Part 2. [see part 1 , pasted below for supporting information]

Later, the company is considering the purchase of machinery and equipment to set up a line to produce a combination washer-dryer. They have given you the following information to analyze the project on a 5-year timeline:

Initial cash outlay is $150,000, no residual value.

Sales price is expected to be $2,250 per unit, with $595 per unit in labor expense and $795 per unit in materials.

Direct fixed costs are estimated to run $20,750 per month.

Cost of capital is 8%, and the required rate of return is 10%.

They will incur all operational costs in Year 1, though sales are expected to be 55% of break-even.

Break-even (considering only direct fixed costs) is expected to occur in Year 2.

Variable costs will increase 2% each year, starting in Year 3.

Sales are estimated to grow by 10%, 15%, and 20% for years 3 - 5.

They have asked you to calculate:

• The product's contribution margin =
• Break-even quantity -
• NPV =
• IRR =

Once you have determined these amounts, they have asked that you present the information, describe how you performed your calculations, and explain what the result mean.

After you have completed the calculations and presented your work, management makes the investment.

Explain how the project analyses do or do not support this decision.

In either case, what are the factors that should have been considered in management's decision?

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Part 1 - consultants on a multiyear basis for a global washer and dryer manufacturer. They currently offer two core washer and dryer sets: a high end model and an economic model. You are tasked to complete several calculations and present your finding to the company stakeholders.

management has provided the following revenue and cost information:

High-End Set

Sales price - $3,500 per unit

Labor - $875 per unit

Materials - $1400per unit

Contribution Margins $1225

High-End Set

Sales price - $1000 per unit

Labor - $250 per unit

Materials - $300per unit

Contribution Margins $450

b)Break-even quantities for each product line

Since fixed costs are given

for month, the annual fixed costs needs to be considered by multiplying by 12

Break even point for high end

set = Total fixed costs / Contribution per unit =(110,000*12)/ 1225

= 1078 units

(rouned off)

Break even point for

economical set = Total fixed costs / Contribution per unit = (101,500*12)/ 450

= 2707 units

(rouned off)

c)Break even quantities to earn $500,000 per year margin on the

high-end line (at the current sales price)

Break-even quantities to earn

$500,000 per year margin on the high-end line = Desired profit + Fixed costs /

Contribution per unit = (110,000*12)+ 500,000 / 1225 = 1486 units

d)Break even quantities to earn $300,000 per year margin on the

economical line (at the current sales price)

Break-even quantities to earn

$300,000 per year margin on the high-end line = Desired profit + Fixed costs /

Contribution per unit (101,500*12)+ 300,000 / 450 = 3373

units

Conclusion:

The economical set is set a lower price and hence the contribution per unit is

lower. However the contribution margin from this set is higher at 45% [

450/1000] when compared to the high end set at 35% [ 1225/3500]. Since the

contribution per unit is lower for the economical model but the fixed costs

allocated to both models are similar , the break even units required are

higher.