QUESTION $4$

$(20$ Marks$)$

$4\mathrm{.}1$

REQUIRED

Study the information provided below and answer the following questions:

$4\mathrm{.}1\mathrm{.}1$

Use the Net Present Value technique to determine the machine that the company should purchase.

$(10$ marks$)$

$4\mathrm{.}1\mathrm{.}2$

Calculate the Accounting Rate of Return $($on initial investment$)$ of Machine X$.$

$(4$ marks$)$

INFORMATION

Emerald Limited has the choice of purchasing one of two machines viz. Machine X and Machine Y but funding is available to invest in only one of them $($if at all$).$ Each machine costs R$10000000$ and a useful life of five years is anticipated. The residual value of each machine is estimated to be R$1000000.$ The annual volume of production for each machine is estimated to be $150000$ units, which can be sold for cash at R$48$ per unit. Depreciation is calculated on the machines using the straight$-$line method over their respective useful lives. Annual cash operating costs are as follows:

Machine X

Machine Y

Variable costs per unit

R$6\mathrm{.}00$

R$4\mathrm{.}80$

Fixed costs $($total$)$

R$3000000$

R$3200000$

The cost of capital is expected to be $15\%.$

$4\mathrm{.}2$

REQUIRED

Use the information provided below to calculate the expected production cost for November $2023.$

$(6$ marks$)$

INFORMATION

Malvern Limited manufactures Product Mac. An estimate of the number of units to be sold during November and December $2023$ is given below:

November

$3000$

December

$3800$

It is anticipated that:

$$ There will be no work$-$in$-$process at the end of any month.

$$ Finished units equal to $40\%$ of the expected sales of the following month will be in inventory at the end of each month.

The budgeted production and production costs for the year ending $31$ December $2023$ are as follows:

Production

$36000$ units

Direct materials cost per unit

R$50$

Direct labour cost per unit

R$30$

Other manufacturing costs

R$216000$