After lunch Nellie met with Jason who works as site manager in Bath.

Jason asked if she had some time during the afternoon as he and his team has developed a new method for baking Barley Bread.

It was all about making the production process more efficient. Jason sad that he personally was a little sceptical and the reason was that when he asked the planning department they had changed the depreciation from £0,05 to £0,06 per loaf of bread and that the allocation of overhead from £0,10 to £0,12 meaning that the benefit from his efforts was almost in vain. However the reason for his and his teams effort was to reduce waste as the cost of flour, barley and labour would be reduced and they are all direct cost.

Nellie checked with her records and found that Brown Bakery makes 300 000 loafs of Barley Bread a year and Jason said that in order to gain the improved efficiency he needs to make an investment of £40 000.

Nellie decided that the required rate of return will be 12% and did the calculations.

The expected useful time for this investment is 5 years.

To make it simple she decided that cash flows will be received in the end of each year.

After a few minutes she looked at Jason, smiled, and said that she really loves Barley Bread. The project was approved! Make the calculations that Nellie did.

Below find the information Jason brought with him.

                                                        Old                     New

Price                                           £    1.45               £    1.45

Flour                                          -£    0.30              -£    0.28

Barley                                        -£    0.10              -£    0.09

Yeast                                         -£    0.05              -£    0.05

Butter                                       -£    0.08              -£    0.08

Other ingrediencies              -£    0.15              -£    0.15

Labour                                     -£    0.40              -£    0.38

Depreciation                           -£    0.05              -£    0.06

Overhead                                 -£    0.10              -£    0.12

Margin                                       £    0.22               £    0.24

Answer rating: 100% (QA)

The calculation that must have been made by Nellie are as below A She must have determined the incre... View the full answer