processing plant consumed 600,000 kwh of electric energy annually and pays an average of ₱2.00 per kwh. A study is being made to generate its own power to supply the plant the energy required, and that the power plant installed would cost ₱2,000,000. Annual operation and maintenance, ₱800,000. Other expenses, ₱100,000 per year. Life of power plant is 15 years; salvage value at the end of life is ₱200,000; annual taxes and insurance, 6% of first cost; and rate of interest is 15%. Using the sinking fund method for depreciation, determine if the power plant is justifiable?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.