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

Impulse-momentum theorem, Impulse and Momentum Theorem   Impulse is known...

Impulse and Momentum Theorem   Impulse is known as the change in momentum of any object:  j  = Δ p   Momentum  is a product of the mass & the velocity of an object, and is a v

Source of economic growth and development, Question 1: (a) Describe the...

Question 1: (a) Describe the factors that contributed to the adoption of structural adjustment programme by a majority of Least Developed Countries in the 1980s? (b) Describ

Operational research, what is the defination of model in operational resea...

what is the defination of model in operational research?

N345, An HIV educator wishes to determine whether the method of delivering ...

An HIV educator wishes to determine whether the method of delivering teaching influences adherence with antiretroviral therapy. She decides to measure adherence as viral load (a r

Index numbers, discuss the considerations to be borne in mind when construc...

discuss the considerations to be borne in mind when constructing index numbers

Probability, A coin was flipped twenty times and landed on heads fifteen ti...

A coin was flipped twenty times and landed on heads fifteen times. If the coin was balanced fair what is the probability of a head on the next toss

Limitation of the financial accounting, Limitation of the Financial Account...

Limitation of the Financial Accounting. There much limitation can be considered in case of the Financial Accounting but here we are discussing the main two limitations  It re

Time series, discuss the nature and causes of the components of an economic...

discuss the nature and causes of the components of an economic time series?

Time series, what are the uses of time series

what are the uses of time series

Audit, hi i need help for an auditing assignment

hi i need help for an auditing assignment

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