Winneconne Company is considering replacing a machine with a book value of P400,000, a remaining useful life of 5 years, and annual straight-line depreciation of P80,000. The existing machine has a current market value of P400,000. The replacement machine would cost P550,000, have a 5-year life, and save P75,000 per year in cash operating costs. If the replacement machine would be depreciated using the straight-line method, the tax rate is 30%, inventory shall increase by P10,000, payables by P5,000, what would be the net investment required to replace the existing machine? a. P165,000 b. P160,000 c. P155,000 d. P150,000  e. P90,000

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A:

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.