Marginal cost-benefit analysis and the goal of the firm Ken Allen, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $566,000 (in today's dollars) over the next 5 years. The existing robotics would produce benefits of $357,000 (also in today's dollars) over that same time period. An initial cash investment of $226,400 would be required to install the new equipment. The manager estimates that the existing robotics be sold for $56,000. Show how Ken will apply marginal cost-benefit analysis techniques to determine the following: a. The marginal benefits of the proposed new robotics. b. The marginal cost of the proposed new robotics. c. The net benefit of the proposed new robotics. d. What should Ken recommend that the company do? Why? e. What factors besides the costs and benefits should be considered before the final decision is made? a. The marginal (added) benefits of the proposed new robotics is $ . (Round to the nearest dollar.) b. The marginal (added) cost of the proposed new robotics is $ . (Round to the nearest dollar.) c. The net benefit of the proposed new robotics is $ (Round to the nearest dollar.) d. Ken Allen should recommend the company (Select the best answer below.) to not replace the existing robotics because the net profit is positive. to replace the existing robotics because the net profit is positive
Marginal cost-benefit analysis and the goal of the firm Ken Allen, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $566,000 (in today's dollars) over the next 5 years. The existing robotics would produce benefits of $357,000 (also in today's dollars) over that same time period. An initial cash investment of $226,400 would be required to install the new equipment. The manager estimates that the existing robotics be sold for $56,000. Show how Ken will apply marginal cost-benefit analysis techniques to determine the following: a. The marginal benefits of the proposed new robotics. b. The marginal cost of the proposed new robotics. c. The net benefit of the proposed new robotics. d. What should Ken recommend that the company do? Why? e. What factors besides the costs and benefits should be considered before the final decision is made? a. The marginal (added) benefits of the proposed new robotics is $ . (Round to the nearest dollar.) b. The marginal (added) cost of the proposed new robotics is $ . (Round to the nearest dollar.) c. The net benefit of the proposed new robotics is $ (Round to the nearest dollar.) d. Ken Allen should recommend the company (Select the best answer below.) to not replace the existing robotics because the net profit is positive. to replace the existing robotics because the net profit is positive
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1mM
Related questions
Concept explainers
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Question
Transcribed Image Text:Marginal cost-benefit analysis and the goal of the firm Ken Allen, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division
believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $566,000 (in today's dollars) over the next 5 years. The existing robotics would produce benefits of
$357,000 (also in today's dollars) over that same time period. An initial cash investment of $226,400 would be required to install the new equipment. The manager estimates that the existing robotics
be sold for $56,000. Show how Ken will apply marginal cost-benefit analysis techniques to determine the following:
a. The marginal benefits of the proposed new robotics.
b. The marginal cost of the proposed new robotics.
c. The net benefit of the proposed new robotics.
d. What should Ken recommend that the company do? Why?
e. What factors besides the costs and benefits should be considered before the final decision is made?
a. The marginal (added) benefits of the proposed new robotics is $ . (Round to the nearest dollar.)
b. The marginal (added) cost of the proposed new robotics is $ . (Round to the nearest dollar.)
c. The net benefit of the proposed new robotics is $
(Round to the nearest dollar.)
d. Ken Allen should recommend the company (Select the best answer below.)
to not replace the existing robotics because the net profit is positive.
to replace the existing robotics because the net profit is positive
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College