW = [$150,000(P/A, 15%, 5)] − [$40,000 − $30,000(P/A, 15%, 5) + $5,000(P/F, 15%, 5)]
Choose from the two equipment which is more economical. Machine A Machine B First cost Php 8000 Php 14,000 Salvage value Php 2000 Annual operation Php 3000 Php 2400 Annual maintenance Php 1200 Php 1000 Taxes & insurance 3% 3%
Consider an order delivery business that will be a 5-year project. The required net working capital is $6.6 million and it will be returned at the end of the life of the project. Required equipment (net capital spending) will cost $15 and it will be depreciated straight-line to 0 over the 5-year life of the project. The business will have sales of $3 million in year 1, $6 million in year 2, and $10 million in years 3, 4, and 5. Costs are 30% of sales and the tax rate is 20%. (If there is a loss at the EBIT line, assign taxes of 0 for that year and do not carry tax losses forward.) The equipment has no salvage value. Create an income statement for years 1, 2, and 3, 4, and 5 (3, 4, and 5 will have the same income statement). Use the information from the income statement to calculate the operating cash flow using EBIT + depreciation – taxes for each year. Put all cash flows (net working capital, net capital spending, and operating cash flows) on a timeline. Using total cash flows from…