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in activity based costing approach,in example of una manufactures.if the selling price of the 3 product are $3, #5,and #6.how can i solved the above eg.if all items are thesame
In a chapter of transfer pricing
Euro products general manager is choosing which of two plants NEWCASTLE or
SHEFFIELD, to use for the production of a new product of a new product.
Both have the same capacity and an expected life of four years,with different capital costs and expected net cash flows.The following information is provided.
Newcastle Sheffield
initial capital investment 4800000 3900000
net cash flows (before tax)
2006 1800000 1950000
2007 1800000 1650000
2008 1800000 1125000
2009 1800000 750000
It is assumed that the plant will be used from 1 jan.2004 and both plants have negligible residual value.General manager is expected to generate a before tax return on his investment in excess of 14% p.a which he is currently achieving. As his bonus is linked to his performance,he will not take up a project with a return of less than 14%.For calculating returns,divisional assets are valued at net book values at the beginning of the year.depreciation is charged on a straight line basis.
I have to calculate Residual income and ROI.
For that could you please tell me how can I calculate depreciation and opening WDV of asset?@daberechi said:
in activity based costing approach,in example of una manufactures.if the selling price of the 3 product are $3, #5,and #6.how can i solved the above eg.if all items are thesameI am a bit puzzled by your question because the cost per unit is not affected by the selling price per unit. Obviously the profits per unit are affected, but that is not really an ABC problem.
Also you then say ‘if all the items are the same’ but I am not clear what you are meaning 🙁
I am not sure if you have got the dates correct (assuming the plant is used from 2004 – have you copied that correctly). The reason I ask is that the rest of your question only gives cash flows from 2006 onwards.
I think more likely that there is a typing mistake in your book or in your copying here and that the plant is used from 1 January 2006.
We would assume that it stopped being used at the end of 2009 which would mean that it would be depreciated straight line over 4 years. (i.e. 4800000/4 = 1200000 per year for Newcastle).
The opening WIP starts at 4800000 and falls by 1200000 each year.(If the date it is first used is in fact correct as 1 Jan 2004, then it will be depreciated over 6 years – so 800000 per year for Newcastle. The opening WDV will be 4800000 at the start of 2004, and 800000 less at the start of each further year)
PS Why did you put this question under Activity Based Costing and not start a new topic? 🙂
Thank you so much.
Yes you are right,here is a typing mistake in a book.
I put this question under activity based costing because somehow
I always face a problem to start a new topic so I always write in a someone column.
Thank you so much. 🙂
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