Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Crafty Tools manufactures an electric motor that is uses in several of its products. Management is considering whether to continue manufacturing the motors or to buy them from an outside source. This is the following information that is available.

1-The company needs 10,000 motors per year. The motors can be purchased from an outside supplier at a cost of $20 per unit.
2-The unit cost of manufacturing the motors is $42 computed as follows:

Direct materials $96,000
Direct labor 120,000
Factory overhead:
Variable 90,000
Fixed 114,000
Total manufacturing costs $420,000
Cost per unit ($420,000 divided 10,000 units) $42

3-Discontinuing the manufacture of motors will eliminate all the raw materials and direct labor costs but will eliminate only 75% of the variable factory overhead costs.
4-If the motors are purchased from an outside source machinery used in the production of motors will be sold at its book value. Accordingly no gain or loss will be recognized. The sale of this machinery will also eliminate $4,000 in fixed costs associated with depreciation and taxes. No other reductions in fixed factory overhead will result from discontinuing the production of motors.

Now this is where I need the help:
A.  Prepare a schedule to determine the incremental cost or benefit of buying the motors from the outside supplier. Would you recommend that the company manufacture the motors or buy them from the outside source?

B. Assume that if the motors are purchased from the outside source the factory space previously used to produce motors can be used to manufacture an additional 7,000 power trimmers per year. Power trimmers have an estimated contribution margin of $10 per unit. The manufacturer of the additional power trimmers would have no effect on fixed factory overhead. Would this new assumption change your recommendation as to whether to make or buy the motors? In support of your conclusion prepare a schedule showing the incremental cost or benefit of buying the motors from the outside source and using the factory space to produce additional power trimmers.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M926068

Have any Question? 


Related Questions in Basic Finance

Q1 what is the market value of the following bondcoupon

Q1. What is the market value of the following bond? Coupon 8% Maturity date 2038 Interest paid semiannually Par Value $1000 Market interest rate 10% Q2. What is the market value of the following bond? Coupon 9% Maturity ...

1 in addition to the key words you should also be able to

1. In addition to the key words, you should also be able to define the following terms: statistical significance, or statistically significant practical significance or clinical significance 2. Describe the similarity be ...

Strabler motorcycle company is evaluating a project in

Strabler Motorcycle Company is evaluating a project in which there is a 40 percent probability of revenues totaling $3,000,000 and a 60 percent probability of revenues totaling $1,000,000. Its cash expenses will be $1,00 ...

After reading concept four write a 2-4 page paper

After reading Concept Four, write a 2-4 page paper discussing the issues and outcomes of Alpha Health Systems (AHS), giving a brief overview of its initial implementation of a corporate finance-based capital allocation p ...

To analyze various retirement-planning options check out

To analyze various retirement-planning options, check out the financial calculator at Bloomberg (http://www.bloomberg.com). Determine the effect of waiting versus immediate planning for retirement. What is the effect of ...

Explain how a protective put is like purchasing insurance

Explain how a protective put is like purchasing insurance on a stock ? Why is choosing an exercise price on a protective put like deciding which deductible to take on an insurance policy? Discuss and compare the two bull ...

Suppose your firm had issued a 12 percent annual coupon

Suppose your firm had issued a 12 percent annual coupon, 15-year bond, callable at par at the 8th year. It is now two years later, so the bonds are not callable for another 6 years. At this time, new bonds could be issue ...

Practice sentence variety-rewrite the following paragraph

Practice sentence variety:- Rewrite the following paragraph by varying sentence types and sentence lengths to keep the writing interesting. Smartfood was founded by Ann Withey, Andrew Martin, and Ken Meyers in 1984. The ...

Test the hypothesis using the classical approach and the

Test the hypothesis using the classical approach and the P-value approach. H0: p = 0.45 versus H1: p n = 150, x = 62, α = 0.05 (a) Perform the test using the P-value approach. P-value = ______ (Round to four decimal plac ...

The cash conversion cycle is an important tool for the

The cash conversion cycle is an important tool for the financial manager in managing day-to-day operations of the firm. As an investor, knowing how the firm manages its CCC would provide useful insights about management' ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen