Abrafi has just set up a company and has recently commissioned the services of a firm of management consultants at an estimated cost of $50$ million. The consultants$$ report, to date, indicates that if the company introduces its new line $$kaki$$ the following is likely to result:

$(1)$ Sales of $20,000$ units could be achieved if the price were set at $200,000.$

$(2)$ Variable cost $175,000$ per unit.

$(3)$ Additional fixed costs through acceptance would amount to $80$ million per annum.

$(4)$ Life of project $4$ years.

$(5)$ Cost of capital $10\%.$

$(6)$ An additional $300$ million will have to be spent on development before production can commence. Included in the figure is an amount of $200$ million which represents the time spent on R & D personnel. If they were not working on this project, the people involved would devote their time to $$pure research$.$

$(7)$ Special plant will have to be purchased for $1$ billion. This should be depreciated at $200$ million per annum for four years $$ the balance representing the scrap value at year $4.$

As Management Accountant, you are required to report to the Board of Abrafi Ltd$,$ indicating whether or not the project is worthwhile.

Answer rating: 100% (QA)

Here is the analysis of the new product line project 1 Sales per year 20000 units 200 per unit 40000... View the full answer