Accounting for Business: Ventilator Capital Investment Appraisal, Surgical Mask Costing

Accounting for Business

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
Issue 1: Ventilator capital investment appraisal.......................................................................................3
Issue 2: Surgical mask costing...............................................................................................................13
Issue 3: Respiratory Davison budget.....................................................................................................17
CONCLUSION.........................................................................................................................................21
REFERENCES..........................................................................................................................................22

INTRODUCTION
The term accounting can be defined as a way of recording financial transactions in a
systematic manner. This is essential for business entities to record their transactions
(Alstadsæter, Kopczuk and Telle, 2016). The project report is based on management accounting
issues at AV Roe plc. The company is located in Manchester and involved in preparation of
aircraft. Now company is decided to engage in medical equipments. For this purpose they need
guidance and various calculations are done such as capital investment appraisal, breakeven point
analysis and cash budget.
MAIN BODY
Issue 1: Ventilator capital investment appraisal
a) Evaluate the alternative ventilator investment options:
Payback period:
Highball ventilator:
Year Cash flow Cumulative cash flow
1 550 550
2 800 1350
3 1050 1400
4 1300 2700
5 1550 4250
Initial investment= 3000
Payback period= Year before recovery+ amount to be recover/ next year cash flow
= 4+300/1550
= 4+0.19

Thus, cost of this project will be recovered in 4 year and 2 months.
Working Note:
Amount to be recover= 3000-2700
= 300
Upkeep ventilator:
Year Cash flow Cumulative cash flow
1 350 350
2 500 850
3 700 1550
4 950 2400
5 - 2400
Initial investment= 1500
Payback period= 2+650/700
= 2+0.92
Thus, cost of this project will be recovered in 3 years.
Net present value:
Highball ventilator:
Year Cash flow PV factor at 10% Discounted cash flow
1 550 0.909 499.95

2 800 0.826 660.8
3 1050 0.751 788.55
4 1300 0.683 887.9
5 1550 0.621 962.55
962.55
Net present value= Discounted cash flow- Initial investment
= 962.55-3000
= -2037.45 pounds
Upkeep ventilator:
Year Cash flow PV factor at 10% Discounted cash flow
1 350 0.909 318.15
2 500 0.826 413
3 700 0.751 525.7
4 950 0.683 648.85
5 - 0.621 0
1905.7
NPV= 1905.7-1500
= 405.7 Pounds
Accounting rate of return:
Highball ventilator:

Year Cash flow
1 550
2 800
3 1050
4 1300
5 1550
Total 5250
Average profit= 5250/5
= 1050
Average initial outlay= Investment + residual income/2
3000+650/2
= 3650/2
= 1825
ARR= Average profit/average initial outlay*100
= 1050/1825*100
= 57.53%
Upkeep ventilator
Year Cash flow
1 350
2 500
3 700
4 950