cost management explain

ELON MOTORS

		ACCT434/436
		Course Project
		Elon Motors
		Project Template
			Elon Motors
Data:
		Cost of new equipment	$1,570,000
		Expected life of equipment in years	12
		Salvage Value	$70,000
		Life Production	36,000
		Annual production or purchase needs	300
		Number of workers needed	3
		Annual hours to be worked per employee	2,080
		Earnings per hour for employees	$25.00
		Health Benefits - % of Wages	20%
		Cost of Direct Materials	$125.00
		Variable Manufacturing Overhead Costs	$25.00
		Unit Cost to Purchase Batteries	$325.00
		Required rate of return	10%
		Tax rate	30%
			Make	Purchase
Cost to Produce
	Annual cost of direct material:
		Need - Cost direct material for of 2,500 Batteries	$375,000
	Annual cost of direct labor for new employees:
		Wages	156,000
		Health benefits	31,200
		Total wages and benefits	187,200
	Other variable production costs		75,000
			125,000
	Total annual production costs		$762,200
	Annual cost to purchase cans	Annual Cost to Purchase Batteries		$975,000
Part 1 Cash Flows Over the Life of the Project
			Before Tax	Tax	After Tax
		Item	Amount	Effect	Amount
		Annual cash savings	$337,800	30%	$101,340
		Tax savings due to depreciation	125,000	30%	$37,500
		Total after-tax annual cash flow			$138,840
Part 2 Payback Period				years
		Cost of new equipment	1,570,000
		divide: annual cashflow	236,460	6.64
Part 3 Accounting Rate of Return
	Accounting income as result of decreased costs
		Annual cash savings	$236,460
		Less depreciation	125,000
		Before tax income	111,460
		Tax at Current Rate	33,438
		After tax income	$78,022
		Accounting Rate of Return	4.97%
Part 4 Net Present Value
				Before Tax		After Tax	PV	Present
		Item	Year	Amount	Tax %	Amount	Factor	Value
		Cost of machine	0	$1,570,000			1.000	$1,570,000
		Annual cash savings	1-10	$281,500	30%	84,450	5.678	1,342,640
		Tax savings due to depreciation	1-10	$104,167	83%	31,250	5.678	212,928
		Disposal value	10	$58,333	83%	17,500	0.2655	13,010
		Net Present Value						$3,138,578
Part 5 Internal Rate of Return and Modified Internal Rate of Return
					After Tax
			Item	Year	Amount
			Cost of machine	0	$ 1,570,000
			Year 1 inflow	1	$ 236,460
			Year 2 inflow	2	$ 236,460
			Year 3 inflow	3	$ 236,460
			Year 4 inflow	4	$ 236,460
			Year 5 inflow	5	$ 236,460
			Year 6 7nflow	6	$ 236,460
			Year 7 inflow	7	$ 236,460
			Year 8 inflow	8	$ 236,460
			Year 9 inflow	9	$ 236,460
			Year 10 inflow	10	$ 236,460
			Internal Rate of Return
			Modified Internal Rate of Return	10.36%
			Net Present Value	$3,138,578