exercise nr two (I couldnt put it in one post because of letter count)
The management of a company has decided to buy a machine that can produce parts at a high rate.The machine needs an investment of
80.000 Euro. They expect to realize a production of
30.000 pieces the first year. After that the production will drop with
2.000 per year. The fixed complementary costs are
5.000 Euro the first year and will increase with
4.000 Euro per year. The variable cost per product are
2 Euro. The parts can be sold at a price of
4 Euro per part.
The company uses a depreciation method that is based on an annuity schedule, where
10% interest per year is being used. The company uses the methodology of the average yearly costs per product to determine the EUL. The EUL is calculated to be
5 years. All costs, except the initial investment are paid at the end of the year.
- Determine the average yearly costs if the machine is used for five years.
- Which argument can be found to not use the average yearly costs per product method for calculating the EUL in this particular case?
c.
Determine the EUL using the highest average yearly profit method
Year
| Complementary costs
|
Production volume
|
Variable costs
| Revenue
| Discounted yearly costs
| Cumulated discounted yearly costs
| Average yearly costs
|
1
| € 5.000,00
| 30 000
| €60000
| €120 000
| 59 090,91
| 139 090,91
| 153 000
|
2
| € 9.000,00
| 28 000
| €56000
| €112 000
| 53 719,01
| 192 809,92
| 111 095,24
|
3
| € 13.000,00
| 26 000
| €52000
| €104 000
| 48 835,46
| 241 645,38
| 97 169,18
|
4
| € 17.000,00
| 24 000
| €48000
| €96 000
| 44 395,87
| 286 041,25
| 90 237,66
|
5
| € 21.000,00
| 22 000
| €44000
| €88 000
| 40 359,89
| 326 401,14
| 86 148,50
|
I havent added calculations because they are already in the table. Counting consisted of adding the costs and then dividing them by 10% interest (e.g. (60 000 + 5 000)/1,1 in first year and so on.
Costs per product:
1. 5,1
2. 3,97
3. 3,74
4. 3,76
5. 3,92
Answers:
a. 3,357 Euro -> according to answer if I’m right and the costs per product are the lowest in 3
rd year then average yearly costs would be 87 282.
b. Check Theory
c. Average profit 15.951 Euro