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

1 define the followinga a conditional sales contractb a

1. Define the following: a. A conditional sales contract b. A chattel mortgage 2. Under what conditions would a firm prefer the following: a. A "fixed-rate" term loan from a bank b. A "floating-rate" term loan, with the ...

M cdonalds sells hamburgers in indiain 1954 a

M cDONALD'S SELLS HAMBURGERS IN INDIA In 1954, a milkshake-mixer salesman named Ray Kroc traveled to San Bernardino, California, to see why one restaurant had ordered so many of his Multimixers. The McDonald brothers had ...

Compare and contrast the cash conversion cycles ccc of

Compare and contrast the cash conversion cycles (CCC) of Caterpillar Inc. (ticker: U:CAT), Ingersoll-Rand Company Limited (U:IR), and Terex Corp. (U:TEX). Calculate the average age of inventory (AAI), average collection ...

What are inventories briefly explain what happens to the

What are inventories? Briefly explain what happens to the level of inventories when aggregate expenditure is greater than real GDP, what happens when aggregate expenditure is less than real GDP, and what happens when agg ...

1 distinguish between a mortgage and a note2 what does it

1. Distinguish between a mortgage and a note. 2. What does it mean when a lender accelerates on a note? What is meant by forbearance? 3. Can borrowers pay off part, or all, of loans any time that they desire? 4. What doe ...

Most of this class focused on the long-term outlook of the

Most of this class focused on the long-term outlook of the firm. Given the nature of corporate financing and investment decisions, that focus on long-term operations is appropriate. In periods of rapid change where long- ...

1 what information is contained in each of the

1. What information is contained in each of the supplementary sections of the research report? 2. How are the levels of the headings of a research report determined? 3. Summarize the writing and stylistic goals that can ...

The suboptimal glass company uses a process of capital

The Suboptimal Glass Company uses a process of capital rationing in its decision making. The firm's cost of capital is 10 percent. It will only invest $77,000 this year. It has determined the internal rate of return for ...

Explain an mncs strategy of diversifying projects

Explain an MNC's strategy of diversifying projects internationally to maintain a low level of overall country risk? Do you think that a full country risk analysis can replace a capital budgeting analysis of a project in ...

Jordan bought a 4 semi annual coupon bond with 25 years to

Jordan bought a 4% semi annual coupon bond with 25 years to maturity par value at $1,000. If the required rate of return (Yield to maturity) of this bond increases to 4.25%, by how much does the value of the bond change? ...

  • 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