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

Guidelines for literature critiquesstudents are require to

Guidelines for Literature Critiques Students are require to read and understand assigned article. Students must submit a critique of assigned academic article. Please follow the format to complete your assignment. Detail ...

Problem -the stay healthy medical clinics balance sheet on

Problem - The Stay Healthy Medical Clinic's Balance sheet on December 31, 2014 showed an owner's equity of $1,280,000. The December 31, 2015 balance sheet showed an owner's equity of $1,520,000. During the year, the owne ...

Write a 600-800 word memo to your accounting committee on

Write a 600-800 word memo to your accounting committee on fraud detection discussing the 6 steps of the Proactive Method of Fraud Detection found in figure 6.1 of Chapter 6. Include methods to gather information about a ...

- discuss the pros and cons of leasing vs purchasing a

- Discuss the pros and cons of leasing vs purchasing a fleet of business vehicles for a client's business, (assume the loan rate on purchasing the vehicles is 6% and the implicit interest rate in the lease is also 6%). - ...

Unconventional and growing inccrazy craig cravath is a

UNCONVENTIONAL AND GROWING, INC. "Crazy" Craig Cravath is a somewhat eccentric yet enthusiastic businessman who believes in the social responsibility of business. Incidentally, he is also interested in making enough mone ...

Accounting paper assignment start-up budgetingfor this

Accounting Paper Assignment: Start-up Budgeting For this assignment, you will decide what type of budget to implement for a start-up company. Write a three to four page paper in which you: 1. Summarize the type of manufa ...

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) "earnings-based valuation" please respond to the following: • Create an argument supporting that ...

1 the manufacture of herbal health tonic is a competitive

1. The manufacture of herbal health tonic is a competitive industry. The manufacturing facilities have an annual output of 100,000 gallons. Operating costs are $2 per gallon. A 100,000 gallon capacity plant costs $500,00 ...

Task -task covers the application of conceptual and

Task - Task covers the application of conceptual and technical aspects of accounting and the preparation of business financial statements, the appraisal of the use of information technology including spreadsheet software ...

1 ahn nguyen a vietnamese joint stock company has net

1. Ahn Nguyen, a Vietnamese Joint Stock Company has net income of 52,000 Vietnamese Dong, () and the following items: Depreciation Expense   16,000 Accounts Receivable Increase                    12,000 Inventory Decreas ...

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

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