Carleton Service Center just purchased an automobile hoist for $15,000.The hoist
ID: 2358642 • Letter: C
Question
Carleton Service Center just purchased an automobile hoist for $15,000.The hoist has a 5-year life and an estimated salvage value of $1,080. Installation costs were $2,900, and freight charges were $820. Carleton uses straight-line depreciation. The new hoist will be used to replace mufflers and tires on automobiles. Carleton estimates that the new hoist will enable his mechanics to replace four extra mufflers per week. Each muffler sells for $65 installed. The cost of a muffler is $35, and the labor cost to install a muffler is $10. Compute the payback period for the new hoist. (Round to 1 decimal place, e.g. 5.1.) Compute the annual rate of return for the new hoist. (Round to 1 decimal place, e.g. 5.1.)Explanation / Answer
Net Income = Revenues - Expenses So take $78 and multiply by how ever many mufflers you sell in that year to get your total revenue (assuming mufflers are the only source of revenue) Subtract from that $48/muffler, depreciation expense on the hoist ($2975.6/year), installation costs ($2948) and freight charges ($897) and you get Net Income for the year in which the hoist was purchased. Other years are the same except you wouldnt have the installation or freight charges because those are single occurrence items...you dont ship&install the same hoist every year.