Chpt. 12

Ray Summers Company operates at full capacity of 12.298 units per year. The company, however, is still unable to fully demand for its product, estimated at 15,000 units annually. This level of demand is expected to continue for at least anoier four years the To meet the demand, the firm is considering the purchase of new equipment for $580,000. This equipment has an estimated useful life of 4 years, estimated sales (disposal) value of this asset at the end of 4 years is $50,000 (pretax). The engineering division estimates that installing, testing, and training for the use of the equipment will cost $12.000. These costs are to be capitalized as part of the cost of the new equipment. An adjacent vacant warehouse can be leased for the duration of the project for $10,000 per year, which cost would be included as part of fixed manufacturing overhead. The warehouse needs $58,000 of renovetions to make it suitable for manufacturing. The renovation cost is to be capitalized as part of the cost of the new equipment. The lease terms call for restoring the warehouse to its original condition at the end of the lease. The restoration is estimated to cost $20,000, a cost that is fully deductible for tax purposes. Current pretax operating profit per unit is os follows Per Unit s 370 Manufacturing 3 $148 s 25 Fixed costs: and 40 e with the same totel amount. The per-unit fixed cost includes deprecistion expenses of $5 for manufacturing and $4 for marketing and administration Additional t ed manufacturing costs of S14000 exc uding deprecieto on the new equipment will be incurred each year if the he new marketing manager support steff, and office expense is estimated ot epproximetely $100,000 The company expects to be in