Management accounting, accounting, Basic Statistics

Assignment Help:
The Rohr Company''s old equipment for making subassemblies is worn out. The company is considering two alternatives: a) Completely replacing the old equipment with new equipment
b) Buying sub-assemblies from a reliable outside supplier, who has quoted a unit price of 1$ on a seven-year contract for a minimum of 50 000 units per year.
Production was 60 000 units in each of the past two years. Future needs for the next seven years are not expected to fluctuate outside the range of 50 000 to 70 000 units per year. Cost records for the past two years reveal the following unit costs of manufacturing the sub-assembly:
Direct material 0.30$
Direct labour 0.35$
Variable overhead 0.10$
Fixed overhead 0.25$
Total Unit Cost 1$

The fixed overhead includes 0.10$ depreciation and 0.10 for direct departmental fixed overhead. The new equipment will cost 188 000$ and is expected to last seven years, at the end of which is estimated to have a disposal value of 20 000$. The current disposal value of the old equipment is 10 000$.
The sale representative for the new equipment has indicated that the increase in machine speeds will reduce the total of direct labour and variable overhead by 0.35$ per unit. Consider last year''s experience of one of your major competitors with identical equipment. They produced 100 000 units under operating conditions cap arable to yours and showed the following unit cost:
Direct material 0.30$
Direct labour 0.05$
Variable overhead 0.05$
Depreciation 0.24$
Other fixed overhead 0.16$
Total Unit Cost 0.80$
You have established that any idle facilities could not be put to alternative use, and that 0.05$ per unit of the old Rohr unit cost is allocated fixed overhead that will be unaffected by the decision.
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 change if the needs were at either end of the relevant range (50 000 units and 70 000 units) Demonstrate at what volume level Rohr would be indifferent between making and outsourcing sub-assemblies.
3) What factors, other than the preceding ones, should you bring to the attention of management to assist them in making their decision? Include the considerations that might be applied to the outside supplier.

Related Discussions:- Management accounting, accounting

Violence in the Media, I need help on writing a paper about this title

I need help on writing a paper about this title

Pivot table, The Pivot table is as below: Values ...

The Pivot table is as below: Values Row Labels Sum of ID Sum of Risk Level A 69

Examine group profiles and report the descriptive statistic, Use your data ...

Use your data to perform the following tasks. 1.  Based on the variables, construct a design that consists only main effects of one categorical IV and at least two continuous DV

Help, How many different license plate of 5 digits can be made if the most ...

How many different license plate of 5 digits can be made if the most let digit is 4 and the second digit from left is an odd number

Demonstrate the potential risk from financing in eurodollars, You have the ...

You have the following information about rates in London for Eurocurrency loans of one-year duration, the exchange rate between the USD and euros, the currency in which you want fi

Identification of critical data elements, Check numbers for No Neighboring ...

Check numbers for No Neighboring States with Video Gaming, 2% inflation, 4 Average Bets Numbers for 2018 Average Return -0.082 Net Income -$2,052,859 End of Year Cash $5,0

Variance analysis , Terry Co. manufactures a commercial solvent that is use...

Terry Co. manufactures a commercial solvent that is used for industrial maintenance. This solvent is sold by the drum and generally has a stable selling price. Due to a decrease in

Anova, How to interpret Anova

How to interpret Anova

How will the adoption of ifrs change financial reporting, How will the adop...

How will the adoption of IFRS change financial reporting by companies? Manager 1: The new rules will definitely change the way our organization prepares financial statements.

Write Your Message!

Captcha
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!

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