factory company is plannng to add a new product ... Your question has been answe

Question

factory company is plannng to add a new product ... Your question has been answered! Rate it below. Let us know if you got a helpful answer. Question Factory Company is plannng to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $480,000 cost with an expected four year life and a $20,000 salvage value. All sales are for cash, and all costs are out of pocket, exept for depreciation on the new machine. Additional information includes the following: Expected Annual Sales of New Product $1,840,000 Expected Annual Costs of New Product Direct Materials $480,000 Direct Labor $672,000 Overhead (excluding straight line depreciation on new machine) $336,000 Selling and Administrative Expenses $160,000 Income Taxes 30% 1. determine expected net income and net cash flow for each year of this machines life.(round to the nearest dollar)

Explanation / Answer

Calculation of Net Income and Net cash flow per annum : (For years 1-3)

Net Income and Net cash flow per annum : (For year 4)

Net Income = 165900 + 20000(1-0.30) (Residual Income net of tax)

= $ 179,900

Net cash Inflow = 280900 + 20000(1-0.30)

= $ 294,900

Particulars $ Net annual sales of new product (A) 1,840,000 Annual cost of New product - Direct Material 480,000 - Direct Labour 672,000 - Overheads 336,000 - Depreciation ( $480,000-$20,000 / 4 ) 115,000 Total annual cost of new product (B) 1,603,000 Net Income Before Tax (A) - (B) 237,000 Less: Tax (30%) 71,100 Net Income (After Tax) 165,900 Add: Depreciation (Non Cash Expenditure) 115,000 Net Cash Inflow 280,900

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.