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Kingdom Industrial Machinery Limited manufactures specialist mass air flow sensors (MAFS) to the automotive industry. These sensors help to monitor and regulate the flow and mix of air, fuel and combustion in internal combustion engines (ICE). The company has developed two products, one for industrial applications and the other for applications in automotive racing competitions. The company is a small family-owned and run company with low gearing but currently has no additional cash available for investment. This means that the company has to borrow if it wishes to invest in new machinery and/or processes. The sales forecast for the business for the next year is as follows: 2020 budget Industrial Racing Sales (units) 14,000 8,000 To manufacture an Industrial sensor, it requires 250 grams (g) of metals, 140g of plastics and 8 electronic components bought from a supplier. For Racing sensors, 400g of metals, 260g of plastics and 10 electronic components are required. Each sensor (Industrial and Racing) is also packaged for sale at a cost of 1.10 per unit. The cost of raw materials is as follows: Material Cost Metals 12 per kilogram (kg) Plastics 40 per kg Electronics 5 per component Packaging 1.10 per unit sensor Each Industrial sensor spends 0.8 labour hours in conversion and 1.2 labour hours in the assembling and packing. Each Racing spends 1.1 labour hours in conversion and 1.5 labour hours in the assembly and packing. Labour is paid 16 per hour in the conversion department and 20 per hour in the assembly and packing department. Total overheads of Kingdom Industrial Machinery Limited are 45,000. Kingdom Industrial Machinery Limited is considering investing in a robotic process that will allow them to save on labour costs and allow the company to access new markets for its technology, such as in the shipping industry. From a cost perspective, it is expected that 15% of the assembly and packing labour cost, which is currently estimated at around 550,000 a year, can be saved by the new robotic process. In addition, this cost saving is expected to increase by 8% year-on-year for the foreseeable future due to anticipated shortages in skilled labour. To explore the viability (or otherwise) of supplying MAFS to the shipping industry, the company paid a market research firm 32,000 for credible information. The cost of the robotic process is 285,000 and it will have a 4-year lifespan and an estimated scrap value of 35,000. Depreciation is to be charged at 62,500 a year. In addition, the cost of deliberating over the implementation of a new robotic process will be at a cost of 1,600 a year for its share of the company's overheads. These will be incurred by the company irrespective of whether the project goes ahead. If the project to implement the new robotic process is approved, the expected cash inflows from supplying MAFS to the shipping industry is as follows. Expected cash inflows If the project to implement the new robotic process is approved, the expected cash inflows from supplying MAFS to the shipping industry is as follows. Expected cash inflows 54,000 Year 1 Year 2 Year 3 Year 4 68,000 62,000 Each year, the new business will have to maintain a working capital requirement equivalent to 15% of its expected cash inflows (of the new business). This working capital should be put in place a year before it is required. Note that the working capital requirement calculations after the initial year is based on incremental differences in expected cash flows. For this question, you can assume that all cash savings and other cash flows arise at the end of each year and ignore cash flows after this four-year period. The company uses a discount rate of 10%. Kingdom Industrial Machinery Limited will accept projects with a payback of 3 years or less. Question 1 30 pts Produce a budgeted profit and loss account for each product and the total budgeted profit and loss account for the business. Assume that the company adds a mark-up of 30% on each sensor it sells. In order to accomplish this, you will need to calculate the following: The budgeted quantity of each raw material the company will need to purchase for each product The budgeted cost of these materials for each product The amount of labour hours that are required for each product The budgeted cost of this labour for each product A blanket overhead absorption rate, this should be based on labour hours The total unit cost of each product The selling price of each product (To answer the question, fill in the blanks. Remember, you will also need to submit your handwritten calculations at the end of the exam. If you are unable to complete all the steps, we will look at your handwritten workings to award method marks.) Industrial Racing sales materials labour (To answer the question, fill in the blanks. Remember, you will also need to submit your handwritten calculations at the end of the exam. If you are unable to complete all the steps, we will look at your handwritten workings to award method marks.) Industrial Racing sales materials labour overheads budgeted gross profit Question 2 20 pts Calculate the net present value (NPV) and payback period of the project. (To answer the question, fill in the blanks. Remember, you will also need to submit your handwritten workings at the end of the exam.) NPV is Payback