That old equipment for producing subassemblies is worn out

Assignment Help Accounting Basics

Reference no: EM13607309

"That old equipment for producing subassemblies is worn out," said Bruce Truesdale, president of Truesdale Company. "We need to make a decision quickly." The company is trying to decide whether it should rent new equipment and continue to make its subassemblies internally, or whether it should discontinue production of its subassemblies and purchase them from an outside supplier. The alternatives follow:

Alternative 1:	Rent new equipment for producing the subassemblies for $90,000 per year.
Alternative 2:	Purchase subassemblies from an outside supplier for $7 each.

Truesdale Company's current costs per unit of producing the subassemblies internally (with the old equipment) are given below. These costs are based on a current activity level of 50,000 subassemblies per year:


Direct materials	$	1.57
Direct labor		4.00
Variable overhead		0.90
Fixed overhead ($0.60 supervision, $1.10 depreciation, and $2 general company overhead)		3.70

Total cost per unit	$	10.17

The new equipment would be more efficient and, according to the manufacturer, would reduce direct labor costs and variable overhead costs by 30%. Supervision cost ($30,000 per year) and direct materials cost per unit would not be affected by the new equipment. The new equipment's capacity would be 90,000 subassemblies per year.

The total general company overhead would be unaffected by this decision.

A.	What will be the total relevant cost of 60,000 subassemblies if they are manufactured internally? (Do not round intermediate calculations.)

Total relevant cost (60,000 subassemblies)

B.	What would be the per unit cost of subassembly? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Per unit cost of subassembly

C.	What will be the total relevant cost of 50,000 subassemblies if they are manufactured internally as compared to being purchased? (Do not round intermediate calculations.)

Total relevant cost (50,000 subassemblies)

D.	What would be the per unit cost of the each subassembly manufactured internally? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Per unit cost of subassembly

Reference no: EM13607309

Questions Cloud

An air-spaced fabry-perot interferometer has mirror : an air-spaced fabry-perot interferometer has mirror spacing 0.15 mm and mirror reflectivity r 0.99. it is used to

The mean score of the first calculus exam was 81 the : the mean score of the first calculus exam was 81. the standard deviation was 12. find the smallest interval about the

A water pump pumps out 2400kg of water pr min a if water : a water pump pumps out 2400kg of water pr min. a if water coming out with a velocity of 3ms what is power of the pump?

A gaas diode laser has a cavity formed by the fresnel : a gaas diode laser has a cavity formed by the fresnel reflections from the end facets of the gaas chip which is 0.8 mm

That old equipment for producing subassemblies is worn out : that old equipment for producing subassemblies is worn out said bruce truesdale president of truesdale company. we need

The variability in the value of a statistic from sample to : the variability in the value of a statistic from sample to sample is known as?characteristics of a sample are known

In a holography setup such as that of fig 15-5 the : in a holography setup such as that of fig. 15-5 the distance and the distance . what must be the frequency width of

A write down the sample space for this experiment b find : suppose we watch the price of the dow jones industrial index for three days.assume there is a 6040 chance that the

Cereal is sold by weight not volume this introduces : cereal is sold by weight not volume. this introduces variability in the volume due to settling. as such the height to

User Account

All Pages