My first Magazine ACC 206 All Assignments | Página 53

b. By adding this new expansion product, it helps to absorb the fixed
factory and sales expenses. How much cheaper does this expansion
make the existing product?
c. Assuming ABC Company wants a 40% gross margin for the new
product, what selling price should it set for the expansion product?
d. Assuming the same sales mix of these two products, what are the
contribution margins and break-even points by product?
IV. Potential investments to accelerate profit: ABC company has the
option to purchase additional equipment that will cost about $42,000,
and this new equipment will produce the following savings in factory
overhead costs over the next five years:
Year 1, $15,000
Year 2, $13,000
Year 3, $10,000
Year 4, $10,000
Year 5, $6,000
ABC Company uses the net-present-value method to analyze
investments and desires a minimum rate of return of 12% on the
equipment.
a. What is the net present value of the proposed investment ignore
income taxes and depreciation?
b. Assuming a 5-year straight-line depreciation, how will this impact the
factory’s fixed costs for each of the 5 years (and the implied product
costs)? What about cash flow?