Required information PA11-2 (Algo) Making Automation Decision (LO 11-1, 11-2, 11-3, 11-5) (The following information applies to the questions displayed below.) Beacon Company is considering automating its production facility. The initial investment in automation would be $10.08 million, and the equipment has a useful life of 8 years with a residual value of $1,040,000. The company will use straight- line depreciation. Beacon could expect a production increase of 35,000 units per year and a reduction of 20 percent in the labor cost per unit. current (no autonation) 1,000 units Proposed (automation) 116,000 units Per Unit Per Production and sales volune Sales revenue Variable costa birect materials Direct labor Variable manufacturing overhead Total variable manufacturing Unit Total $7 Total $ 95 $ 95 $17 20 $ 17 12 12 49 costs Contribution margin Fixed manutacturing costs $ 46 $ 50 $ 1,210,000 $2,270,000 Net operating income

Required information PA11-2 (Algo) Making Automation Decision (LO 11-1, 11-2, 11-3, 11-5) (The following information applies to the questions displayed below.) Beacon Company is considering automating its production facility. The initial investment in automation would be $10.08 million, and the equipment has a useful life of 8 years with a residual value of $1,040,000. The company will use straight- line depreciation. Beacon could expect a production increase of 35,000 units per year and a reduction of 20 percent in the labor cost per unit. current (no autonation) 1,000 units Proposed (automation) 116,000 units Per Unit Per Production and sales volune Sales revenue Variable costa birect materials Direct labor Variable manufacturing overhead Total variable manufacturing Unit Total $7 Total $ 95 $ 95 $17 20 $ 17 12 12 49 costs Contribution margin Fixed manutacturing costs $ 46 $ 50 $ 1,210,000 $2,270,000 Net operating income

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter12: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 12.2.2P: Differential analysis report for machine replacement proposal Catalina Tooling Company is...

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Differential analysis report for machine replacement proposal Catalina Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Annual nonmanufacturing operating expenses and revenue are not expected to be affected by the purchase of the new machine. Instructions List other factors that should be considered before a final decision is reached.
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?
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Ocean Tide Industries is planning to introduce a new product with a projected life of eightyears. The project is in the government’s preferred industry list and qualifies for a one-timesubsidy of $2,000,000 at the start of the project. Initial equipment (IE) will cost $14,000,000and an additional equipment (AE) costing $1,000,000 will be needed at the end of year 2. Atthe end of 8 years, the original equipment, IE, will have no resale value but the supplementaryequipment, AE, can be sold for its book value of $100,000. A working capital of $1,500,000will be needed.The sales volume over the eight-year period have been forecast as follows: Year 1 80,000 unitsYear 2 120,000 unitsYears 3-5 300,000 unitsYears 6-8 200,000 units A sale price of $100 per unit is expected and the variable expenses will amount to 40% of salesrevenue. Fixed cash operating expenses will amount to $1,600,000 per year.Additionally, an extensive advertising campaign will be launched, which will need annual expenses…
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Ocean Tide Industries is planning to introduce a new product with a projected life of eightyears. The project is in the government’s preferred industry list and qualifies for a one-timesubsidy of $2,000,000 at the start of the project. Initial equipment (IE) will cost $14,000,000and an additional equipment (AE) costing $1,000,000 will be needed at the end of year 2. Atthe end of 8 years, the original equipment, IE, will have no resale value but the supplementaryequipment, AE, can be sold for its book value of $100,000. A working capital of $1,500,000will be needed.The sales volume over the eight-year period have been forecast as follows:Year 1 80,000 unitsYear 2 120,000 unitsYears 3-5 300,000 unitsYears 6-8 200,000 unitsA sale price of $100 per unit is expected and the variable expenses will amount to 40% of salesrevenue. Fixed cash operating expenses will amount to $1,600,000 per year.Additionally, an extensive advertising campaign will be launched, which will need annualexpenses as…
The following costs are incurred by Everlasting Corporation in 2022: a. Cost of activities aiming new knowledge P150,000 b. Cost of developing and producing prototype model 30,000 c. Cost of seminars to introduce the newly develop product 120,000 d. Advertisement cost to introduce the newly develop product 60,000 e. Cost incurred for search of alternatives 35,000 f. Cost of final selection of possible alternatives 50,000 g. Cost of machine acquired to be used only in an R&D project 300,000 h. Cost of engineering follow through in an early phase of commercial production 50,000 i. Adaptation of an existing capability to particular customers need 36,000 j. Salaries of employees involved in R&D 480,000 k. Radical modification to the formulation of a chemical product 40,000 l. Laboratory…
Ahmed Corporation is considering replacing a machine that is presently used in its production process. The following information is available: Old New Machine Machine Original cost $45,000 $25,000 Remaining useful life in years 5 5 Current age in years 5 0 Book value $25,000 N/A Current disposal value in cash $5,000 N/A Future disposal value in cash (in five years) $0 $0 Annual cash operating costs $ 8,000 $ 6,000 Required: 1) Which of the data provided in the table are relevant to the decision?
Ltd. is currently faced with a critical decision regarding its production equipment. Cari Heat (CH) is evaluating two options for its production equipment: upgrading or replacing. The company manufactures and sells 7,500 heaters every year, each priced at $920. The current production equipment, which was acquired at a cost of $2,150,000, has been in use for just two years and is subject to straight-line depreciation over a five-year useful life. Furthermore, it possesses no terminal disposal value, but it can be currently sold for $650,000. The following table presents data for the two alternatives: : Upgrade One-time equipment costs= $3,500,000 Variable manufacturing cost per Heater =$180 Remaining useful life of equipment (years) =3 Terminal disposal value of equipment =0 Choice: Replace One-time equipment costs= $5,200,000 Variable manufacturing cost per Heater = $90 Remaining useful life of equipment (years) = 3 Terminal disposal value of equipment = 0 Required…
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $511,000 cost with an expected four-year life and a $19,000 salvage value. All sales are for cash, and all costs are out-of-pocket, except for depreciation on the new machine. Additional information includes the following. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Expected annual sales of new product $ 1,930,000 Expected annual costs of new product Direct materials 480,000 Direct labor 673,000 Overhead (excluding straight-line depreciation on new machine) 335,000 Selling and administrative expenses 163,000 Income taxes 40 % Required:1. Compute straight-line depreciation for each year of this new machine’s life.2. Determine expected net income and net cash flow for each year of this machine’s life.3. Compute this machine’s payback period,…
Cari Heat (CH) Ltd. is currently faced with a critical decision regarding its production equipment. Cari Heat (CH) is evaluating two options for its production equipment: upgrading or replacing. The company manufactures and sells 7,500 heaters every year, each priced at $920. The current production equipment, which was acquired at a cost of $2,150,000, has been in use for just two years and is subject to straight-line depreciation over a five-year useful life. Furthermore, it possesses no terminal disposal value, but it can be currently sold for $650,000. The following table presents data for the two alternatives: ABC 1 Choice Upgrade Replace 2 One-time equipment costs $3,500,0003 Variable manufacturing cost per Heater $180 $90 4 Remaining useful life of equipment (years) 3 3 5 Terminal disposal value of equipment 0 0 Required 1. Prepare a schedule, for the remaining 3 years, reflecting whether CH should upgrade its production line or replace it?