DATA w Fonte - Fun PWM CUE Copy Mere CUKINETO SAVE YOUR WORK Da 36 Question 2 - 15 marks 32 Q2. Greenlife Woodworks Ine is considering purchasing two different ms of machinery, as described below 10 40 Machine A. 41 A machine lus just come onto the market that compresswdust into various shelving products. Currently, the sawdust in 12 disposed of as a waste product. The following information is available about the machine 44. The machine would cost $800,000 and would have a 25% salvare value of the end of its 10 year of life. The company 45 uses straight-line depreciation and considera salvage value in computing depreciation deductions 16. The shelving products produced by the machine would generate reverse of S180,000 per year. Variable manufacturing 42 costs would be 20% of sales 4. Fixed annual expenses associated with the new shelving products would be advertising, 545.000 salaries, 580,000 40 utilities, $10,000; and insurance, S15.000 SO 51 Machine B: 52. A second machine has come onto the market that would automata sanding process that is now done 30 largely by hand. The following information is available about this machine 54 55 a. The new sunding machine would cost $220,000 and would have no salvage value at the end of its 10-year weful life 56 The company would use straight-line depreciation. 57 b. Several old pieces of sanding equipment that are fully depreciated would be duposed of at 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 0 procedure costs the company $85,000 per year. 1 2 The company requires a simple rate of retum of 16% on all equipment purchases and also, the company will not purchase equipment unless the equipment has a payback period of four years or less. SECTION 2 SECTION 3 Instructions SECTION 4 SECTIONS SECTION FORMULA SHE Cut W FIT FM- B u COPY MOCH CHICK HERE TO SAVE YOUR WORK LICE 49 utilities, $10.000; and insurance, S15.000 50 51 Machine B: 52 A second machine has come onto the market that would automate ding process that is now done sa 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 vale at the cod of its 10-year weful life 56. The company would use straight-line depreciation 57 b. Several old pieces of sanding equipment that are fully depreciatod would be disposed of ata scrap value of 57,200 SR 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 $26,000 and $3,000 in annual maintenance costs. The current, hand operated sanding 60 procedure costs the company $85,000 per year. 1 32 The company requires a simple rate of return of 16% on all equipment purchases and also, the company 3 will not purchase equipment unless the equipment has a payback period of four years or less. 5 S Required: a). For machine A, prepare a Contribution margin income statement using proper format showing the expected net operating income cach year from the new shelving products. (8 marks) Greenlife Woodworks Inc. Contribution Format Income Statement Show anylall workings here: SECTION FORMULASH SECTION 5 SECTION 4 SECTION 2 SECTION 3 th CIKK HERE TO SAVE YOUR WORK 838 07 A E 65 Required: GO a). For machine A, prepare a Contribution margin income statement ning proper format showing the expected net operating income each 68 year from the new shelving products. (8 marks) 69 70 Greenlife Woodworks Inc. 71 Contribution Format Income Statement 72 Show anyall workings here: 13 74 75 76 77 78 79 80 81 82 83 84 85 % 36b). For machine A. compute the simple rate of return. (1 mark) 07 8 years c). For machine A, compute the payback period. (1 mark) 1% FORMULA SHE PAD LA Ft Nam F- > CLICK TO SAV. VON WORK in 2 NE b). For machine A. compute the simple rate of return (1 mark) NA years years 89C). For machine A, compute the payback period. (1 mark) 00 91 92 d). For machine B, compute the simple rate of return (2 marks). 93 94 95e). For machine B, compute the payback period. (1 mark) 96 97 980. According to the company's investment criteria, which machine (A or B) 99 should the company purchase? (1 mark) 01 ) Briefly explain why you chose Machine A or B in your answer in (D) above? (I mark) 32 3 1 5 C00 SECTION 5 SECTION 6 TORMULASHI Instructions SECTION 2 SECTION 4 SECTION 3