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as outdated and the net of salvage, its present amount has gone down to $500,000.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