User Account

All Pages

make and b, Managerial Accounting

Assignment Help:

The Rohr Company’s old equipment for making subassemblies is worn out. The company is considering two courses of action:
(a) Completely replacing the old equipment with new equipment or
(b) Buying subassemblies from a reliable outside supplier, who has quoted a unit price of $1 on a 7-year contract for a minimum of 50,000 units per year.

Production was 60,000 units in each of the past 2 years. Future needs for the next 7 years are not expected to fluctuate beyond 50,000 to 70,000 units per year. Cost records for the past 2 years reveal the following unit costs of manufacturing the subassembly:


Per Unit
Direct Materials
$0.30
Direct Labor
0.35
Variable Overhead
0.10
Fixed Overhead (including $0.10 depreciation and $0.10 for direct departmental fixed overhead)
0.25
Total Cost
$1.00



The new equipment will cost $188,000 cash, will last 7 years, and will have a disposal value of $20,000. The current disposal value of the old equipment is $10,000.
The sales representative for the new equipment has summarized her position as follows: The increase in machine speeds will reduce direct labor and variable overhead by $0.35 per unit. Consider last year’s experience of one of your major competitors with identical equipment. It produced 100,000 units under operating conditions very comparable to yours and showed the following unit costs.


Per Unit
Direct Materials
$0.30
Direct Labor
0.05
Variable Overhead
0.05
Fixed Overhead (including $0.10 depreciation and $0.10 for direct departmental fixed overhead)
0.40
Total Cost
$0.80

For purposes of this case, assume that any idle facilities cannot be put to alternative use. Also assume that $0.05 of the old Rohr unit cost is allocated fixed overhead that will be unaffected by the decision.
Required:

1. The president asks you to compare the alternatives on a total-annual-cost basis and on a per-unit basis for annual needs of 60,000 units. Which alternative seems more attractive?

2. Would your answer to number 1 change if the needs were 50,000 units? 70,000 units? At what volume level would Rohr be indifferent between making and buying subassemblies? Show your computations.

3. What factors, other than the preceding ones, should the accountant bring to the attention of management to assist them in making their decision? Include the considerations that might be applied to the outside supplier.
Posted Date: 5/17/2013 5:26:17 AM | Location : Palestinian Territory, Occupied



Your posts are moderated

Related Questions
What is the objective of performance budgeting, What is the objective of pe...
What is the objective of performance budgeting The objectives of performance budgets is to provide a closer linkage between planning and action and also to provide a common bas
Saddle point, Saddle Point The saddle point in a payoff matrix is one w...
Saddle Point The saddle point in a payoff matrix is one which is the smallest value in its row and the largest value in its column. It is also termed as equilibrium point in th
Explian national income and economic welfare, Question 1: (a) Discuss t...
Question 1: (a) Discuss the main features and problems which Mauritius has to face as a small island developing country. (b) What are the factors which have led to the f
Calculate transfer price - management control system, Calculate Transfer Pr...
Calculate Transfer Price - Management Control System? Question: Compute the Transfer Price for Product X and Y and the Standard Cost of Product Z as the intra company pricing r
Selective inventory management, Selective Inventory Management The inve...
Selective Inventory Management The inventory of an industrial firm generally comprises thousands of items with diverse prices, usage and lead time, as well as procurement and/o
Marginal returns and negative marginal returns, 1) What is the difference b...
1) What is the difference between decreasing marginal returns and negative marginal returns? 2.) "A firm in monopolistic competition maximizes its profit by producing where it
Balanced score card, Balanced Score Card This is a popular approach in ...
Balanced Score Card This is a popular approach in current management thinking which consists of a variety of indicators both financial and non-financial. The balanced scorecard
Extra shift decision, EXTRA SHIFT DECISION These decisions are concerne...
EXTRA SHIFT DECISION These decisions are concerned with whether or not a company should work for 8 hrs, 16hrs, or 24 hrs a day or week days only or weekends also. The factors
Decision making, Trinco Ltd (Trinidad & Tobago-T&T) has been negotiating a ...
Trinco Ltd (Trinidad & Tobago-T&T) has been negotiating a contract with a potential customer in Jamaica. Before the negotiations started the Jamaican company agreed to pay $10,000
Describe the limitations of management accounting, Describe the Limitations...
Describe the Limitations of management accounting: 1. Based on accounting information: the correctness and effectiveness of managerial decisions will depend upon the quality

Related Discussions:- make and b

Integer programming, Integer Programming It is a technique for solving ...

Integer Programming It is a technique for solving a linear programming model with an added constraint that the decision variables must only be non-negative integers. In the

Decision making special order, MNO Ltd produces and sells for $25 an office...

MNO Ltd produces and sells for $25 an office machine for which there is a heavy demand which the company is prevented from meeting because of a shortage of skilled labour. The dire

What are the requirements of a good budgeting system, Requirements of a goo...

Requirements of a good budgeting system Following are the requirement of a good budgeting system: 1) Budgeting process should be backed and supported by the chief executive

STANDARD COSTING AND VARIANCES, WHY VARIANCES IS INVESTIGATED UNDER STANDAR...

WHY VARIANCES IS INVESTIGATED UNDER STANDARD COSTING

Explain value added analysis and top management styles, 1. Explain Value Ad...

1. Explain Value Added Analysis along with the major factors included in Management Accounting Analysis. 2 Identify the several top management styles and define their implicatio

Chapter 3, Cretin Enterprises uses a predetermined overhead rate of $21.40 ...

Cretin Enterprises uses a predetermined overhead rate of $21.40 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $171,200 of total manufact

Amount of working capital, Number of Operating Cycles: The number of opera...

Number of Operating Cycles: The number of operating cycles in a period is determined by dividing the number of days in a year i.e.365 by the length of net operating cycle. Express

.Sale Budget, I need to complete a sale Budget; however I don''t have the s...

I need to complete a sale Budget; however I don''t have the sale price, I have the actual and Budgeted sales dollar Data0Sales Budget, and The following actual information that rel

Profi t Planning, Master budgeting Jaya Sdn. Bhd. is a wholesaler. The mana...

Master budgeting Jaya Sdn. Bhd. is a wholesaler. The management of Jaya Sdn. Bhd. has been extremely worried about the company''s cash position over the last few years. In July 201

How does that relate to the modern epidemic on obesity, Why is corn so freq...

Why is corn so frequently used in typical American foods? In what forms does it take when being part of those foods? How does that relate to the modern epidemic on obesity?

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd