00:01
Hello students, let us solve the problem.
00:02
A company plans to manufacture a product and sell for $3 per unit.
00:07
Equipment to manufacture the product will be $250 ,000 and we have a salvage value of $12 ,000 at the end of estimated economic life of 15 years.
00:18
The equipment can manufacture up to 2 million units per year.
00:22
Direct labor cost will be $0 .25 per unit.
00:25
Direct material cost is $0 .85 per unit.
00:29
Variable administrative and selling expenses is $0 .25 per unit.
00:34
A fixed overhead cost is $200 ,000 not including a depreciation.
00:39
If straight line method depreciation is used, what is the number of units that company must manufacture and sell to yard before tax profit of 20 %? so, this is our question.
00:50
Let us start doing the solution for this.
00:52
The equivalent annual equipment cost and fixed cost will be equivalent annual equipment cost and fixed cost will be, so the equipment initial cost is initial cost is $250 ,000 and salvage value will be $12 ,000.
01:33
Useful period is, that is a small n which is 15 years.
01:42
Interest rate 20%, so which is 20 divided by 100 which gives us 0 .20.
01:52
Fixed cost is $200 ,000.
01:56
So, the equivalent uniform annual cost of any cost represent the equal installment amount which is expected to occur every year based on the given interest rate to achieve the total cost.
02:08
So, to calculate uaac, you can calculate by using this formula.
02:15
So, that is a is equal to p into a divided by p i, that is p into i 1 plus i to the power n divided by 1 plus to the power n minus 1.
02:34
That is f is equal to i divided by 1 plus i to the power n minus 1.
02:46
So, where the values will be 250 ,000 0 .20 1 plus 0 .20 to the power 15 divided by 1 plus 0 .20 to the power 15 minus 1 which gives us 53 ,470 .53 dollars...