Advanced Management Accounting Questions
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 It has caused Walmart's machine as outdated and the net of salvage, its present amount has gone down to $500,000.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?