Chapter 13, Problem 2MC

Summary Introduction

Case summary:

Company S considering adding a new line to its product mix and the production line would be set up in unused space in the main plant. It has installed machinery which generates the incremental sales of $1,250 units per year.

Due to this the sale price and cost prices are increased by 3% and firm’s net working capital would have to increase by an amount equal to 12% of sales revenues.

To determine: Depreciable basis of Company S and its annual depreciation expenses.