period is years and months Kingdom Industrial Machinery Limited manufactures specialist mass air flow sensors (MAFS) to the automotive industry. These sensors help to monitor and regulate the flow and mix of air, fuel and combustion in internal combustion engines (ICE). The company has developed two products, one for industrial applications and the other for applications in automotive racing competitions. The company is a small family-owned and run company with low gearing but currently has no additional cash available for investment. This means that the company has to borrow if it wishes to invest in new machinery and/or processes. The sales forecast for the business for the next year is as follows: 2020 budget Industrial Racing Sales (units) 14,000 8,000 To manufacture an Industrial sensor, it requires 250 grams (g) of metals, 140g of plastics and 8 electronic components bought from a supplier. For Racing sensors, 400g of metals, 260g of plastics and 10 electronic components are required. Each sensor (Industrial and Racing) is also packaged for sale at a cost of 1.10 per unit. The cost of raw materials is as follows: Material Cost Metals 12 per kilogram (kg) Plastics 40 per kg Electronics 5 per component Packaging 1.10 per unit sensor Each Industrial sensor spends 0.8 labour hours in conversion and 1.2 labour hours in the assembling and packing. Each Racing spends 1.1 labour hours in conversion and 1.5 labour hours in the assembly and packing. Labour is paid 16 per hour in the conversion department and 20 per hour in the assembly and packing department. Total overheads of Kingdom Industrial Machinery Limited are 45,000. Kingdom Industrial Machinery Limited is considering investing in a robotic process that will allow them to save on labour costs and allow the company to access new markets for its technology, such as in the shipping industry. From a cost perspective, it is expected that 15% of the assembly and packing labour cost, which is currently estimated at around 550,000 a year, can be saved by the new robotic process. In addition, this cost saving is expected to increase by 8% year-on-year for the foreseeable future due to anticipated shortages in skilled labour. To explore the viability (or otherwise) of supplying MAFS to the shipping industry, the company paid a market research firm 32,000 for credible information. The cost of the robotic process is 285,000 and it will have a 4-year lifespan and an estimated scrap value of 35,000. Depreciation is to be charged at 62,500 a year. In addition, the cost of deliberating over the implementation of a new robotic process will be at a cost of 1,600 a year for its share of the company's overheads. These will be incurred by the company irrespective of whether the project goes ahead. If the project to implement the new robotic process is approved, the expected cash inflows from supplying MAFS to the shipping industry is as follows. Expected cash inflows If the project to implement the new robotic process is approved, the expected cash inflows from supplying MAFS to the shipping industry is as follows. Expected cash inflows 54,000 Year 1 Year 2 Year 3 Year 4 68,000 62,000 Each year, the new business will have to maintain a working capital requirement equivalent to 15% of its expected cash inflows (of the new business). This working capital should be put in place a year before it is required. Note that the working capital requirement calculations after the initial year is based on incremental differences in expected cash flows. For this question, you can assume that all cash savings and other cash flows arise at the end of each year and ignore cash flows after this four-year period. The company uses a discount rate of 10%. Kingdom Industrial Machinery Limited will accept projects with a payback of 3 years or less. Question 1 30 pts Produce a budgeted profit and loss account for each product and the total budgeted profit and loss account for the business. Assume that the company adds a mark-up of 30% on each sensor it sells. In order to accomplish this, you will need to calculate the following: The budgeted quantity of each raw material the company will need to purchase for each product The budgeted cost of these materials for each product The amount of labour hours that are required for each product The budgeted cost of this labour for each product A blanket overhead absorption rate, this should be based on labour hours The total unit cost of each product The selling price of each product (To answer the question, fill in the blanks. Remember, you will also need to submit your handwritten calculations at the end of the exam. If you are unable to complete all the steps, we will look at your handwritten workings to award method marks.) Industrial Racing sales materials labour (To answer the question, fill in the blanks. Remember, you will also need to submit your handwritten calculations at the end of the exam. If you are unable to complete all the steps, we will look at your handwritten workings to award method marks.) Industrial Racing sales materials labour overheads budgeted gross profit Question 2 20 pts Calculate the net present value (NPV) and payback period of the project. (To answer the question, fill in the blanks. Remember, you will also need to submit your handwritten workings at the end of the exam.) NPV is Payback period is years and months