The Brisbane Manufacturing Company produces a single model of a CD player. Each
ID: 2783718 • Letter: T
Question
The Brisbane Manufacturing Company produces a single model of a CD player. Each player is sold for $188 with a resulting contribution margin of $77 Brisbane's management is considering a change in its quality control system. Currently, Brisbane spends $40,000 a year to inspect the CD players. An average of 2,200 units turn out to be defective 1,760 of them are detected in the inspection process and are repaired for $75. If a defective CD player is not identified in the inspection process, the customer who receives it is given a full refund of the purchase price. The proposed quality control system involves the purchase of an x-ray machine for $190,000. The machine would last for five years and would have salvage value at that time of $19,000. Brisbane would also spend $580,000 immediately to train workers to better detect and repair defective units. Annual inspection costs would increase by $25,000. This new control system would reduce the number of defective units to 360 per year. 305 of these defective units would be detected and repaired at a cost of $41 per unit. Customers who still received defective players would be given a refund equal to one-and-a-fourth times the purchase price. Questions 1 & 2 [0 points; unlimited tries] 1. What is the Year 3 cash flow if Brisbane keeps using its current system? Submit Answer Tries 0/99 2. What is the Year 3 cash flow if Brisbane replaces its current system? Submit Answer Tries 0/99 Questions 3 &4 I5 points each; 5 tries each] 3. Assuming a discount rate of 8%, what is the net present value if Brisbane keeps using its current system? Submit Answer Tries 0/5 4. Assuming a discount rate of 8%, what is the net present value if Brisbane replaces its current system?Explanation / Answer
Sold price = $188 and contribution = $77
As Per Current System
Defective units = 2200 Units
Out of wich found at defective at the time of inspection is = 1760 units
Inspection Cost = $40000
Repair Cost =$ 75
If Inspection cost incurred then total Cost
1. Repair cost = $75* 1760 = $132000
2. Returned Cost = $111*440 = $48840
3. inspection Cost = $40000 = $40000
net cash flow For 1st Yrs $220840
Net Cashflow For 3 yrs = $220840*2.577 = $569104.68
If purchased machinery then Calculation of net cashflow
machinery Cost = $190000 , salvage value = $ 19000
Additional Tranning Cost = $ 580000
Inspection Cost = $ 65000
Defective cost = $305*41 = $12505
Returned Defective cost = $111
Variable cost = $77616
Net Cashflow for 3 yrs = $77616*2.577 +770000 - 19000*.794 = $200016.43+ 770000 -15082.81 =$954933.62
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