You have two machines under consideration for an improved automated wrapping process for Snickers Fun Size candy bars as detailed below. (a) Using an AW analysis, determine which should be selected at i = 15% per year. (b) Assume you want machine D to be selected and are willing to extend its estimated life, if necessary. Perform this analysis to ensure D’s selection using factors or a spreadsheet. Machine C D First cost, $ −40,000 −65,000 Annual cost, $/year −10,000 −12,000 Salvage value, $ 12,000 25,000 Life, years 3 6
Q: Success Electronics LLC is planning to introduce a low cost smart phone with attractive features.…
A: Desired profit = Sales x markup % / (1 + markup %) = 30 x 20% / (1+0.20) = RO 5 Target cost to…
Q: Tim's Corp. is considering whether to overhaul an older machine or buy a newer more efficient…
A: Net Present Value is the sum of the discounted value of the future expected cash flows. In this…
Q: A mechanical engineer is considering two robots for improving materials handling in the production…
A: Capital budgeting refers to the evaluation of the profitability of potential investment and projects…
Q: Old Southwest Canning Co. has determined that any one of four machines can be used in a certain…
A: a.
Q: Dell has decided to improve its products' cooling system to achieve better performance and enhance…
A: Expected monetary value (EMV) analysis is a popular method used in project management analysis. The…
Q: A mechanical engineer is considering two types of pressure sensors for the low-pressure steam lines…
A: Present worth analysis is the conversion of a future amount of money to its present value - also…
Q: Esmail Mohebbi, owner of European Ignitions Manufacturing, needs to expand his capacity. He is…
A: According to the question, we need to calculate the most economical option. We can calculate the…
Q: Poly-Chem Plastics is considering two types of injection molding machines: hydraulic and electric.…
A: here to solve this question we have to calculate the IRR of incremental cash flow of both the…
Q: Cabin Creek Company is considering adding of a new line of kitchen cabinets. The company's…
A: Introduction:- Contribution margin is the difference between sales revenue and variable costs…
Q: a) Laser beams are being used in a large construction project to achieve the exact alignment of…
A: MARR = 15% N = 4 years
Q: Your manager has asked you to advise your client Kofi Gyato, owner and director of Kofi Gyato…
A: Depreciation means the amount of expenses due to usage of fixed assets due to normal wear and tear…
Q: A chip company is planning to launch a new product, but their demand planning team is having a hard…
A: Capital budgeting is the process that companies follow to evaluate various investment plans and…
Q: Success Electronics LLC is planning to introduce a low cost smart phone with attractive features.…
A: Desired profit = Sales x markup % / (1 + markup %) = 30 x 20% / (1+0.20) = RO 5
Q: Your boss had requested you to select the best design that will give the best profit to the company.…
A: The best alternative is the one with the highest NPV. NPV = Present value of future cash flows -…
Q: The target cost for one of the new ergonomically designed computer mice has been calculated to be…
A: Part 4 1. Target Cost = 4.50 2. Target Cost is 10% less than the normal cost Therefore normal cost…
Q: A new biomaterial used for prosthetic devices was developed by engineers in the laboratory that…
A:
Q: mahager of a considering whetner to produce a product vould require leasing some special equipment…
A: The question is based on the concept of calculation of production profit. The production profit is…
Q: The target cost for one of the new ergonomically designed computer mice has been calculated to be…
A: 1. Efficiency in labour time will reduce the labour hours per unit. Therefore to achieve the target…
Q: Nagle Electric, Inc., of Lincoln, Nebraska, mustreplace a robotic Mig welder and is evaluating two…
A: Given information is: Nagle Electric, Inc., of Lincoln, Nebraska, mustreplace a robotic Mig welder…
Q: A thermoplastic film manufacturer is trying to decide between 5 types of thermoforming molding…
A: IRR is a capital budgeting techniques which help in decision making on the basis of future cash…
Q: he wishes to know what the annual cost, at the economic life, will be for a van with the following…
A: The annual cost analysis helps an organization to evaluate the life cycle of a project. The…
Q: Samsung Electronics is trying to reduce supply chain risk by making more responsible make/buy…
A: Breakeven Sales Units It means the quantity of finished goods which are required to be sold for…
Q: Dexcon Technologies, Inc., is evaluating two alternatives to produce its new plastic filament with…
A: Capital budgeting refers to the evaluation of the profitability of potential investment and projects…
Q: Success Electronics LLC is planning to introduce a low cost smart phone with attractive features.…
A: Markup = Sales x markup % / (1 + markup %) = 30 x 20% / (1+0.20) = RO 5
Q: You are trying to pick the least-expensive equipment for your manufacturing operations. You have…
A: It is the annual cost of owning and maintaining the asset which is determined by dividing the net…
Q: A software package created by Navarro & Associates can be used for analyzing and designing…
A: Present worth method is the method, under this the cash flow of every alternative would be decreased…
Q: You are trying to pick the least-expensive equipment for your manufacturing operations. You have two…
A: Cost of capital = 10% Year Hi-Quality CFs Lo-Quality CFs 0 $ -40,000.00 $ -20,000.00 1…
Q: You need to select a machine for the robotized welding process at your factory. There are two…
A: The net present value is the difference between the present value of cash inflows and the present…
Q: 4. Konica Minolta plans to sell a copier that prints documents on both sides simultaneously, cutting…
A: Internal rate of return(IRR): It is the discount rate where the net present value of a project…
Q: A chemical engineer is considering two styles of pipes for moving distillate from a refinery to the…
A: Equivalent monthly cost is total cost of machine and monthly operating cost that is required for…
Q: You are trying to pick the least-expensive equipment for your manufacturing operations. You have two…
A: To take the valuing decision between the two alternatives that have a different useful life, it is…
Q: t if they will acquire one, two or three machines. Data shown below:
A: Break Even Point is the point f sale where organization earn no profit and no loss it can be…
Q: MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two alternative…
A: The company may decide to replace the old asset with a new asset. The company may also have several…
Q: You have been asked to determine the most fınancially advantageous option for a new Product…
A: The question is based on the calculation of annual worth for long term investment. Annual worth is…
Q: Two different copying machines are being considered in your company. The Mortar copier would be…
A: The capital budgeting is a technique that helps to analyze the profitability of the project.
