Blue Ridge Furniture is considering the purchase of two different items of equipment, as described below: Machine
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Question:
Blue Ridge Furniture is considering the purchase of two
different items of equipment, as described below: Machine A A
machine has just come onto the market that compresses sawdust into
various shelving products. Currently, the sawdust is disposed of as
a waste product. The following information is available about the
machine: a The machine would cost $ and would have a
salvage value at the end of its year useful life. The company
uses straightline depreciation and considers salvage value in
computing depreciation deductions. b The shelving products
produced by the machine would generate revenues of $ per
year. Variable manufacturing costs would be of sales. c Fixed
annual expenses associated with the new shelving products would be:
advertising, $; salaries, $; utilities, $; and
insurance, $ Machine B A second machine has come onto the
market that would automate a sanding process that is now done
largely by hand. The following information is available about this
machine: a The new sanding machine would cost $ and would
have no salvage value at the end of its year useful life. The
company would use straightline depreciation. b Several old pieces
of sanding equipment that are fully depreciated would be disposed
of at a scrap value of $ c The new sanding machine would
provide substantial annual savings in cash operating costs. It
would require an operator at an annual salary of $ and $
in annual maintenance costs. The current, handoperated sanding
procedure costs the company $ per year. Blue Ridge Furniture
requires a simple rate of return of on all equipment purchases.
Also, the company will not purchase equipment unless the equipment
has a payback period of four years or less. Ignore income
taxes.Prepare an income statement showing the expected net operating
income each year from the new shelving
products.Input all amounts as positive
values.Compute the simple rate of return.Round your
answer to decimal place.Payback period
For Machine B:
Compute the simple rate of return.Round your answer to decimal
place.
Compute the payback period.Round your answer to decimal
place.years
Related Book For
Managerial Accounting
ISBN: 978-0078111006
14th edition
Authors: Ray Garrison, Eric Noreen and Peter Brewer
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