1). Pocket Pilot Inc. is considering an investment in new equipment that will be
ID: 2473969 • Letter: 1
Question
1). Pocket Pilot Inc. is considering an investment in new equipment that will be used to manufacture a mobile communications device. The device is expected to generate additional annual sales of 4,500 units at $246.00 per unit. The equipment has a cost of $460,400, residual value of $34,600, and an eight-year life. The equipment can only be used to manufacture the device. The cost to manufacture the device is shown below.
*Determine the average rate of return on the equipment. If required, round to the nearest whole percent.
Cost per unit: Direct labor $41.00 Direct materials 159.00 Factory overhead (including depreciation) 26.75 Total cost per unit $226.75Explanation / Answer
Pocket Pilot Inc Details Amt $ Equipment cost 460,400 Less Salvage value 34,600 Depreciable value 425,800 Useful life= 8 years SL depreciation per year= 53,225 Yearly sales of units 4,500 Depreciation per unit 11.83 Unit Sales price 246.00 Less Units cost 226.75 Less Unit depreciation= (11.83) Unit Cash cost 214.92 Income (Cash )per unit= $ 31.08 Units sold in a years 4,500 Total Cash Income per year 139,850 So Return in a year= 139,850 Equipment Investment= 460,400 Average Rate of return=139850/460400= 30.38%
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