Q: Liquid Sleeve, Inc. is a company that makes a sealing solution for machine shaft surfaces that have…
A: NPV A variance between cash outflow (PV) and cash inflow (PV) over a time period.
Q: Dexcon Technologies, Inc., is evaluating two alternatives to produce its new plastic filament with…
A:
Q: he Gargus Company, which manufactures projection equipment, is ready to introduce a new line of…
A: solution : concept : when a company follows absorption costing it means the company has a policy of…
Q: know there is a Bartleby on this, but the commas are all out of place and I'm still confused. Could…
A: a) To determine the market share needed for the Free Cash Flow (FCF) to be equal to $0. FCF = After…
Q: A firm plans to begin production of a new small appliance. The manager must decide whether to…
A: In order to choose between the alternatives we need to find indifference point. Here Indifference…
Q: Should FAE decide to manufacture the robots in-house, maintenance of the factory machine would cost…
A: In-house Manufacturing is the process of conducting an activity in the company only rather than…
Q: Stockton Manufacturing Limited found out that after using only 2 years a machine for semi automation…
A: Given Information, For Existing Machine(200,000 Units) Cost of Existing Machine = $32,000 and Life…
Q: Your company has an opportunity to enhance its plastic product by adding a new feature. To make the…
A: Cost of the new injection machine = $100,000 Increase in per unit cost of the product = $3 Increase…
Q: A software package created by Navarro & Associates can be used for analyzing and designing…
A: Present worth is the current value of a future sum of money or stream of cashflows given a…
Q: APSco, a large electronics subcontractor for the Air Force, needs to immediately acquire 10…
A: Capitalized Cost-: A Capitalized Cost is an expenditure that is enlarged to the expense basis of a…
Q: Ashley Foods, Inc. has determined that only one of five machines can be used in one phase of its…
A: For deciding the best machine we will discount cash outflow using required rate of return which is…
You have two machines under consideration for an
improved automated wrapping process for Snickers
Fun Size candy bars as detailed below.
(a) Using an AW analysis, determine which
should be selected at i = 15% per year.
(b) Assume you want machine D to be selected
and are willing to extend its estimated life, if
necessary. Perform this analysis to ensure
D’s selection using factors or a spreadsheet.
