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Edward Seavey
ACCT 505 Managerial Accounting
10-Dec-15
Keller Graduate School of Management
Clark Paints
Data:
Cost of new equipment
Expected life of equipment in years
Disposal value in 5 years
Life production - number of cans
Annual production or purchase needs
Number of workers needed
Annual hours to be worked per employee
Earnings per hour for employees
Annual health benefits per employee
Other annual benefits per employee-% of wages
Cost of raw materials per can
Other variable production costs per can
Costs to purchase cans - per can
Required rate of return
Tax rate
$
$
$
$
$
$
$
$
$
Cost to produce
200,000
5 years
40,000
5,500,000
1,100,000
3
2000 hours
12.00
2,500
18%
0.25
0.05
0.45
12%
35%
Production
Annual cost to purchase cans
Annual cost of direct material:
Need of 1,100,000 cans per year
Annual variable production costs per can
Other variable production costs per can
Annual cost of direct labor for new employees:
Payroll for the three employees
Annual health benefits
Other annual benefits
Total wages and benefits
Total annual production costs
$
$
275,000
55,000
$
$
$
$
$
72,000
7,500
12,960
92,460
422,460 $
Purchasing
495,000
495,000 $
(72,540)
$
$
$
72,540
32,000
11,200
$
$
Before Tax
Amount
72,540
32,000
3.4 years
$
$
$
$
$
72,540
(32,000)
40,540
(14,189)
26,351
200,000
13.18%
Tax Effect
0.65 $
0.35 $
$
After Tax
Amount
47,151
11,200
58,351
Year
0
1-5
1-5
5
$
$
$
$
Before Tax
Amount
(200,000)
72,540
32,000
40,000
$
$
$
$
$
$
$
Amount
(200,000)
58,351
58,351
58,351
58,351
98,351
131,755
Item
Cost of machine
Year 1 inflow
Year 2 inflow
Year 3 inflow
Year 4 inflow
Year 5 inflow + 40,000
Year
0
1
2
3
4
5
IRR
17.99%
Tax %
0.65
0.35
$
$
$
$
After tax
Amount
(200,000)
47,151
11,200
40,000
12% PV
Factor
1
3.605
3.605
0.567
$
$
$
$
$
Present
Value
(200,000.00)
169,979.36
40,376.00
22,680.00
33,035.36