Ask Question, Ask an Expert


Ask Accounting Basics Expert

The Rohr Company's old equipment for making subassemblies is worn out. The company is considering two alternatives:

a) Completely replacing old equipment with latest 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 past two years. Prospect needs for the next seven years are not anticipated 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 comprises 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 that is estimated to have a disposal value of 20 000$. The current disposal value of old equipment is 10000$.

The sale representative for the latest equipment has indicated that the raise 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 comparable to yours and showed the subsequent 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 couldn’t be put to alternative use, and that 0.05$ per unit of the old Rohr unit cost is allocated fixed overhead that will be uninfluenced by decision.

1) The president asks you to compare the alternatives on a total-annual-cost basis and on a-per-unit basis for yearly needs of 60 000 units. Which alternative appears more attractive?

2) Would your answer change if the needs were at either end of 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, must you bring to the attention of management to aid them in making their decision? Include the considerations that may be applied to outside supplier.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M91257

Have any Question? 

Related Questions in Accounting Basics

Assignmentapplication implementation of the balanced

Assignment Application: Implementation of the Balanced Scorecard APA Format Implementation of the Balanced Scorecard The term "balanced scorecard" became part of the professional accounting vernacular in the early 1990s. ...

Q1 in each of the following independent situations

Q1: In each of the following independent situations, determine how much should be included in Burton's gross estate less than 2042 as to the various life insurance policies involved. Assume that none of the policies are ...

Auditing and professional practice assignmentcase study 1

Auditing and Professional Practice Assignment Case Study 1: Consider each of the following independent situations: (a) City Ltd, a property developer, has several major projects in progress in Brisbane's central business ...

Question 1medeco bought goods for 250 on credit medeco

Question 1 Medeco bought goods for $250 on credit. Medeco returned $50 worth of goods. Terms of the sale were 2/10, n/30. If Medeco pays the amount owed within the discount period, what is the amount it should pay? A. $2 ...

This assignment will assess the following learning

This assignment will assess the following learning outcomes: - Demonstrate the impact on the financial statements and the implication for different users of accounts of alternative ways of treating controversial accounti ...

Reflectionbulldescribe and explain what you believe are the

Reflection • Describe and explain what you believe are the top three most important corporate taxation concepts you learned in this course. (Some of the topics, Enacting New Taxes, Calculating Tax Cost, Cash Method Versu ...

Required 1 provide fletchers ceo with an interactive report

Required 1. Provide Fletcher's CEO with an interactive report presenting the sales and profits of SuperDepot for the last four years. Use an interactive visualization software(Power BI) to produce one or more Interactive ...

Discussionpart 1 please respond the following question no

Discussion Part 1 please respond the following question no less then 350 words (original work, no plagiarism, 1 reference "free cash-flow valuations" please respond to the following: • Create an argument that use of the ...

In this assignment you will use the internet and other

In this assignment, you will use the Internet and other sources to gather and interpret information related to service and manufacturing organizations. Select either a service or a manufacturing organization of interest ...

Garner company began operations on january 1 2010 and uses

Garner Company began operations on January 1, 2010, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2013. The following information is available for th ...

  • 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