A plant manager is thinking about to buy a new equipment in order to manufacture a...

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A plant manager is thinking about to buy a new equipment in order to manufacture a new product. 1 il ili In calculating returns, assets are valued at the beginning of the year. The sales quantity during Years 1 to 3 is 25,000 units, 33,000 units, 22,500 units. Budgeted income statement for Year 1: $000 $5,000 (3,000) (1,600) $400 iv Initial capital investment is $4,800,000 payable on the first day of the investment. The equipment is expected three-year life with no scrape value. Depreciation is charged on a straight-line basis. V Sales (25,000 units) Variable costs Fixed costs # Operating profit (Return) # Assume depreciation of the equipment is the only item of fixed cost. Required: (round to decimal place) (a) Prepare the budgeted income statement for Years 2 and 3 (in columnar format) (8 marks) (b) Calculate the percentage of Return on Investment (ROI %) for each year from Years 1 to 3. (6 marks) (c) Assume the required rate of return is 12%, calculate Residual Income (RI) for each year from Years 1 to 3. (6 marks) (d) if the manager wants to achieve an ROI of 12% at Year 1, how many unit change in sales quantity is required? Assume no change in selling price and unit variable cost. (7 marks) (e) If the manager wants to achieve an ROI of 12% at Year 1, how many percentage change in variable cost is required? Assume no change in selling price and sales quantity (5 marks) A plant manager is thinking about to buy a new equipment in order to manufacture a new product. 1 il ili In calculating returns, assets are valued at the beginning of the year. The sales quantity during Years 1 to 3 is 25,000 units, 33,000 units, 22,500 units. Budgeted income statement for Year 1: $000 $5,000 (3,000) (1,600) $400 iv Initial capital investment is $4,800,000 payable on the first day of the investment. The equipment is expected three-year life with no scrape value. Depreciation is charged on a straight-line basis. V Sales (25,000 units) Variable costs Fixed costs # Operating profit (Return) # Assume depreciation of the equipment is the only item of fixed cost. Required: (round to decimal place) (a) Prepare the budgeted income statement for Years 2 and 3 (in columnar format) (8 marks) (b) Calculate the percentage of Return on Investment (ROI %) for each year from Years 1 to 3. (6 marks) (c) Assume the required rate of return is 12%, calculate Residual Income (RI) for each year from Years 1 to 3. (6 marks) (d) if the manager wants to achieve an ROI of 12% at Year 1, how many unit change in sales quantity is required? Assume no change in selling price and unit variable cost. (7 marks) (e) If the manager wants to achieve an ROI of 12% at Year 1, how many percentage change in variable cost is required? Assume no change in selling price and sales quantity (5 marks)

Answer rating: 100% (QA)

a Budgeted Income Statement for Years 2 and 3 Year 2 33000 units Year 3 22500 units Sales 5500 3750 ... View the full answer