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Management Accounting Assignment( MA )

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Added on  2020-05-28

Management Accounting Assignment( MA )

   Added on 2020-05-28

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Running Head: Management AccountingREPLACEMENT DECISIONMAKING
Management Accounting Assignment( MA )_1
Management Accounting1Situation 1Introduction:In this case the flying airlines company is considering to replace its old truck loader with a new one. The new loader will cost it for $ 20000. However, it will realise $ 5000 on sale of old loader. Therefore, the net cost it will have to incur for the purchase of proposed loader will be $ 15000. Further, the new loader will operate with the annual variable cost of $ 50000whereas the older one was operating with the annual variable cost of $ 80000. Hence, it can be said that there will be a saving in the variable cost by $ 30000. This savings in cost is equivalent to the cash inflows for the company. Analysis:Old LoaderCost of asset $ 1,00,000.00 Useful Life4Depreciation $ 25,000.00 Salvage Value $ 5,000.00 Annual cash outflow (1 to 4 years each) $ 80,000.00 New LoaderCost $ 20,000.00 Annual Cash outflow(Variable cost) $ 50,000.00 Initial outflow:Cost of acquisition $ 20,000.00 Less: Amount realised on sale of old loader $ 5,000.00 Net Outflow $ -15,000.00 Less: Decrease in variable cost ($80000-$50000) $ 30,000.00
Management Accounting Assignment( MA )_2
Management Accounting2Net Savings in cost in the year of purchase $ 15,000.00 Conclusion:From the below calculations it can be said that the company will have a net benefit of $ 15000 in the year of purchase i.e. at the end of 3rd year of old loader. Thus, it must replace theold truck with the new one immediately without waiting for another year.
Management Accounting Assignment( MA )_3

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