Reference no: EM131296129
Nautical Creations is one of the largest producers of miniature ships in a bottle. An especially complex part of one of the ships needs special production equipment that is not useful for other products. The company purchased this equipment early in 2012 for $200,000. It is now early in 2016, and the manager of the Model Ships Division, Jeri Finley, is thinking about purchasing new equipment to make this part. The current equipment will last for six more years with zero disposal value at that time. It can be sold immediately for $30,000. The following are last year's per-unit manufacturing costs, when production was 8,000 ships:
Direct Materials $3.60
Direct Labor 3.65
Variable Overhead 1.85
Fixed Overhead 4.70
Total Unit Cost $13.80
The cost of the new equipment is $145,000. It has a six year useful life with an estimated disposal value at that time of $30,000. The sales representative selling the new equipment stated, "The new equipment will allow direct labor and variable overhead to be reduced by a total of $2.20 per unit." Finley thinks this estimate is accurate, but also knows that a higher quality of direct material will be necessary with the new equipment, costing $0.25 more per unit. Fixed overhead costs will decrease by $4,400.
Finley expects production to increase to 8,500 ships in each of the next six years. Assume a discount rate of 5%.
1. What is the difference in net present values if Nautical Creations buys the new equipment instead of keeping their current equipment?
A basic assumption of the cost-volume-profit model
: A basic assumption of the cost-volume-profit model is that
|
The best way to reduce operating leverage is to
: The best way to reduce operating leverage is to
|
Operating leverage is best described
: Operating leverage is best described as
|
Using the high-low method based on total expected miles
: Really Fast Delivery Services has the collected the following information about operating expenditures for its delivery truck fleet for the past five years: Year Miles Operating Costs 2009 110,000 $390,000 2010 140,000 $420,000 2011 100,000 $360,000 ..
|
The ships needs special production equipment
: Nautical Creations is one of the largest producers of miniature ships in a bottle. An especially complex part of one of the ships needs special production equipment that is not useful for other products. The company purchased this equipment early in ..
|
About its truck fleet miles and operating costs
: The Apollo Delivery Service has the following information about its truck fleet miles and operating costs: Year Miles Operating Costs 2011 250,000 $160,000 2012 300,000 $175,000 2013 350,000 $210,000 What is the best estimate of fixed costs for fleet..
|
Possible strategic positions leading to business success
: Module 13 lists M Porter's three possible strategic positions leading to business success. You own a start-up company that manufactures and sells organic dog food. Explain how these three positions would look with respect to your company. Two sentenc..
|
Air scrubbers required by the epa for life of the facility
: A company must select between two air scrubbers required by the EPA for the life of the facility. Scrubber A has an initial cost of dollar 150,000 also costs dollar 12,000 per year to operate, and has a salvage value of dollar 15,000. Scrubber B has ..
|
Prepare the journal entry to record the impairment
: On January 1, 2010, Company purchased a factory for $180,000 and machinery for $1 million. It is depreciating the factory over 30 years and the machinery over 20 years, both by the straight-line method to zero residual values. Prepare schedules to de..
|