M manufacturing Ltd produces washing machines, dryers and dishwashers. Because of increasing competition, M Ltd is...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
M manufacturing Ltd produces washing machines, dryers and dishwashers. Because of increasing competition, M Ltd is considering investing in a new automated manufacturing system. Since competition is most keen of dishwashers, the production process for this line has been selected for initial evaluation. The new automated system for the dishwasher line would replace an existing system (purchased one year ago for $6 million with an expected useful life of 10 years and zero salvage value). However, the current estimation is that the existing equipment can be used for 10 more years (i.e. for simplicity, depreciation expense will not be computed for the tenth year). The straight line depreciation method is adopted for both the existing and the new automated systems. The new automated system would also have a useful life of 10 years without salvage value. The existing system is capable for producing 100,000 dishwashers per year. Sales and production data (all are cash) using the existing system are provided by the Accounting Department. Sales per year (units) Selling price Cost per unit Direct Materials Direct labour Volume-related overhead Direct fixed overhead 100,000 $300 80 90 20 34 The new automated system will cost $54 million to purchase. Assume that all investment outlays occurs at the beginning of the first year. If the new automated equipment is purchased, the old equipment can be sold for $3 million. The new automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume related overhead will be reduced by $4 per unit and direct fixed overhead by $17 per unit. Direct labour is reduced by 60 percent. The firm's cost of capital is 12 percent and the tax rate is 40 percent. Required Evaluate the existing and the automated system by using Net Present Value (NPV) method. What other factors will also affect the final decision made by the company? M manufacturing Ltd produces washing machines, dryers and dishwashers. Because of increasing competition, M Ltd is considering investing in a new automated manufacturing system. Since competition is most keen of dishwashers, the production process for this line has been selected for initial evaluation. The new automated system for the dishwasher line would replace an existing system (purchased one year ago for $6 million with an expected useful life of 10 years and zero salvage value). However, the current estimation is that the existing equipment can be used for 10 more years (i.e. for simplicity, depreciation expense will not be computed for the tenth year). The straight line depreciation method is adopted for both the existing and the new automated systems. The new automated system would also have a useful life of 10 years without salvage value. The existing system is capable for producing 100,000 dishwashers per year. Sales and production data (all are cash) using the existing system are provided by the Accounting Department. Sales per year (units) Selling price Cost per unit Direct Materials Direct labour Volume-related overhead Direct fixed overhead 100,000 $300 80 90 20 34 The new automated system will cost $54 million to purchase. Assume that all investment outlays occurs at the beginning of the first year. If the new automated equipment is purchased, the old equipment can be sold for $3 million. The new automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume related overhead will be reduced by $4 per unit and direct fixed overhead by $17 per unit. Direct labour is reduced by 60 percent. The firm's cost of capital is 12 percent and the tax rate is 40 percent. Required Evaluate the existing and the automated system by using Net Present Value (NPV) method. What other factors will also affect the final decision made by the company?
Expert Answer:
Answer rating: 100% (QA)
Annual Cash Flow and Additional Cash Flow Annual Sales 100000 300 Direct materials 1000008060 Direct ... View the full answer
Related Book For
Cost Management Accounting and Control
ISBN: 978-0324559675
6th Edition
Authors: Don R. Hansen, Maryanne M. Mowen, Liming Guan
Posted Date:
Students also viewed these general management questions
-
A plant manager is considering investing in a new $30,000 machine. Use of the new machine is expected to generate a cash flow of about $8,000 per year for each of the next five years. However, the...
-
The Delaware Chemical Corporation is considering investing in a new composite material. R&D engineers are investigating exotic metal-ceramic and ceramic-ceramic composites to develop materials that...
-
A company is considering investing in a new production facility that will generate incremental Free Cash Flows in year 1 of $14 which will grow at 2.5% per year after that. If the company's WACC is...
-
Lacoste t-shirts come with an average price of $ 120 a piece, at their factory outlet with a std. deviation of $ 17. But at the Seasonal Sale (Discount) outlets of these t- shirts, it was also...
-
On July 1, 2011, Ticino Inc, invested CHF720,000 in a mine estimated to have 800,000 tons of ore of uniform grade. During the last 6 months of 2011, 100,000 tons of ore were mined and sold....
-
The owner of a millwork shop is considering three alternative locations for a new plant for building embossed-and-clad steel exterior doors for residences. Fixed and variable costs follow. Since the...
-
Suppose Pier 1 Imports issued 100,000 shares of 50.05 par common stock at \(\$ 1\) per share. Which journal entry correctly records the issuance of this stock? a. Cash. 100.000 Common Stock 100,000...
-
The financial statements of Simon Co. include the following items (amounts in thousands): Income Statement 2011 For the Year Ended December 31, Net income . . . . . . . . . . . . . . . . . . . . . ....
-
In controlling a plan there is a concept called drum, buffer, rope. What is the meaning of the drum metaphor in this concept? And what special treatment needs to be done to the drums? Can you give me...
-
A 2 -year bond with a semiannual coupon rate of \(4 \%\) per annum is trading at par \((100 \%)\). (a) What is its spot semiannual yield? (b) Assume one can borrow at \(3 \%\) p.a. simple interest...
-
You are an accountant at Blast Accounting Co. Your client, Laura Carter is the owner of Need for Speed Ltd., which is a car dealership. She emails you asking for some assistance: Hi, weve recently...
-
Xeno Corporation purchased supplies from Kimbo Company in 2019. The total invoice was for $20,000, but Xeno claimed that only one-halfo f the order was received and paid only $10,000 in 2019. Both...
-
Network Density and Size. Imagine that two new nodes are added to the undirected network in the previous exercise. a. By what percent has the number of nodes increased? b. By what percent has the...
-
You have learned about many laws and regulations that govern labormanagement relations. Many of those laws and regulations are used in each of the NLRBs decisions. Visit the NLRBs website that...
-
Identifying Good System Administrators. A management consultant is studying the roles played by experience and training in a system administrators ability to complete a set of tasks in a specified...
-
This chapter introduces the common forms of business organization in the United States. Business structures outside the United States, however, are often very different. Use the Internet to determine...
-
For the following system: F=1500 N, yield strength of the material is 310 MPa. Answer the following questions: a) Determine the stress components at point A and point B. Show all the internal forces...
-
Provide a few individual examples who revealed what aspects of emotional intelligence?
-
The following information pertains to Jazon, Inc., for last year: Beginning inventory, units ............ Units produced ................60,000 Units sold ...................57,400 Variable costs per...
-
Kathy Shorts, president of Carbon Industrial Cleaners, had just concluded a meeting with two of her plant managers. She had told each of them that one of their high-volume industrial cleaners was...
-
Bernard Creighton is the controller for Creighton Hardware Store. In putting together the cash budget for the fourth quarter of the year, he has assembled the following data: a. Sales July (actual)...
-
Find P(C | L). Forty-eight percent of all Californians registered voters prefer life in prison without parole over the death penalty for a person convicted of first degree murder. Among Latino...
-
In words, what is C | L? Forty-eight percent of all Californians registered voters prefer life in prison without parole over the death penalty for a person convicted of first degree murder. Among...
-
Find P(L C). Forty-eight percent of all Californians registered voters prefer life in prison without parole over the death penalty for a person convicted of first degree murder. Among Latino...
Study smarter with the SolutionInn App