Capital Budget Recommendation


Capital Budget Recommendation
Shantane Gaines
ACC 543/Managerial Accounting and Legal Aspects of Business
University of Phoenix
May 18, 2009
Capital Budget Recommendation
      Guillermo Furniture is a company that manufactures mid-grade and high-end sofas. In order to keep up with the growing economy, Mr. Guillermo has to make some production changes within his business. The job of the new accountant is to differentiate the capital budget evaluation techniques and explain how the differences help make a recommendation. After looking at the data sheets the accountant will be able to give a recommendation of the best budget evaluation that will provide the greatest return. This paper will discuss some of the analytical techniques used to evaluate major investment opportunities.
Differentiate among the various capital budget evaluation techniques.
      If Guillermo is trying to increase the company‚Äôs return; he should consider all the possible budget techniques. He could update the equipment to high tech production or he could become a chain distributor for the mid-grade products instead of a manufacturing all the furniture. If the company update to a more computerized business, the production could increase by 50 %, the direct material per unit would remain the same while the labor rate would increase. Of course, the workers would have to be more skilled and experienced to handle the new equipment which would increase the labor rate to 40 dollars per hour.   When looking at the labor rate however, the cost per hour and the amount of hours worked would still be more beneficial when upgrading to the high tech equipment. The cost to pay the technicians is 40 per hour, but the technicians will only have to work 4 hours per unit compared the current 20 hours per unit for 15 dollar per hour. The current labor cost is 300 dollars per unit. If Mr. Guillermo upgrade to high tech then the total labor cost would reduce to...