Kindly help me to solve this question. A concrete mixer has the following cash f

Question

Kindly help me to solve this question.

A concrete mixer has the following cash flow details Initial purchase price = Rs. 750000. · Annual operating and maintenance cost = Rs. 45000 Salvage value = Rs. 210000, . Useful life = 10 years In addition one operator is required to operate the concrete mixer at cost of Rs. 30 per hour. The production (preparation) rate of concrete of the mixer is 0.1 m3 per hour. The revenue to be generated from production of 1 m3 of concrete is Rs. 1000. The interest rate is 11% per year. How many 'm3, of concrete need to be produced per year so that the revenue generated breakevens with the expenditure?

Explanation / Answer

ANSWER:

FOR FINDING OUT THE BREAKEVEN VALUE OF THE CONCRETE VOLUME IN M3 PER YEAR , THE EQUIVALENT UNIFORM ANNUAL WORTH OF EXPENDITURE WILL BE EQUAL TO THAT OF REVENUE.

LET 'X' M3  IS THE VOLUME OF THE CONCRETE PRODUCED BY THE CONCRETE MIXER PER YEAR.

THE OPERATOR COST IS RS. 30 PER HOUR.

THE OPERATOR COST IS GIVEN BY .

(RS. 30 / 1 HOUR) * ( 1 HOUR / 1 M3 ) * ( X M3 / YEAR) = RS. 300 X.

NOW THE EQUIVALENT UNIFORM ANNUAL WORTH (RS.) OF EXPENDITURE IS:

AWE = 750000(A/P,I,N) + 45000 + 300X

AWE = 750000(A/P,11%,10) + 45000 + 300X

AWE = (750000 * 0.1698) + 45000 + 300X

AWE = 172350 + 300 X

THE EQUIVALENT ANNUAL WORTH OF REVENUE IS:

AWR = 210000(A/F,I,N) + 1000X

AWR = 210000(A/F,11%,10) + 1000X

AWR = (210000 * 0.0598) + 1000X

AWR = 12558 + 1000X

EQUATE AWE = AWR

172350 + 300 X = 12558 + 1000X

700X = 160092

X = 228.70 M3

THEREFORE IT IS THE BREAKEVEN VALUE.

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