make and b, The Rohr Company’s old equipment for making subassemblies is worn out. The, Managerial Accounting

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

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages

make and b, Managerial Accounting

Related Discussions:- make and b

Managerial Accounting for managers, how much is this service?

Estimating working capital requirements, The most ticklish difficulty that ...

Budget, advantage and disadvantage of incremental budget

Major features of jit, Major features of JIT (1) Elimination of non-val...

Annual cash flows over the expected life of the equipment, The production d...

MATERIAL ACCOUNTING, HOW TO CALCULATE MATERIAL ACCOUNTING

Cost management, Calculate the charges for single and double rooms assuming...

When to order-material control, When to order-Material control If deliv...

International management challenges of globalization., what is the topic ab...

Capital asset pricing model, Cascade Water Company (CWC) currently has 30 0...

Write Your Message!

Featured Services

Online Tutoring

Project Development

Exam Preparation

Course Help

Assignment Help

Popular Subjects

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT