Reference no: EM132407017 , Length: word count:1000
Assignment - Accounting and Finance For Managers Exercises
Exercise 1 - The directors of MacKenzie & Co are considering investing in some new manufacturing plant with a cost of $900,000. The new plant is expected to generate the following cash-flow savings over the next seven years:
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Year:
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Cash-flow saving:
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1
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$150,000
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2
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$220,000
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3
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$300,000
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4
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$300,000
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5
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$200,000
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6
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$200,000
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7
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$200,000
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MacKenzie & Co has a required payback period of less than five years and requires all investments to give a discounted cash-flow return of at least 14%.
Required: Recommend to the director whether they should make the investment or not stating your reasons. Note: Show all figures and calculations.
Exercise 2 - Red & Co manufacture and sell camping equipment. The company is reviewing its production costs and is considering the alternative of outsourcing the production of sleeping bags rather than producing them itself. The current unit costs of producing a sleeping bag are as follows:
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$
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Direct labour
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6.00
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Direct materials
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4.00
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Variable overheads
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1.50
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Fixed overheads
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2.00
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$13.50
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An outside supplier has quoted a figure of $11.00 per sleeping bag.
If Red & Co were to cease production, the sleeping bag manufacturing unit would be closed. This would mean 50 per cent of the fixed costs relating to sleeping bag production would no longer be incurred.
Required:
a) Considering cost criteria only, advise whether Red and Co should continue to manufacture or whether it should outsource the production of sleeping bags.
b) Briefly describe the non-financial factors which you think Red & Co should consider before making the decision in part a). Note: Show all workings.