CLICK HERE TO SAVE YOUR WORK 44 46 48 a 02. Greenlife Woodworks Inc is considering purchasing two different items of machinery, as described below: 39 40 Machine A 41 A machine has just come onto the market that compresses sawdust into various shelving products. Currently, the awdust 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 yeke weful life. The company uses straight-line depreciation and considers salvare value in computing depreciation deductions b. The shelving products produced by the machine would generate revenues of $380,000 per year. Variable manufacturing 47 costs would be 20% of sales. c. Fixed annual expenses associated with the new shelving products would be advertising, 545,000; salaries, S80,000 49 utilities, $10,000; and insurance, S15,000 50 51 Machine B: 52 A second machine has come onto the market that would automate a sanding process that is now done 53 largely by hand. The following information is available about this machine 54 55 a. The new sanding machine would cost $220,000 and would have no salvage value at the end of its 10-year useful life 56 The company would use straight-line depreciation. 57 b. Several old pieces of sanding equipment that are fully depreciated would be disposed of at a scrap value of $7.200, 58 c. The new sanding machine would provide substantial annual savings in cash operating costs. It would require an. 59 operator at an annual salary of S26,000 and $3,000 in annual maintenance costs. The current, hand-operated sanding 60 procedure costs the company S85,000 per year. 61 62 The company requires a simple rate of return of 16% on all equipment purchases and also, the company 63 will not purchase equipment unless the equipment has a payback period of four years or less. 64 65 Required: SECTION 5 SECTION 3 SECTION 2 KI SECTION 6 FORMULA SHI SECTION 4 Instructions 66 READY 50 51 Machine B: 52 A second machine has come onto the market that would automate a sanding process that is now done 53 largely by hand. The following information is available about this machine: a. The new sanding machine would cost $220,000 and would have no salynge value at the end of its 10-year useful life. 56 The company would use straight-line depreciation 37 b. Several old pieces of sanding equipment that are fully depreciated would be disposed of at a scrap value of S7,200 58 C. The new sanding machine would provide substantial annual savings in cash operating costs. It would require an 59 operator at an annual salary of S26,000 and $3,000 in annual maintenance costs. The current, hand operated sanding 60 procedure costs the company S85,000 per year, 62 The company requires a simple rate of return of 16% on all equipment purchases and also, the company 63 will not purchase equipment unless the equipment has a payback period of four years or less 03 65 Required: 66 67 a). For machine A, prepare a Contribution margin income statement using proper format showing the expected net operating income each 68 year from the new shelving products. (8 marks) 0 1 Greenlife Woodworks Inc. Contribution Format Income Statement Show anylall workings here CTION SECTION 4 SECTION 5 FORMULA SHI SECTION 6 > Xo ku Powe D C CLICK HERE TO SAVE YOUR WORK Bo 0 10 71 Greenlife Woodworstar Contribution Format Terme Street Show anyfall workings here: 73 24 26 72 78 79 80 81 N2 83 84 BS 86b). For machine A. compute the simple rate of return. (1 mark) 87 88 89 C). For machine A. compute the payback period. (1 mark) 90 91 92 d). For machine B, compute the simple rate of return (2 marks). 93 94 95 e). For machine B. compute the payback period. (1 mark) 96 27 Instructions SECTION 2 SECTION 3 SECTION 4 SECTIONS years years SECTION 6 FORMULA SH Dany New Tab x REME CH Font Name Forum Tabstep Wimpel Yment Column &- mom tim Coloma Copy 8 m & Merge CLICK HERE TO SAVE YOUR WORK 360 G % years 86b). For machine A, compute the simple rate of return. (1 mark) 87 88 89 c). For machine A, compute the payback period. (1 mark) 90 91 92 d). For machine B, compute the simple rate of retum (2 marks). 94 years o e). For machine B. compute the payback period. (1 mark) 6 7 30. 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 () above? (1 mark) FORMULASHI