Question

Automated Paving Stone Installer (APSI) Projections A new factory is needed to manufacture the APSI. The facility can produce up to 300 machines each year over the product’s 15-year life. A parcel of land worth $400,000 will be purchased, and a building constructed for $1,800,000. Equipment costing $3,500,000 is also be required. At the end of the project’s life, it is estimated the land can be sold for $780,000, while the building will have a residual value of $620,000 and the equipment’s residual value will be negligible (i.e., zero). Building and equipment costs are subject to CCA rates of 4.0% and 20.0% respectfully. An investment of $370,000 in net working capital is needed to support production that will be liquidated at the end of the product’s life. APSI sales are forecasted to be 100 units in the first year, 150 in the second year, 200 in the third year, 250 in the fourth year, and then reach factory capacity of 300 units in the fifth year. The product’s list price is $350,000 and its unit cost is $340,000, which includes direct materials, direct labour and factory overhead. Incremental selling and administration costs to support the business will be $1,600,000 . Existing corporate overhead of $230,000 per year will be allocated to the product as per company policy. Factory equipment will be overhauled at a cost of $1,500,000 at the end of year 8.

Answer 1

This question is about the costs and projections involved in setting up and operating an Automated Paving Stone Installer (APSI) factory, and it also mentions the concept of economies of scale.

Step-by-step explanation:

The subject of this question is Business. The question is about the costs and projections involved in setting up and operating an Automated Paving Stone Installer (APSI) factory. It includes information about the cost of land, building, equipment, labor, sales projections, and other expenses. The question also mentions the concept of economies of scale.

To calculate the total cost of the project, you need to analyze the costs and revenues for each year of the project's life. This includes the costs of land, building, and equipment, as well as labor costs, selling and administration costs, and the investment in net working capital. You should also consider the projected sales volume and calculate the revenues based on the unit price and unit cost of the APSI. The concept of economies of scale can be applied to analyze the cost of production and the optimal output level for the factory.

Overall, this question involves various financial calculations and analysis related to setting up and operating a manufacturing facility, making it a suitable topic for a college-level Business course.