Question

2. [7pts) A $80,000 piece of equipment will be purchased to produce a product. Production will continue for 5 years and the equipment will then be salvaged (estimated at $20,000). The equipment will used 8 hours a day, 270 days a year, and produces 200 units of product per hour. What is the unit cost of this equipment? MARR=20%.

Answer 1

Accounting Question No 2: Answer: Given Purchase cost of Equipment = $ 80,000. Useful life of Equipment = 5 years. Salvage value at the end of life (i.e at the end of 5th year) = $ 20,000 Production capacity of Equipment per one hour = 200 units per hour. MARR(Minimum Acceptable /Attractive rate of return) = 20% Total production per year using Equipment = 8 hours a day *270 days 200 units per hour ► = 2,160 hours*200 units per hour = 432,000 units. Total production total number of units to be produced) by the Equipment in 5 years (i.e total useful life of Equipment) = 432,000 units per year*5 years = 2,160,000. Effective cost of Equipment = (Present value of Cash outflows) - (Present value of Cash inflows) = (P. V Annuity factor for 20% at 15 year beginning * Purchase cost of Euipment) - (P.V. Annuity factor for 20% at 5 year end* Salvage value). = (1*80,000) -(0.4019*20,000) = 80,000 -8,038 = 71,962 ► Unit cost of Euipment = Effective cost of Equipment Total production of Equipment in useful life = $ 71,962 2,160,000 Unit cost of Equipment = $ 0.03331 per unit.