Management Accounting Memo()

MANAGEMENT ACCOUNTING
DECEMBER 2020
MEMORANDUM




PREPARED BY: MTHOMBENI
0767297208

, QUESTION 1



1.1 Determine the payback period in years, months and days for both systems


PAYBACK PERIOD: SYSTEM A
Initial Investment (4000000+1000000) (4 100 000)
st
1 year Cash flow 1 800 000
(2 300 000)
nd
2 year Cash flow 1 700 000
(600 000)
3rd Year Cash flow 1 600 000
1 000 000


600000/1600000X12=4 months (4.5)
0.5 X 30 = 15 Days


Pay Back Period= 2 years,4 months and 15 days


PAYBACK PERIOD: SYSTEM B
Initial Investment (3 600 000)
st
1 year Cash flow 1 500 000
(2 100 000)
nd
2 Year Cash Flow 1 500 000
(600 000)
rd
3 year Cash flow 1 500 000
900 000


600000/1500000X12=4 months (4.8)
0.8 X 30= 24 Days


Pay Back Period=2 years, 4 months and 24 days



1.2 Based on your calculations in 1.1, which system should Agro Tech Corporation consider?
Why?


System A because the Payback period is at least shorter than System B




2