The factory capacity is 25,000 units per year, but demand is 40,000 units. You have an...

The factory capacity is 25,000 units per year, but demand is 40,000 units. You have an opportunity to buy equipment that will allow your company to meet the 40,000 unit annual demand. The equipment will only last 7 years and have no use or no value after that. The equipment costs $4,567,890 - plus 8.88% sales tax, 1.2% dealer fee, and $13,917 for title and license fees. The company will pay the equipment off interest free over the next 5 years. Annual payments will be equal and will include all taxes and fees. The current sales price is $199/unit and variable cost is $125/unit. The variable cost per unit will go down to $95/unit with the new equipment. The fixed costs of $960,000 per year will rise $300,000 with the cost of the new equipment. The contribution margin will increase $2 per year faster with the new equipment as compared with the old. Your cost of capital/investment threshold is 7.17%.

Expert Solution

CALCULATION OF TOTAL COST OF EQUIPMENT-

COST OF EQUIPMENT	$4567890
ADD:- SALES TAX ( 4567890*.0888)	405629
ADD:- DEALER FEES ( 4567890*.012)	54814
ADD :- LICENCE FEES	13917
TOTAL COST OF EQUIPMENT	$5042250

CALCULATION OF EQUAL ANNUAL INTEREST FREE PAYMENT

5042250/5= $1008450

CALCULATION OF OUTFLOW AND INFLOW

YEAR	1	2	3	4	5
EQUAL ANNUAL PAYMENT	-1008450	-1008450	-1008450	-1008450	-1008450
INCREASE IN FIXED COST	-300000	-300000	-300000	-300000	-300000
DEPRECIATION FOR 7 YEARS LIFE (5042250/7)	-720322	-720322	-720322	-720322	-720322
TOTAL OUTFLOW	-2028772	-2028772	-2028772	-2028772	-2028772
INCREASE IN CONTRIBUTION MARGIN {(199-95)40000}-{(199-125)25000}	2310000	2310000	2310000	2310000	2310000
INCREASE IN MARGIN BY 2 PER YEAR		80000	160000	240000	320000
TOTAL INFLOW	2310000	2390000	2470000	2550000	2630000
NET FLOW	281228	361228	441228	521228	601228
COST OF CAPITAL @7.17%	0.933	0.871	0.812	0.758	0.707
NET SAVING	$262413.0	$314510.4	$358462.2	$395090.8	$425248.6

TOTAL SAVING AFTER BUYING THE EQUIPMENT WILL BE $1755725

SO THIS PROJECT WILL BE VIABLE

ekkarill92 answered 2 years ago

You have the following information regarding AJH Company: Sales 25,000 units per year at $45 per...

You have the following information regarding AJH Company: Sales 25,000 units per year at $45 per unit Production 30,000 units in 2004 At the beginning of 2004 there was no inventory. Direct Materials are $12.00 per unit Direct labor is $10.00 per unit Variable manufacturing overhead costs are $8.00 per unit Fixed manufacturing overhead costs are $150,000 per year Marketing costs are all variable at $3.00 per unit Administrative costs are all fixed at $75,000 per year Required: (a.) Prepare...

ABC Company makes 40,000 units per year of a part it uses in the products it...

ABC Company makes 40,000 units per year of a part it uses in the products it manufactures. The per unit product cost of this part is shown below: direct materials .............. $15.30 direct labor .................. 24.70 variable overhead ............. 2.10 fixed overhead ................ 27.40 total ......................... $69.50 An outside supplier has offered to sell ABC Company 40,000 units of this part a year for $66.10 per unit. If ABC Company accepts this offer, the facilities now being used to make...

Aholt Company makes 40,000 units per year of a part it uses in the products it...

Aholt Company makes 40,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct materials $11.30 Direct labour 22.70 Variable manufacturing overhead 1.20 Fixed manufacturing overhead 24.70 Unit product cost $59.90 An outside supplier has offered to sell the company all of these parts it needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part...

Your shoe factory has a production capacity of 10,000 units per month. Your fixed costs are...

Your shoe factory has a production capacity of 10,000 units per month. Your fixed costs are $200,000, your variable cost of production is $30 and you sell each pair for $35. The problem is that this requires you to sell 40,000 pairs of shoes each month just to breakeven – which is physically impossible given your production capacity. Assuming that you will always be able to sell out your current production capacity, which of the following changes would allow you...

The owners have set a target profit of $25,000 per month ($300,000 per year) in order...

The owners have set a target profit of $25,000 per month ($300,000 per year) in order from them to devote themselves full-time to JW Sports Supplies. Evaluate each of the following factors, separately (assume 1500 units at 100 each, y=60x +40000): a. What price must the company set to achieve a profit of $25,000? b. What must the variable cost per unit be to achieve a profit of $25,000? c. How many units must it sell to achieve a profit...

You are offered an annuity investment that will pay you $ 25,000 per year for 10...

You are offered an annuity investment that will pay you $ 25,000 per year for 10 years beginning in 20 years. These payments will be made at the beginning of each year and your discount rate is expected to be 8%. You will need to make payments at the end of each year for the next 20 years (also at 8%) in order to receive the annuity investment. What is the present value of the annuity investment as of...

6. You are saving for a new house and you put $25,000 per year in an...

6. You are saving for a new house and you put $25,000 per year in an account paying 4.5%. The first payment is made today. A.) How much will you have at the end of 3 years? (Show Work) B. Also build a table/schedule to show your account each year (include beginning balance and ending balance each year, interest earned).

Assume you have a product with the following parameters: Annual Demand = 360 units Holding cost per year = $1.00 per unit Order cost = $100 per order

Assume you have a product with the following parameters: Annual Demand = 360 units Holding cost per year = $1.00 per unit Order cost = $100 per order a) What is the EOQ for this product?b) In addition, assume a 300-day work year, how many orders should be processed per year? c) What is the expected time between orders?

1. Griffith Company manufactures suitcases. The company is currently producing and selling 40,000 units per year...

1. Griffith Company manufactures suitcases. The company is currently producing and selling 40,000 units per year and it has the capacity to produce 42,000 units per year. The following information relates to current production: Sale price per unit $195 Costs per unit: Variable Manufacturing $80 Fixed Manufacturing $15 Variable Selling and Administrative $45 Fixed Selling and Administrative $10 Griffith is considering an order from a new customer for 2,000 suitcases at a total price of price of $250,000. Assume that...

This year Burchard Company sold 40,000 units of its only product for $17.00 per unit. Manufacturing...

This year Burchard Company sold 40,000 units of its only product for $17.00 per unit. Manufacturing and selling the product required $125,000 of fixed manufacturing costs and $185,000 of fixed selling and administrative costs. Its per unit variable costs follow. Material $ 4.50 Direct labor (paid on the basis of completed units) 3.50 Variable overhead costs 0.45 Variable selling and administrative costs 0.25 Next year the company will use new material, which will reduce material costs by 50% and direct...

Question