Managerial accounting, accounting, Basic Statistics

Assignment Help:
The ABC 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 year 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 ABC 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 ABC 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.

THANKS YOU SO MUCH FOR YOUR HELP.

Related Discussions:- Managerial accounting, accounting

Historigram, difference between historigram and histogram

difference between historigram and histogram

Quartile Deviation, Quartile Deviation The range as a measure of dispersio...

Quartile Deviation The range as a measure of dispersion discussed above has certain limitations. It is based on two extreme items and it fails to take account of the scatter withi

Material & labour variances, standard material qty per unit- 2 kg standard ...

standard material qty per unit- 2 kg standard price per kg - 4 rs actual value of material purchased- 4000 rs closing stock- 200 kg actual usage- 2.5 kg finished stock sold- 200 u

Differences between a cash book and bank passbook, State the main reason be...

State the main reason because of which the differences between a Cash Book and Bank Passbook. Ans. The difference can be stated as follows a) Sometime cheque issued to party on t

Standard price, Stock at hand 1000 unit at #0.80 each, received 2000 units ...

Stock at hand 1000 unit at #0.80 each, received 2000 units at #1.10 each,

Compute the value for the test statistic-spss, A number of years ago the Am...

A number of years ago the American Academy of Pediatrics recommended that tetracycline drugs not be used for children under the age of 8. Prior to this recommendation, a two-year s

Need homework answers by midnight tonight, first question: Glaser Services ...

first question: Glaser Services acquired 30% of the outstanding common stock of Nickels Company on January 1, 2008, by paying $864,180 for the 48,010 shares. Nickels declared and p

Accrue definition in accounts, To history income and expenditures/expenses ...

To history income and expenditures/expenses when they connect with the identification requirements of the finance form engaged regardless of when the money action happens.

Barter system, Define the barter system with examples where payment is made...

Define the barter system with examples where payment is made in kind instead of cash. A barter system whereby the payment for purchases is made in kind instead of, in cash. i.e.

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