4.3 Q2 Greenlife Woodworks Inc is considering purchasing two different items of machinery, as described below 30 40 Machine A. A machine has just come onto the market that compresses sawdust into various shelving products. Currently, the sawdunt is 42 disposed of as a waste product. The following information is available about the machine a. The machine would cost $800,000 and would have a 25% salvage value at the end of its 10-year useful life. The company S uses straight-line depreciation and considers salvage value in computing depreciation deductions, b. The shelving products produced by the machine would generate revenues of $380,000 per year. Variable manufacturing costs would be 20% of sales c. Fixed annual expenses associated with the new shelving products would be advertising, $45.000, salaries, $80,000 utilities, $10,000, and insurance, $15,000 Machine B: A second machine has come onto the market that would automate a sanding process that is now donc Largely by hand. The following information is available about this machine a. The new sanding machine would cost $220,000 and would have no salvage value at the end of its 10-year useful life. The company would use straight-line depreciation b. Several old pieces of sanding equipment that are fully depreciated would be disposed of at a scrap value of $7,200. c. The new sanding machine would provide substantial annual savings in cash operating costs. It would require an operator at an annual salary of $26,000 and $3,000 in annual maintenance costs. The current, hand operated sanding procedure costs the company $85,000 per year. The company requires a simple rate of return of 16% on all equipmenit purchases and also the company vill not purchase equipment unless the equipment has a payback period of four years or less. B71 a) For machine A prepare a Contribution marin income statement using proper format showing the expected netopercent each year from the new shelving products (8 marks) Grade World Int. Contribution Format Income Statement Show atvyall workings here: 20 71 72 33 74 75 76 77 78 79 30 1 2 % b). For machine A, compute the simple rate of return (1 mark) Orestin MC 2. Intent 8. Dette from CLICK HERE TO SAVE YOUR WORK B71 A 14 % 86b). For machine A, compute the simple rate of return (1 mark) 87 years 89c). For machine A. compute the payback period. (1 mark) 90 31 22 d). For machine B, compute the simple rate of return (2 marks) 3 % 1 years = e). For machine B, compute the payback period. (1 mark) 1). According to the company's investment criteria, which machine (A or B) should the company purchase? (1 mark) g) Briefly explain why you chose Machine A or B in your answer in (f) above? (1 mark) hroTION SECTION 5 SECTION 6
