product. Two manufacturing operations are required to produce the part. Typical annual production of the part is 400,000 units. The estimated current costs are as The B Company produces a part that is used in the final assembly of its main follows: Operation1 Operation 2 Materials P240,000 180,000 Direct labor P180,000 Variable overhead 100,000 100,000 Fixed overhead (allocated) 120,000 60,000 Operation 1 can be eliminated if these parts are purchased from an outside vendor. The vendor will supply 400,000 units a year at P2.00 per unit. These parts would still have to be processed through Operation 2. The B Company would have to pay freight charges of P20,000 a year on the purchased parts. If Operation 1 is eliminated, the space can be rented for P25,000 per year. REQUIRED: 1. Should the company purchase the parts or continue making them internally? Use the total approach first. Then use the incremental analysis next.

product. Two manufacturing operations are required to produce the part. Typical annual production of the part is 400,000 units. The estimated current costs are as The B Company produces a part that is used in the final assembly of its main follows: Operation1 Operation 2 Materials P240,000 180,000 Direct labor P180,000 Variable overhead 100,000 100,000 Fixed overhead (allocated) 120,000 60,000 Operation 1 can be eliminated if these parts are purchased from an outside vendor. The vendor will supply 400,000 units a year at P2.00 per unit. These parts would still have to be processed through Operation 2. The B Company would have to pay freight charges of P20,000 a year on the purchased parts. If Operation 1 is eliminated, the space can be rented for P25,000 per year. REQUIRED: 1. Should the company purchase the parts or continue making them internally? Use the total approach first. Then use the incremental analysis next.

Name: The B Company produces a part that is used in the final assembly of i
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Description: The B Company produces a part that is used in the final assembly of its mainfollows:Operation1Operation 2MaterialsP240,000180,000Direct laborP180,000Variable overhead100,000100,000Fixed overhead (allocated)120,00060,000Operation 1 can be eliminated

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 31P: Jonfran Company manufactures three different models of paper shredders including the waste...

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Part P40 is a part used in the production of dehumidifiers at Pollock Corporation. The following costs and data relate to the production of Part P40: Number of parts produced annually Fixed costs Variable costs Total cost to produce 25,000 $44,000 $68,000 $112,000 Pollock Corporation can purchase the part from an outside supplier for $4.55 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If the company buys the part, what is the most it can spend per unit so that operating income is equal to $97,000? (Round the final answer to the nearest cent.) A. $3.00 B. $3.88 OC. $2.12 D. $1.55
Swifty's Manufacturing Company can make 100 units of a necessary component part with the following costs: Direct Materials Direct Labor Variable Overhead Fixed Overhead $117000 22000 49000 30000 If Swifty's Manufacturing Company purchases the component externally, $20000 of the fixed costs can be avoided. What is the maximum amount Swifty is willing to pay to purchase the 100 units? $218000 O $188000 $198000 $208000
Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows: Direct materials Direct labor Variable overhead Fixed overhe ad $48.00 40.00 37.00 34 00 $159.00 Total Crayola Technologies Inc. has contacted Rublum with an offer to sell 9000 of the subassemblies for $145.00 each. Rublum will eliminate $93,000 of fixed overhead if it accepts the proposal. What are the relevant costs for Rubium? $1,218,000 $831,000 $1,524,000 $885,000
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
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Shine Engine Company manufacturers Part A which is used in several of its engine models. Monthly production costs for 1,000 units are as follows: Direct materials sh. 40,000 Direct labour 10,000 Variable overhead costs 30,000 Fixed overhead costs 20,000 Total costs 100,000 It is estimated that 10% of the fixed overhead costs assigned to Part A will no longer be incurred if the company purchases Part A from the outside supplier. The company has the option of purchasing the part from an outside supplier at sh. 85 per…