Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

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

1 what is the difference between a significant deficiency

1) What is the difference between a significant deficiency and a material weakness as it relates to internal Control? How does the presence of one material deficiency affect the auditor's report on internal controls unde ...

Please give full info for resources used and cite where

Please give full info for resources used and cite where appropriate in APA style. Show all calculations to any work necessary. Answer both questions. As a Financial Accountant, determine the best type of income statement ...

Gasbvisit the website of the governmental accounting

G.A.S.B Visit the website of the Governmental Accounting Standards Board (G.A.S.B.) at http://gasb.org. Review the website to learn about the organization, its act ivies, and its goals. Review one or more of the "Plain-L ...

Assignmentexercise 1 treatment of nsf checkthe bank

Assignment Exercise 1 Treatment Of NSF check The bank statement of Stone Supplies included a $300 NSF check that one of Stone's customer had written to pay for services that were provided by Stone. Required a. Show the e ...

1 fair value determination of goodwill and calculating the

1) Fair value determination of goodwill and calculating the premium paid over market value in a merger: Using fair value accounting for goodwill, under FAS 141R, determine the amount of goodwill that "the acquiring compa ...

Prospective analysis forecastingquestion 1glaxosmithkline

Prospective Analysis: Forecasting Question 1. GlaxoSmithKline is one of the largest pharmaceutical firms in the world, and over an extended period of time in the recent past, it consistently earned higher ROEs than the p ...

A company is considering to replace an existing machine for

A Company is considering to replace an existing machine for which two suppliers have given quotation. Supplier A has proposed a machine costing Rs. 180 lakh that uses the existing boiler while supplier B has quoted for t ...

Kent cpa is a staff auditor participating in the audit

Kent, CPA is a staff auditor participating in the audit engagement of Fort, Inc. Based upon each of the circumstances below, indicate whether or not Kent's actions impair his independence. Explain your response for each ...

Although sloan company had good earnings reports in 20x5

Although Sloan Company had good earnings reports in 20X5 and 20X6, it had a negative retained earnings balance on December 31, 20X6. Jacobs Corporation purchased 100 percent of Sloan's common stock on January 1, 20X7. Re ...

Intercompany debt both long term and short term arises

Intercompany debt, both long term and short term, arises frequently. In some cases, intercorporate borrowings may arise because one affiliate can borrow at a cheaper rate than others, and lending to other affiliates may ...

  • 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