Managerial accounting heisinger and hoyle

Managerial Accounting

Case Study:

A manufacturing company is evaluating two options for new equipment to introduce a new product to its suite of goods. The details for each option are provided below:

Option 1

· $65,000 for equipment with useful life of 7 years and no salvage value.

· Maintenance costs are expected to be $2,700 per year and increase by 3% in Year 6 and remain at that rate.

· Materials in Year 1 are estimated to be $15,000 but remain constant at $10,000 per year for the remaining years.

· Labor is estimated to start at $70,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

-

75,000

100,000

125,000

150,000

150,000

150,000

Option 2

· $85,000 for equipment with useful life of 7 years and a $13,000 salvage value

· Maintenance costs are expected to be $3,500 per year and increase by 3% in Year 6 and remain at that rate.

· Materials in Year 1 are estimated to be $20,000 but remain constant at $15,000 per year for the remaining years.

· Labor is estimated to start at $60,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

-

80,000

95,000

130,000

140,000

150,000

160,000

The company’s required rate of return and cost of capital is 8%.

Management has turned to its finance and accounting department to perform analyses and make a recommendation on which option to choose. They have requested that the four main capital budgeting calculations be done: NPV, IRR, Payback Period, and ARR for each option.

For this assignment, compute all required amounts and explain how the computations were performed. Evaluate the results for each option and explain what the results mean. Based on your analysis, recommend which option the company should pursue.

Submit a written paper which is

3

-

4 pages in length

(

no more than 4

-

page

s

), exclusive of the

reference page.

Your

p

aper should be double spaced in Times New Roman (or its equivalent) font

which is no greater than 12 points in size.

The paper should cite at least three sources in APA

for

mat.

One source can b

e

Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. Retrieved

from

https://2012books.lardbucket.org/books/accounting

-

for

-

managers/index.html

Please describe the circumstances of the following case study and recommend a course of action.

Explain your approach to the problem, perform relevant calculations and analysis, and formulate

a recommendation. Ensure your work and recommendation are thorou

ghly supported.

Case Study:

A manufacturing company is evaluating two options for new equipment to introduce a new

product to its suite of goods. The details for each option are provided below:

Option 1

·

$65,000 for equipment with useful life of

7 years and no salvage value.

·

Maintenance costs are expected to be $2,700 per year and increase by 3% in Year 6 and

remain at that rate.

·

Materials in Year 1 are estimated to be $15,000 but remain constant at $10,000 per year for

the remaining ye

ars.

·

Labor is estimated to start at $70,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

-

75,000

100,000

125,000

150,000

150,000

150,000

Option 2

·

$85,000 for equipment with useful life of 7 years and a $13,000 salvage value

·

Maintenance costs are expected to be $3,500 per year and increase by 3% in Year 6 and

remain at that rate.

·

Materials in Year 1 are estimated to be $20,000 but remain constant at $15,000 per year for

the remaining years.

·

Labor is estimated to start at $60,000 in Year 1, increasing by 3% each year after.

Submit a written paper which is 3-4 pages in length (no more than 4-pages), exclusive of the

reference page. Your paper should be double spaced in Times New Roman (or its equivalent) font

which is no greater than 12 points in size. The paper should cite at least three sources in APA

format.

One source can be Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. Retrieved

from https://2012books.lardbucket.org/books/accounting-for-managers/index.html

Please describe the circumstances of the following case study and recommend a course of action.

Explain your approach to the problem, perform relevant calculations and analysis, and formulate

a recommendation. Ensure your work and recommendation are thoroughly supported.

Case Study:

A manufacturing company is evaluating two options for new equipment to introduce a new

product to its suite of goods. The details for each option are provided below:

Option 1

 $65,000 for equipment with useful life of 7 years and no salvage value.

 Maintenance costs are expected to be $2,700 per year and increase by 3% in Year 6 and

remain at that rate.

 Materials in Year 1 are estimated to be $15,000 but remain constant at $10,000 per year for

the remaining years.

 Labor is estimated to start at $70,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

- 75,000 100,000 125,000 150,000 150,000 150,000

Option 2

 $85,000 for equipment with useful life of 7 years and a $13,000 salvage value

 Maintenance costs are expected to be $3,500 per year and increase by 3% in Year 6 and

remain at that rate.

 Materials in Year 1 are estimated to be $20,000 but remain constant at $15,000 per year for

the remaining years.

 Labor is estimated to start at $60,000 in Year 1, increasing by 3% each year after.