Q2. Greenlife Woodworks Inc is considering purchasing two different items of machinery, as described below Machine A. A machine has just come onto the market that compresses sawdust into various shelving products. Currently, the sawdust is 12 disposed of as a waste product. The following information is available about the machine 13 a The machine would cost $800,000 and would have a 25% salvage value at the end of its 10-year useful life. The company uses straight line depreciation and considers salvage value in computing depreciation deductions b. The shelving products produced by the machine would generate revenues of $380,000 per year. Variable manufacturing costs would be 20% of sales. c. Fixed annual expenses associated with the new shelving products would be advertising, $45,000 salaries, $80.000 utilities, $10,000, and insurance, $15,000. 5 B25 Since NVP is negetive, that means cash outflow is more than casinflow which are discounted at the reared rate of D 12 utilities, $10,000, and instance, $15.000 52 Machine B: 2. A second machine has come onto the market that would automate a sanding process that is now done Largely by hand. The following information is available about this machine 54 55 a. The new sanding machine would cost $220,000 and would have no salvape value at the end of its 10-year useful life 6 The company would use straight-line depreciation b. Several old pieces of sanding equipment that are fully depreciated would be disposed of at a scrap value of S7 200 3 c. The new sunding machine would provide substantial annual savings in cash operating costs. It would require an. operator at an annual salary of $26.000 and $3,000 in annual maintenance costs. The current, hand operated sanding procedure costs the company $85,000 per year. The company requires a simple rate of return 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. 825 Since NVP is nepetive, that means cash outflow is more than a inflow which are disputed the return hence the D 15 Required: 67 a). For machine A, prepare a Contribution margin income statement using proper format showing the expected net operating come each year from the new shelving products. (8 marks) GO 20 Greenlife Woodwork Inc. 71 Contribution Format Income Statement 72 73 Show arylall worldings here 74 75 76 77 78 79 80 31 2 3 b) For machine A. compute the simple rate of return (1 mark) 1 26b). For machine A, compute the simple rate of return (1 mark) % 8 c). For machine A, compute the payback period. (1 mark) years % d). For machine B, compute the simple rate of return (2 marks). years e). For machine B, compute the payback period. (1 mark) 7). According to the company's investment criteria, which machine (A or B) hould the company purchase? (1 mark) Briefly explain why you chose Machine A or B in your answer in (f) above? (1 mark) SECTION 4 SECTION 5 SECTION 6 1 SECTION 3 SECTION 2 > Instructions
