Costing answers

Particulars

Machine X

Machine Y

Savings In scrap

10,000

15,000

Savings in wages

90,000

1,20,000

Gross savings

1,00,000

1,35,000

Cost of maintenance

(7,000)

(11,000)

Cost of indirect material

(6,000)

(8,000)

Cost of supervision

(12,000)

(16,000)

Cash flow before tax

75,000

1,00,000

Depreciation

(30,000)

(40,000)

Profit before tax

45,000

60,000

tax @ 30%

(13,500)

(18,000)

Profit after tax

31,500

42,000

Depreciation

30,000

40,000

Cash flow after tax

61,500

82,000

PVCI:  CFAT * cum PVF

  Machine X = Rs. 61,500 * 3.79= Rs. 2,33,085

  Machine Y = Rs. 82,000 * 4.354= Rs. 3,57,028

PVCO: cost of machine * pvf

  Machine X = Rs. 1,50,000 * 1 = Rs. 1,50,000

  Machine Y = Rs. 2,40,000 * 1 =Rs. 2,40,000

NPV = PVCI - PVCO

  Machine X = 2,33,085-1,50,000 =Rs. 83,085

  Machine Y = 3,57,028-2,40,000 = Rs. 1,17,028

Advise:- A ltd should purchase machine Y , having greater NPV than machine X.