Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Nautical Creations is one of the largest producers of miniature ships in a bottle. An especially complex part of one of the ships needs special

image text in transcribed
Nautical Creations is one of the largest producers of miniature ships in a bottle. An especially complex part of one of the ships needs special production equipment that is not useful for other products. The company purchased this equipment early in 2018 for $200,000. It's now January 1, 2020, and the manager of the Model Ships Division, Jeri Finley, is considering two alternatives. The following are last year's average per-unit manufacturing costs, when production was 7,400 ships: Direct materials $3.65 Direct labor Variable overhead Fixed overhead The equipment will last for ve more years with zero disposal value at that time. It can be sold immediately for $35,000. Alternative 2 - Produce the complex part with new, more efcient equipment. The cost of the new equipment is $230,000 and will have a ve-year useful life with an estimated disposal value at that time of $35,000. The sales representative selling the new equipment stated, "The new equipment will allow direct labor and variable overhead to be reduced by a total of $2.10 per unit." Finley thinks this estimate is accurate, but also knows that a higher quality of direct material will be necessary with the new equipment, costing $0.19 more per unit. In addition, fixed overhead costs will increase by $2,500. Finley expects production to continue at 7,400 ships in each of the next ve years. REQUIRED [USE THE PRESENT VALUE TABLES ON PAGE 113 TO COMPUTE NET PRESENT VALUES; BE SURE TO USE THE NEGATIVE SIGN WHEN SUBMITTING NEGATIVE NEI' PRESENT VALUES; DO NOT INCLUDE A DOLLAR SIGN] 1. Assuming a discount rate of 7%, what is the net present value if Nautical Creations uses their current equipment to produce the part? |:| Tries 0/5 2. Assuming a discount rate of 7%, what is the net present value if Nautical Creations buys the new equipment to produce the part

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting

Authors: Karen Braun, Linda S Bamber

2nd Edition

136091164, 978-0136091165

More Books

Students also viewed these Accounting questions