Financial resources and decisions Essay Example | Topics and Well Written Essays - 2500 words

Financial resources and decisions - Essay Example After utilizing the three capital budgeting techniques, I strongly recommend project A as it generates a higher annual rate of return on average investment, shortest payback period, and higher net present value. Task 2. The following table shows the computed unit costs of products A, B, and C. It should be noted that to ensure accuracy, Microsoft Excel Spreadsheet is employed in calculation. The overheads are allocated according to machine hours in the case of machining department, and labor hours in the pressing and cutting department. The overhead rates are computed as follows: 1. For machining overhead costs, the total amount of overhead costs is computed and is divided with the total machine hours; 2. For cutting, the total overhead allocated to cutting is divided by the total number of labour hours both skilled and unskilled; 3. For pressing, the total overhead allocated to pressing is divided by the total number of labour hours used. Thus, machining has an overhead rate of 2.33/ machine hour, cutting has an overhead rate of 1.83 labor hour, and pressing has an overhead rate of 1.42/labor hour. For the services department, these are the cost allocations: The overhead costs for the services departments are allocated based on machine and labor hours computed above. For example, the overhead rate for cutting is allocated by dividing the total costs for cutting by the total number of skilled and unskilled labor hours for cutting. The following are the computed overhead rates for the engineering department: while the following are the computed overhead rates for the personnel department: It should be noted that in the case of personnel department costs allocated to the engineering department and vice versa is computed by...However, this technique disregards the additional cash flow which can be recouped from the project as it only focuses on the time when the whole investment will be recovered. The Net Present Value (NPV) analysis is very much different from the other two techniques discussed as it takes into account the time value of money. This method recognizes that the value of a pound today is greater than its expected value tomorrow. This technique is favored by more economists and managers because it is more realistic. It also takes into account the total cash flow from the investment including the depreciation and the tax shield from it. After utilizing the three capital budgeting techniques, I strongly recommend project A as it generates a higher annual rate of return on average investment, shortest payback period, and higher net present value. The overhead costs for the services departments are allocated based on machine and labor hours computed above. For example, the overhead rate for cutting is allocated by dividing the total costs for cutting by the total number of skilled and unskilled labor hours for cutting. It should be noted that in the case of personnel department costs allocated to the engineering department and vice versa is computed by dividing the total cost to the total number of units produced for each product. Price sett