On November 19, 2021, the controller of Omicorn LLC. is planning capital expenditures for the years 20222025.
Question:
On November 19, 2021, the controller of Omicorn LLC. is planning capital expenditures for the years 2022–2025. The following interviews helped the controller collect the necessary information for the capital expenditures budget:
Director of Facilities: A construction contract was signed in late 2021 for the construction of a new factory building at a contract cost of $8,000,000. The construction is scheduled to begin in 2022 and be completed in 2023. The payment will be done in two equal instalments at the end of both financial years equally.
Vice President of Manufacturing: Once the new factory building is finished, we plan to purchase $1,500,000 in plant in late 2023. I expect that an additional $50,000 will be needed early in the following year (2024) to test and install the equipment before we can begin production. If sales continue to grow, I expect we’ll need to invest another $1,000,000 in equipment in 20Y5.
Chief Operating Officer: We have really been growing lately. I wouldn’t be surprised if we need to expand the size of our new factory building in 2025 by at least 25%. Fortunately, we expect inflation to have minimal impact on construction costs over the next four years.
Director of Information Systems: We need to upgrade our information systems to wireless network technology. It doesn’t make sense to do this until after the new factory building is completed and producing product. During 2024, once the factory is up and running, we should equip the whole facility with wireless technology. I think it would cost us $800,000 today to install the technology. However, prices have been dropping by 25% per year, so it should be less expensive at a later date.
Use this interview information to answer following question:
1. You have been taught various managerial accounting concepts. You are required to mention which of the concept will be applicable on the above situation?
2. prepare a capital expenditures budget for Omicorn LLC for the years 2022–2025.
Expert Answer:
Answer Omicron Inc Capital Expenditures Budget For the Four Years Ending December 31 20Y6... View the full answer
