COST management

Better Essays
Cost Management and Analysis (22753)
Energy Efficiency Initiative

Executive summary
Introduction
This report is an evaluation and recommendation for CSR about an investment in new forklifts in order to replace the100 old diesel forklifts (3.5 tonnes,TCM) mainly used indoors at the group’s plants and distributions sites. There are three alternatives which best meets CSR’s needs; the gas, the electrical and the bio-diesel.
The three alternatives in the capital expenditure proposal fall under scope 1 and 2 of the Clean Energy Act 2011. The carbon emissions for the gas and bio-diesel option are taxed at $23 per tonne of CO2 and index annually whilst the battery option is taxed at 10% of electricity cost. Each proposed forklift decreases incremental carbon emissions by between 1,965 and 3,500 tonnes per year.
Sensitivity analysis compared the options against variances in inflation of costs at 2%, 7% and 10%. This analysis showed that the available options are not sensitive to cost changes. NPV and IRR remains’ positive for all options of sensitivity analysis. Table 1. Sensitivity analysis
(000 's)
2% (-2%)
4%
7% (+3%)
10% (6%)

NPV
IRR
NPV
IRR
NPV
IRR
NPV
IRR
Gas
$3,302.70
34%
$3,772.49
35%
$4,577.42
38%
$5,521.53
40%
Battery
$2,574.25
28%
$3,004.41
30%
$2,574.25
32%
$4,605.90
35%
Bio Diesel
$2,812.34
29%
$3,249.17
31%
$3,997.59
33%
$4,875.44
36%

The key findings are that when using the NPV model to evaluate the future benefits of the capital investment and the cash flows, all three alternatives were positive and the gas forklift had the best NPV at $3.2m at 4% inflation rate (Table 1). This was also confirmed when using the IRR model with discount rate at 12.5% all alternatives exceeded the discount rate, and the gas forklift had the highest IRR at 35% (Table 1). This project has also an effect on CSR’s CO2 emission, with new fuel types they will decrease the group’s share of emissions.
The three forklift



References: Commlaw 2011, Clean Energy Act 2011, viewed 12 May 2013 CSR 2012, Sustainability Report 2012, viewed 10 May 2013, TCM 2013a, FB 35-7, FB-VII Series – Electric Forklift Truck, viewed 10 May 2013, < http://www.tcmforklifts.com.au/files/product_categories_files/TCM_FB35-76379007.pdf> TCM 2013b, FD359T, NTP Forklifts Australia, viewed 10 May 2013, TCM 2013c, FG35T9, TCM Advanced Mechanical and Operational Functions Engine Powered “Forklift Trucks”, viewed 10 May 2013,

You May Also Find These Documents Helpful

  • Good Essays

    Cost Management

    • 1250 Words
    • 5 Pages

    Street Journal. Cost Management and Strategy – refer to your assigned questions and problems Cost Drivers and Basic Cost Concepts -- What is a cost? Define cost pools. What is a cost object? cost assignment? Contrast a direct cost with an indirect cost. Define cost allocation. What is an allocation base? Contrast cost assignment with cost allocation. What is a direct material? Direct labor? Indirect material? Indirect labor? factory overhead? What are conversion costs? Prime costs? What are the…

    • 1250 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    Cost Management

    • 332 Words
    • 1 Page

    Name: Course: Tutor: Date: Answers to the questions: 1. In my opinion, the firm should not close its domestic operations due to the tremendous difference in wage rates. Because total costs include not only the cost of labor. Production at the firm's foreign subsidiary has many advantages. The cost to transport products to the firm's distribution center is cheaper than at the domestic plant in eighteen times. Internal company has a lower the price of cotton fabrics and much more productivity of products…

    • 332 Words
    • 1 Page
    Satisfactory Essays
  • Satisfactory Essays

    Cost Management

    • 2009 Words
    • 9 Pages

    | | | |Assignment : Managing Cost and making financial interpretations for decision | |…

    • 2009 Words
    • 9 Pages
    Satisfactory Essays
  • Good Essays

    Cost Management

    • 3503 Words
    • 15 Pages

    2/27/13 What Killed Michael Porter's Monitor Group? The One Force That Really Matters - Forbes Steve Denning, Contributor R ADIC AL MANAGEMENT: R e think ing le ade rship and innovation L EA D ER S H I P | 11/20/2012 @ 10:52AM | 168,820 vie ws What Killed Michael Porter's Monitor Group? The One Force That Really Matters What killed the Monitor Group, the consulting firm co-founded by the legendary business guru, Michael Porter? In November 2012, Monitor was unable to pay its bills…

    • 3503 Words
    • 15 Pages
    Good Essays
  • Powerful Essays

    Cost Management

    • 2519 Words
    • 11 Pages

    , Rose Perez, noticed that while small retail customers flocked to the bank, the number of business customers was declined. Columbia City Bank’s costing system, develop back in 1988, is straightforward. No costs are traced directly to customers. The bank simply assigns the total indirect costs to customer lines (retail customer line or business customer line) based on the total number of checks processed. The definition of a retail customer is basically any customer other than an institutional customer…

    • 2519 Words
    • 11 Pages
    Powerful Essays
  • Satisfactory Essays

    Cost Management

    • 302 Words
    • 2 Pages

    calculation. B. The first financial model was not useful because it did not separate fixed and variable cost. That means a CVP analysis cannot be done. It separated costs into manufacturing and cost of goods sold which is not as useful as knowing which costs are fixed or variable. C. If I were going to invest in RBC, I would make sure the sales mix is accurate. It is important because the variable cost of beer is only 15% of the beer sales while food and other is 33% and 35% respectively. If food sales…

    • 302 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Cost Management or Cost Control In broad sense, both the terms have the same meaning. Yet cost management seems to connote broader perspective. Cost control to an un-initiated may mean cutting down the incurrence of cost or expenditure every time or in every situation. In reality it is not always so. In many specific situations, many times, one has to spend or incur cost in order to gain or make more money. It is in fact like an investment. Cost management sounds better then. Profits Making…

    • 431 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Cost Management

    • 313 Words
    • 2 Pages

    Hi Students, I would like you to study this problem and the solution to help in the preparation of your case study question on cost classification. Keith PRACTICE PROBLEM AND SOLUTION Given the following, prepare manufacturing statement and partial income statement. Raw materials inventory 1/1/05 8,000 Raw materials inventory 12/31/05 5,000 Work in process inventory 1/1/05 2,000 Work in process inventory 12/31/05 3,000 Finished goods inventory 1/1/05 15,000 Finished goods inventory…

    • 313 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    (2003) 667–676 www.cleanerproduction.net The use of Environmental Management Accounting (EMA) for identifying environmental costs Christine Jasch ∗ ¨ Institute for Environmental Management and Economics, IOW, Rechte Wienzeile 1915, A-1040 Vienna, Austria Received 28 August 2001; accepted 27 June 2002 Abstract The Expert Working Group on “Improving the Role of Government in the Promotion of Environmental Management Accounting (EMA)” was set up by the United Nations Division for Sustainable…

    • 5824 Words
    • 24 Pages
    Powerful Essays
  • Good Essays

    Target Cost Management

    • 1136 Words
    • 5 Pages

    Article Review: Target Cost Management An article by Louise Ross puts target costing in effect with agricultural and the farming industry, explaining how this system may already be partially in use. Louise Ross provides evidence of the advantages and disadvantages of target costing within the food supply chain. According to Ross, participants in the food supply chain were already using some form of target cost management, but the system was not formalized into specific aspects. Ross (2008)…

    • 1136 Words
    • 5 Pages
    Good Essays