Machine C D
First cost, $ −40,000 −65,000
Annual cost, $/year −10,000 −12,000
Salvage value, $ 12,000 25,000
Life, years 3 6
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
- Keith Golding has decided to purchase a personal computer. He has narrowed his choices to two: Brand A and Brand B. Both brands have the same processing speed, hard disk capacity, RAM, graphics card memory, and basic software support package. Both come from companies with good reputations. The selling price for each is identical. After some review, Keith discovers that the cost of operating and maintaining Brand A over a three-year period is estimated to be 200. For Brand B, the operating and maintenance cost is 600. The sales agent for Brand A emphasized the lower operating and maintenance cost. She claimed that it was lower than any other PC brand. The sales agent for Brand B, however, emphasized the service reputation of the product. She provided Keith with a copy of an article appearing in a PC magazine that rated service performance of various PC brands. Brand B was rated number one. Based on all the information, Keith decided to buy Brand B. Required: 1. What is the total product purchased by Keith? 2. Is the Brand A company pursuing a cost leadership or differentiation strategy? The Brand B company? Explain. 3. When asked why he purchased Brand B, Keith replied, I think Brand B offered more value than Brand A. What are the possible sources of this greater value? If Keiths reaction represents the majority opinion, what suggestions could you offer to help improve the strategic position of Brand A?Nico Parts, Inc., produces electronic products with short life cycles (of less than two years). Development has to be rapid, and the profitability of the products is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that post-purchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was 130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be 120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, Cathy McCourt. The following conversation was recorded: BRIAN: Mark, as you know, we agreed that a profit of 15 per unit is needed for this new product. Also, as I look at the projected market share, 25 percent isnt acceptable. Total profits need to be increased. Cathy, what suggestions do you have? CATHY: Simple. Decrease the selling price to 125 and we expand our market share to 35 percent. To increase total profits, however, we need some cost reductions as well. BRIAN: Youre right. However, keep in mind that I do not want to earn a profit that is less than 15 per unit. MARK: Does that 15 per unit factor in preproduction costs? You know we have already spent 100,000 on developing this product. To lower costs will require more expenditure on development. BRIAN: Good point. No, the projected cost of 120 does not include the 100,000 we have already spent. I do want a design that will provide a 15-per-unit profit, including consideration of preproduction costs. CATHY: I might mention that post-purchase costs are important as well. The current design will impose about 10 per unit for using, maintaining, and disposing our product. Thats about the same as our competitors. If we can reduce that cost to about 5 per unit by designing a better product, we could probably capture about 50 percent of the market. I have just completed a marketing survey at Marks request and have found out that the current design has two features not valued by potential customers. These two features have a projected cost of 6 per unit. However, the price consumers are willing to pay for the product is the same with or without the features. Required: 1. Calculate the target cost associated with the initial 25 percent market share. Does the initial design meet this target? Now calculate the total life-cycle profit that the current (initial) design offers (including preproduction costs). 2. Assume that the two features that are apparently not valued by consumers will be eliminated. Also assume that the selling price is lowered to 125. a. Calculate the target cost for the 125 price and 35 percent market share. b. How much more cost reduction is needed? c. What are the total life-cycle profits now projected for the new product? d. Describe the three general approaches that Nico can take to reduce the projected cost to this new target. Of the three approaches, which is likely to produce the most reduction? 3. Suppose that the Engineering Department has two new designs: Design A and Design B. Both designs eliminate the two nonvalued features. Both designs also reduce production and logistics costs by an additional 8 per unit. Design A, however, leaves post-purchase costs at 10 per unit, while Design B reduces post-purchase costs to 4 per unit. Developing and testing Design A costs an additional 150,000, while Design B costs an additional 300,000. Assuming a price of 125, calculate the total life-cycle profits under each design. Which would you choose? Explain. What if the design you chose cost an additional 500,000 instead of 150,000 or 300,000? Would this have changed your decision? 4. Refer to Requirement 3. For every extra dollar spent on preproduction activities, how much benefit was generated? What does this say about the importance of knowing the linkages between preproduction activities and later activities?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)
- Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.Sports Butts makes basketballs and footballs in a three-step process. Unfortunately, the stern insertion process has been identified as a bottleneck. Each basketball has a contribution margin of $15.00 and each football has a contribution margin of $4.00. The stem insertion equipment can make 10 basketballs or 30 footballs in one hour. A. If demand for both products is unlimited and the stem insertion machine capacity cannot be expanded, which product should be produced? B. It demand for each ball is limited to 9,000 balls and there are 4,000 hours available on the machine, how many of each product should be produced?Shelby Industries has a capacity to produce 45.000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves dont require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
- Keleher Industries manufactures pet doors and sells them directly to the consumer via their web site. The marketing manager believes that if the company invests in new software, they will increase their sales by 10%. The new software will increase fixed costs by $400 per month. Prepare a forecasted contribution margin income statement for Keleher Industries reflecting the new software cost and associated increase in sales. The previous annual statement is as follows:Mortech makes digital cameras for drones. Their basic digital camera uses $80 in variable costs and requires $1,500 per month in fixed costs. Mortech sells 200 cameras per month. If they process the camera further to enhance its functionality, it will require an additional $45 per unit of variable costs, plus an increase in fixed costs of $1,000 per month. The current price of the camera is $200. The marketing manager is positive that they can sell more and charge a higher price for the improved version. At what price level would the upgraded camera begin to improve operational earnings?Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.
- Den-Tex Company is evaluating a proposal to replace its HID (high intensity discharge) lighting with LED (light emitting diode) lighting throughout its warehouse. LED lighting consumes less power and lasts longer than HID lighting for similar performance. The following information was developed: a. Determine the investment cost for replacing the 700 fixtures. b. Determine the annual utility cost savings from employing the new energy solution. c. Should the proposal be accepted? Evaluate the proposal using net present value, assuming a 15-year life and 8% minimum rate of return. (Present value factors are available in Appendix A.)At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?Syntech makes digital cameras for drones. Their basic digital camera uses $80 in variable costs and requires $1,500 per month in fixed costs. Syntech sells 100 cameras per month. If they process the camera further to enhance its functionality, it will require an additional $45 per unit of variable costs, plus an increase in fixed costs of $1,000 per month. The current price of the camera is $160. The marketing manager is positive that they can sell more and charge a higher price for the improved version. At what price level would the upgraded camera begin to improve operational earnings?