Question
The Volksland Motors Group is based in the Northern frontier of Mill-land City, an industrial estate in the Republic of Zee Land. The companys planning
The Volksland Motors Group is based in the Northern frontier of Mill-land City, an industrial estate in the Republic of Zee Land. The companys planning and actual budgets for December appear below: The Volksland Motors Group Budgeted and actual report for the year ending December 31 st , 2020
The Volksland Motors Group
Budgeted and actual report for the year ending December 31st, 2020
ACTUAL (000) BUDGET (000)
Production (q) 21 000 17 000
Revenues 35,000 29,400
Variable production cost:
Direct Material 5 000 4 294
Direct Labour 4 386 3 580
Machining cost 4 600 3 900
Other variable cost 9 000 7 650
Fixed Production cost:
Indirect Labour 1 850 1 601
Depreciation 1 000 1 000
Insurance 874 874
Production Taxes 463 440
Administrative Expenses 2 452 1 838
Marketing Expenses 1 696 1 080
Research and development 1 226 920
Net Operating Income 2 453 2 223
C) The Executive Board of The Volksland Motor Group after reviewing annual report have decided to explore options to fulfil objective of green energy. Director production has suggested to use of solar panels to reduce energy cost and meet green energy objectives. The solar panels require investment of 600,000 after Zeeland Govt grant with useful life of 25 years. This investment will save annual energy cost by 120,000. Solar panels require annual maintenance cost of 10,000 after three years of use. Recommend the viability of this investment using appraisal technique (NPV, Payback, Discounted Cash Flow etc) that company could employ in evaluating their options in this respect (based on their circumstances). It is noted that cost of capital is 10% and inflation is 4% in Zeeland.
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