Question 1. (20 marks) Acer is contemplating to replace its old machinery with a new one. The old machinery was bought 6 years ago with a total useful life of 13 years. If sold now, the old machinery can be salvaged at $17,000. The existing machinery has the production capacity of 30,000 units. Acer Inc.'s finished product is called Product X which can be sold at $75 and has per unit variable cost of $42. The annual maintenance cost of the existing machinery is $18,000. If replaced, the new machinery can be bought for $600,000 having useful life of 7 years. This replacement will increase the annual capacity from 30,000 units to 35,000 units and bring savings of $2 in per unit variable cost. The annual maintenance cost of the new machinery would be $29,000. Assume that the company can sell whatever is produced, and the tax rate applicable to the company is 35%. Provide an analysis showing whether the company should replace its old machinery with the new one or not? M.K. Ltd. manufactures and sells a single product X whose selling price is $40 per unit and the variable cost is $16 per unit (i) If the fixed cost for this year are $480,000 and the annual sales are at 60% margin of safety, calculate the rate of net return on sales, assuming an income tax level of 40%. For the next year, it is proposed to add another product line Y whose selling price would be $50 per unit. And the variable cost $10 per unit. The total fixed cost is estimated at $666,600. The sales mix of X: Y would be 7:3 (in units). At what level of sales next year, would M.K Ltd. break even? Given separately for both X and Y the break-even sales in rupees and quantities. I Question 1. (20 marks) Acer is contemplating to replace its old machinery with a new one. The old machinery was bought 6 years ago with a total useful life of 13 years. If sold now, the old machinery can be salvaged at $17,000. The existing machinery has the production capacity of 30,000 units. Acer Inc.'s finished product is called Product X which can be sold at $75 and has per unit variable cost of $42. The annual maintenance cost of the existing machinery is $18,000. If replaced, the new machinery can be bought for $600,000 having useful life of 7 years. This replacement will increase the annual capacity from 30,000 units to 35,000 units and bring savings of $2 in per unit variable cost. The annual maintenance cost of the new machinery would be $29,000. Assume that the company can sell whatever is produced, and the tax rate applicable to the company is 35%. Provide an analysis showing whether the company should replace its old machinery with the new one or not? M.K. Ltd. manufactures and sells a single product X whose selling price is $40 per unit and the variable cost is $16 per unit (i) If the fixed cost for this year are $480,000 and the annual sales are at 60% margin of safety, calculate the rate of net return on sales, assuming an income tax level of 40%. For the next year, it is proposed to add another product line Y whose selling price would be $50 per unit. And the variable cost $10 per unit. The total fixed cost is estimated at $666,600. The sales mix of X: Y would be 7:3 (in units). At what level of sales next year, would M.K Ltd. break even? Given separately for both X and Y the break-even sales in rupees and quantities
