Bridgeport Fashions needs to replace a beltloop attacher that
currently costs the company $34,000 in annual cash operating costs.
This machine is of no use to another company, but it could be sold
as scrap for $2,160. Managers have identified a potential
replacement machine, Euromat’s Model HD-435.
The HD-435 is priced at $64,104 and would cost Bridgeport Fashions $24,000 in annual cash operating costs. The machine has a useful life of 12 years, and it is not expected to have any salvage value at the end of that time.
(d) Calculate the accounting rate of return on
the HD-435. (Round answer to 2 decimal places, e.g.
Ans (d). Calculation of Accounting rate of return on the HD-435
ARR = Average net profit/Average net investment
Step:1 Calulation of Average net investment
Cost of HD-435 = 64104
Less: Scrap value Beltloop Attacher = (2160)
Net cost of HD-435 = 61944
Step: 2 Calculation of net saving
Annual operating cost of Beltloop attacher = 34000
Less: annual cost HD-435 = (24000)
Net saving = 10000
Accounting rate of Return = 10000/61944X100 = 16.14%
Get Answers For Free
Most questions answered within 1 hours.