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Find Accrual accounting rate of return (it's not 19.80) Windsor Foods manufactures and sells frozen dinners. The packaging machine was acquired 4 years ago for
Find Accrual accounting rate of return (it's not 19.80)
Windsor Foods manufactures and sells frozen dinners. The packaging machine was acquired 4 years ago for $492,000, and the machine can be used for another 6 years, with a residual value of $42,000. Recently, the machine has broken down quite frequently, which caused bottleneck in production and back orders for many retailers. Many retailers have filed several complaints about unreliable delivery. The annual production and cost information is as follows: "Thirty percent of the manufacturing overhead is variable. A salesperson heard about Windsor's problem and approached Windsor with a new packaging machine costing $636,000, which can last 6 years without any residual value at the end. The new machine will reduce direct materials and direct labour by 25%, and variable manufacturing overhead by 30%. In addition, Windsor will be able to reduce the working capital by $20,000 when the new machine is in operation; however, at the end of the project, $20,000 of working capital will be required. If Windsor replaces the old machine with the new machine, the old machine can be sold for $30,000. Windsor's investment policies include a 5% of required rate of return and a 3-year payback period
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