Q2. [60% of test) Rexfield Corp., a company specializing in crime scene investigations, is contemplating an investment in automated mass-spectrometers. Its current process relies on a high number of lab technicians. The new equipment would employ a computerized expert system, costing $800,000 fixed payment per year while reducing the variable cost by $800,000, if decided to be used for the next three years when the sales revenue is expected be $2,000,000. The company's CEO has requested a comparison of the old technology versus the new technology. The accounting department has prepared the following CVP income statements for use in your analysis. Actual Ss Under If Rexfield Used Profit Incrementals Current Process New Process New over Current Total Revenue [TR] 2,000,000 2,000,000 - Variable costs (TVC) 1,400,000 600,000 +800,000 - Contribution Margin [TCM] 600,000 1,400,000 + 800,000 - Total Fixed Costs (TFC) 400,000 1,200,000 - 800,000 = Operating Profit [P] $ 200,000 $ 200.000 (a) An incremental analysis is prepared above, showing the Profit incrementals. State your own conclusion and reason[s] as to whether (or not) the company should invest in automated mass-spectrometers. (b) A "CVP & Risk-Integrated" Incremental analysis is prepared below, showing computed break- even (or RISKI ratio and safety margin ratio for the company under each scenario. Considering some of the CVP & Risk numbers you just find below, state your own conclusion and reasons as to whether or not the firm should invest in automated mass-spectrometers. Actual Ss Under If Rexfield Used Profit Incrementals Current Process New Process New over Current 2,000,000 2,000,000 - TVC 1,400,000 600,000 Less Variable +800,000 =TCM 600,000 . . . . . . . 100% 1,400,000 ... 100% +800,000 ..... 100% -TFC 400,000 400k/600k-66.67% 1,200,000 85.714% B-E ratio More Fixed-800,000 ... 100% Risk % - P S 200,000 200k/600k-33.33% $ 200,000 14.2857% Safety % 0 0 % Safety % Current BE $1,333,334. New BE $1,714,286. The $800,000 fixed cost spending has 0 retum. while 100% of this spending is AT RISK TR Q2. [60% of test) Rexfield Corp., a company specializing in crime scene investigations, is contemplating an investment in automated mass-spectrometers. Its current process relies on a high number of lab technicians. The new equipment would employ a computerized expert system, costing $800,000 fixed payment per year while reducing the variable cost by $800,000, if decided to be used for the next three years when the sales revenue is expected be $2,000,000. The company's CEO has requested a comparison of the old technology versus the new technology. The accounting department has prepared the following CVP income statements for use in your analysis. Actual Ss Under If Rexfield Used Profit Incrementals Current Process New Process New over Current Total Revenue [TR] 2,000,000 2,000,000 - Variable costs (TVC) 1,400,000 600,000 +800,000 - Contribution Margin [TCM] 600,000 1,400,000 + 800,000 - Total Fixed Costs (TFC) 400,000 1,200,000 - 800,000 = Operating Profit [P] $ 200,000 $ 200.000 (a) An incremental analysis is prepared above, showing the Profit incrementals. State your own conclusion and reason[s] as to whether (or not) the company should invest in automated mass-spectrometers. (b) A "CVP & Risk-Integrated" Incremental analysis is prepared below, showing computed break- even (or RISKI ratio and safety margin ratio for the company under each scenario. Considering some of the CVP & Risk numbers you just find below, state your own conclusion and reasons as to whether or not the firm should invest in automated mass-spectrometers. Actual Ss Under If Rexfield Used Profit Incrementals Current Process New Process New over Current 2,000,000 2,000,000 - TVC 1,400,000 600,000 Less Variable +800,000 =TCM 600,000 . . . . . . . 100% 1,400,000 ... 100% +800,000 ..... 100% -TFC 400,000 400k/600k-66.67% 1,200,000 85.714% B-E ratio More Fixed-800,000 ... 100% Risk % - P S 200,000 200k/600k-33.33% $ 200,000 14.2857% Safety % 0 0 % Safety % Current BE $1,333,334. New BE $1,714,286. The $800,000 fixed cost spending has 0 retum. while 100% of this spending is AT RISK TR
