W4. accounting problem

CALCULATIONS

Cost of Goods Sold

Expense Year 1 Year 2 Year 3 Year 4 Year 5

Direct Labor ?75 ,000 ?92 ,700 ?124 ,254 ?89 ,435 ?55 ,340

Raw Materials ?100 ,000 ?126 ,000 ?171 ,600 ?126 ,672 ?79 ,947

Fixed Overhead ?10 ,000 ?12 ,000 ?15 ,600 ?10 ,920 ?7 ,995

Raw Materials ?1 100 ,000 ?100 ,000 ?1 .05 120 ,000 ?126 ,000 ?1 .1 156 ,000 ?171 ,600 ?1 .16 109 ,200 ?126 ,672 ?1 .22 65 ,530 ?79 ,947 Labor

0 .15 100 ,000 ?5 ?75 ,000

0

.15 120 ,000 ?5 .15 ?92 ,700

0 .15 156 ,000 ?5 .31 ?124 ,254

0 .15 109 ,200 ?5 .46 ?89 ,435

0 .15 65 ,530 ?5 .63 ?55340 Cash Flow

Year 1 Year 2 Year 3 Year 4 Year 5

Sales ?500 ,000 ?600 ,000 ?780 ,000 ?546 ,000 ?327 ,650

COGS ?185 ,000 ?230 ,700 ?311 ,454 ?227 ,027 ?143 ,282

Cash Flow ?315 ,000 ?369 ,300 ?468 ,546 ?318 ,973 ?184 ,368 Report

Analyzing the data of sales forecasts and predetermined direct costs including fixed manufacturing overhead provides a positive possible benefit generated y the potential project . However , the given data is not sufficient enough to provide correct estimates for the project . It does not consider such factors as time value of money , as well as investment of initial net investment , and also the exact portion of cash sales . In to make more precise forecasts as for the project 's profitability capital budgeting analysis should be performed

In to achieve a more precise determination of the affects caused by purchasing an asset the Net Present Value technique should be used which involves discounting net cash flows for a project , then subtracting net investment from the discounted net cash flows . The result , NPV , show the affects of purchasing an asset (considering real not financial . If the net present value is positive , adopting the project would add to the value of the company

First we calculate Net Investment , which consists of cost of a new product plus installation costs , and less precedes from disposal of old assets . The net investment of a new machine equals the purchase price in this case as it does not replace any of the old assets - ?1 ,000 ,000

Further , we calculate Net Cash Flows as follows B

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i ?ing a new asset

The next further concern of acquiring a new asset will be the assets increased y sales of the product . As NPV analysis based on discounting potential cash inflow , failure to receive the projected amount of cash might result in significant losses and inability to generate enough profits to cover all costs of the asset before it fully depreciates Therefore , a critical matter in this case is to determine what portion of sales revenue will be received on account and what portion...