4.1

REQUIRED

Study the information provided below and answer the following questions:

4.1.1 Use the Net Present Value technique to determine the machine that the company should purchase. (10 marks)

4.1.2 Calculate the Accounting Rate of Return (on initial investment) of Machine X. (4 marks)

INFORMATION Emerald Limited has the choice of purchasing one of two machines viz. Machine X and Machine Y but funding is available to invest in only one of them (if at all). Each machine costs R10 000 000 and a useful life of five years is anticipated. The residual value of each machine is estimated to be R1 000 000. The annual volume of production for each machine is estimated to be 150 000 units, which can be sold for cash at R48 per unit. Depreciation is calculated on the machines using the straight-line method over their respective useful lives. Annual cash operating costs are as follows:

The cost of capital is expected to be 15%.

4.2 REQUIRED Use the information provided below to calculate the expected production cost for November 2023. (6 marks) INFORMATION Malvern Limited manufactures Product Mac. An estimate of the number of units to be sold during November and December 2023 is given below:

It is anticipated that:

There will be no work-in-process at the end of any month.

Finished units equal to 40% of the expected sales of the following month will be in inventory at the end of each month

The budgeted production and production costs for the year ending 31 December 2023 are as follows:

\begin{tabular}{|l|c|c|} \hline & Machine X & Machine Y \\ \hline Variable costs per unit & R6.00 & R4.80 \\ \hline Fixed costs (total) & R3 000 000 & R3 200 000 \\ \hline \end{tabular} \begin{tabular}{|l|l|} \hline November & 3000 \\ \hline December & 3800 \\ \hline \end{tabular} \begin{tabular}{|l|l|} \hline Production & 36000 units \\ \hline Direct materials cost per unit & R50 \\ \hline Direct labour cost per unit & R30 \\ \hline Other manufacturing costs & R216000 \\ \hline \end{tabular}