Answered: Determine cash flows Kauai Tools Inc.…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4E: Determine cash flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make...

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Determine cash flows

Kauai Tools Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 20,000 units at $10 each. The new manufacturing equipment will cost $150,000 and is expected to have a 10-year life and a $30,000 residual value. Selling expenses related to the new product are expected to be 2% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:

Line Item Description	Cost
Direct labor	$ 2.75
Direct materials	1.80
Fixed factory overhead—depreciation	0.60
Variable factory overhead	1.15
Total	$6.30

Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar.

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