how would the machine cost be characterized (hint:
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True Flight Golf manufacturers a popular shaft for golf clubs. Its trade secret is a unique process for weaving high-tension wire into the center of the shaft such that energy is accumulated during the swing and released at impact. A specialized machine costing $3,000,000 is utilized in the manufacturing process. The machine has a 3-year life and no salvage value. True Flight uses straight-line
If the company experiences significant growth, and finds it necessary to continue to add additional machines, how would the machine cost be characterized (hint: fixed, variable, or something else)? In theory, at what production level(s) would per unit cost be minimized?
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- Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?True Flight Golf manufacturers a popular shaft for golf clubs. Its trade secret is a unique process for weaving high-tension wire into the center of the shaft such that energy is accumulated during the swing and released at impact. A specialized machine costing $3,000,000 is utilized in the manufacturing process. The machine has a 3-year life and no salvage value. True Flight uses straight-line depreciation. During the year, 25,000 shafts were produced, and the company was operating at full capacity. $700,000 of wire was used during the year. For the following year, if the company acquired an additional machine to enable production of 40,000 total units, what would happen to the expected total and per unit variable and fixed cost?True Flight Golf manufacturers a popular shaft for golf clubs. Its trade secret is a unique process for weaving high-tension wire into the center of the shaft such that energy is accumulated during the swing and released at impact. A specialized machine costing $3,000,000 is utilized in the manufacturing process. The machine has a 3-year life and no salvage value. True Flight uses straight-line depreciation. During the year, 25,000 shafts were produced, and the company was operating at full capacity. $700,000 of wire was used during the year. Is machinery depreciation fixed or variable? Is wire cost fixed or variable?
- True Flight Golf manufacturers a popular shaft for golf clubs. Its trade secret is a unique process for weaving high-tension wire into the center of the shaft such that energy is accumulated during the swing and released at impact. A specialized machine costing $3,000,000 is utilized in the manufacturing process. The machine has a 3-year life and no salvage value. True Flight uses straight-line depreciation. During the year, 25,000 shafts were produced, and the company was operating at full capacity. $700,000 of wire was used during the year. For the two noted cost items, how much was variable cost per unit and how much was fixed cost per unit?Barron Chemical uses a thermoplastic polymer to enhance the appearance of certain RV panels. The initial cost of one process was $126,000 with annual costs of $48,000. Revenues are $78,000 in year 1, increasing by $1000 per year. A salvage value of $23,000 was realized when the process was discontinued after 8 years. What rate of return did the company make on the process? The rate of return made by the company isBarron Chemical used a thermoplastic polymer to enhance the appearance of certain RV panels. The initial cost of one process was $130,000 with annualcosts of $49,000. Revenues were $78,000 in year 1, increasing by $1000 per year. A salvage value of $23,000 was realized when the process was discontinued after 8 years. What rate of return did the company make on the process?
- Five years ago, a multi-axis NC machine was purchased for the express purpose of machining large, complexparts used in commercial and military aircraft worldwide. It cost $350,000, had an estimated life of 15 years,and O&M costs of $50,000 per year. It was originally thought to have a salvage value of $20,000 at the end of15 years but is now believed to have a remaining life of 5 years with no salvage value at that time. With businessbooming, the existing machine is no longer sufficient to meet production needs. It can be kept andsupplemented by purchasing a new, smaller Machine S for $210,000 that will cost $37,000 per year forO&M, have a life of 10 years, and a salvage value of $210,000(0.8t ) after t years. As an alternative, a larger,faster, and more capable Machine L can be used alone to replace the current machine. It has a cash pricewithout trade-in of $450,000, O&M costs of $74,000 per year, a salvage value of $450,000(0.8t) after t years,and a 15-year life. The…Five years ago, a multi-axis NC machine was purchased for the express purpose of machining large, complex parts used in commercial and military aircraft worldwide. It cost $350,000, had an estimated life of 15 years, and O&M costs of $50,000 per year. It was originally thought to have a salvage value of $20,000 at the end of 15 years but is now believed to have a remaining life of 5 years with no salvage value at that time. With business booming, the existing machine is no longer sufficient to meet production needs. It can be kept and supplemented by purchasing a new, smaller Machine S for $210,000 that will cost $37,000 per year for O&M, have a life of 10 years, and a salvage value of $210,000(0.8t) after t years. As an alternative, a larger, faster, and more capable Machine L can be used alone to replace the current machine. It has a cash price without trade-in of $450,000, O&M costs of $74,000 per year, a salvage value of $450,000(0.8t) after t years, and a 15-year life.…Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $80,700, the accumulated depreciation is $32,300, its remaining useful life is 5 years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $167,900. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: PresentOperations ProposedOperations Sales $255,800 $255,800 Direct materials $87,200 $87,200 Direct labor 60,500 — Power and maintenance 5,600 29,900 Taxes, insurance, etc. 2,000 6,700 Selling and administrative expenses 60,500 60,500 Total expenses $215,800 $184,300…
- Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $63,700, the accumulated depreciation is $25,500, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $132,500. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: PresentOperations ProposedOperations Sales $201,900 $201,900 Direct materials $68,800 $68,800 Direct labor 47,800 — Power and maintenance 4,500 23,600 Taxes, insurance, etc. 1,600 5,300 Selling and administrative expenses 47,800 47,800 Total expenses $170,500…im Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $75,200, the accumulated depreciation is $30,100, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $156,400. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Operations Proposed Operations Sales $238,400 $238,400 Direct materials $81,200 $81,200 Direct labor 56,400 — Power and maintenance 5,300 27,800 Taxes, insurance, etc. 1,900 6,200 Selling and administrative expenses 56,400 56,400 Total expenses $201,200…Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $54,200, the accumulated depreciation is $21,700, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $112,700. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: PresentOperations ProposedOperations Sales $171,800 $171,800 Direct materials $58,500 $58,500 Direct labor 40,700 — Power and maintenance 3,800 20,100 Taxes, insurance, etc. 1,400 4,500 Selling and administrative expenses 40,700 40,700 Total expenses $145,100…
