Advanced management accounting questions [pin it]

Advanced Management Accounting Questions

Question 1)

There is a company called Walmart, and it deals with machining work that is

conventional. A variety of machines are used within the company, and these machines

are frequently restored and changed.

George Bush is the manager of this factory, and he has given permission to acquire an

automated machine from Machine Ltd. at a price of $2,000,000. Recently, the new

automated machine was set up. It is believed that this new machine will last for 10 years

and this new machine will incur operating costs of $700,000 (on a yearly basis). By the

end of the 10 years, the machine will be useless.

George Bush’s salary is $75,000 and he also obtains ½ of 1% of the corporate net income

as his yearly bonus. Brad thinks he will stay with Walmart for an additional 2 years.

Afterwards, he believes that by moving to a different company he will obtain a hefty

salary increase and a promotion.

Super Machine Ltd. (another company) is offering a new machine. This machine

executes the same jobs as the new machine from Machine Ltd. George Bush has his

reservations about this new growth. The machine at Super Machine Ltd. costs $2,500,000

and has the capability of lasting for 10 years. The yearly operating costs are $300,000 and

after 10 years the machine will have a nil salvage value. It has caused Walmart’s machine

as outdated and the net of salvage, its present amount has gone down to $500,000.

Based on the following questions, ignore income taxes and make the assumption that the

company’s compulsory return is 14%. In order to calculate the depreciation, this

company uses the straight-line method.

a) From the company’s view point, what is the best conclusion?

b) What do you think is George Bush’s desired conclusion? Make sure to include the

computations of income.

c) By incorporating short-run financial methods of accomplishment as incentives for

rewards, what do you think would be the motivation difficulties?

d) How can the discrepancies in parts (a) and (b), and the motivation difficulties in

part (c) be diminished?

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