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(solution) Management Accounting : Doc

   

Added on  2020-05-16

11 Pages1883 Words68 Views
Running Head: Management AccountingReplacement Decision making
(solution) Management Accounting : Doc_1
Management Accounting2Table of ContentsSituation 1.............................................................................................................................................3Introduction:......................................................................................................................................3Analysis:............................................................................................................................................3Conclusion:........................................................................................................................................4Situation 2.............................................................................................................................................5Introduction:......................................................................................................................................5Part A................................................................................................................................................5Conclusion:........................................................................................................................................6Part B.................................................................................................................................................6Situation 3.............................................................................................................................................8Introduction:......................................................................................................................................8Part A................................................................................................................................................8Part B...............................................................................................................................................10References:..........................................................................................................................................11
(solution) Management Accounting : Doc_2
Management Accounting3Situation 1Introduction:The present case is about one of the flying airlines company which wants to take the replacement decision as its old truck loader is having remaining useful life of one year so the company wants to replace the old loader with a new loader. The new loader can be purchasedfor $ 20000, the company will get $5000 from the sale old loader so we can say the cost of new loader will require an additional cash outflow of $15000 that is cost of new loader $20000 (-) proceeds from the sale of the load loader $5000. The new loader is more efficient in its working as the variable cost for new loader is $ 50000 and the variable cost of old loader is $80000. That means with the installation of new loader a savings in variable cost is there of $30000. The savings in cost is equivalent to inflow of cash in financial terms.Analysis:Here we present the analysis of both the loader’s:Analysis of Old LoaderParticularsAmountCost of Loader $ 1,00,000.00Useful Life4Depreciation $ 25,000.00Salvage Value $ 5,000.00Annul cash Flow (Year 1 to 4) $ 80,000.00
(solution) Management Accounting : Doc_3
Management Accounting4Analysis of New LoaderParticularsAmountCost $ 20,000.00Cash Outflow (Variable cost) $ 50,000.00Initial InvestmentCost of acquisition $ 20,000.00Less: Amount realised from the sale of old Loader $ 5,000.00Net Outflow $ 15,000.00Less: Decrease in Variable cost $ 30,000.00Net Savings in Cost (in the year of purchase) $ 15,000.00Conclusion:With the above analysis we can see that there is net savings of $15000 with the installation ofthe new loader as savings I cost is equal to cash inflow. Hence, we should recommend replacing the old loader with the new loader immediately that is at the end of 3rd year of the useful life of old loader. If we wait for the 4th year to end then the sale value of old loader willbe zero that means savings in the cost will also reduce that is why we highly recommend the company to replace the old loader with the new loader as of now only.
(solution) Management Accounting : Doc_4

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