User Account

All Pages

make and b, Managerial Accounting

Assignment Help:

The Rohr Company’s old equipment for making subassemblies is worn out. The company is considering two courses of action:
(a) Completely replacing the old equipment with new equipment or
(b) Buying subassemblies from a reliable outside supplier, who has quoted a unit price of $1 on a 7-year contract for a minimum of 50,000 units per year.

Production was 60,000 units in each of the past 2 years. Future needs for the next 7 years are not expected to fluctuate beyond 50,000 to 70,000 units per year. Cost records for the past 2 years reveal the following unit costs of manufacturing the subassembly:


Per Unit
Direct Materials
$0.30
Direct Labor
0.35
Variable Overhead
0.10
Fixed Overhead (including $0.10 depreciation and $0.10 for direct departmental fixed overhead)
0.25
Total Cost
$1.00



The new equipment will cost $188,000 cash, will last 7 years, and will have a disposal value of $20,000. The current disposal value of the old equipment is $10,000.
The sales representative for the new equipment has summarized her position as follows: The increase in machine speeds will reduce direct labor and variable overhead by $0.35 per unit. Consider last year’s experience of one of your major competitors with identical equipment. It produced 100,000 units under operating conditions very comparable to yours and showed the following unit costs.


Per Unit
Direct Materials
$0.30
Direct Labor
0.05
Variable Overhead
0.05
Fixed Overhead (including $0.10 depreciation and $0.10 for direct departmental fixed overhead)
0.40
Total Cost
$0.80

For purposes of this case, assume that any idle facilities cannot be put to alternative use. Also assume that $0.05 of the old Rohr unit cost is allocated fixed overhead that will be unaffected by the decision.
Required:

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

2. Would your answer to number 1 change if the needs were 50,000 units? 70,000 units? At what volume level would Rohr be indifferent between making and buying subassemblies? Show your computations.

3. What factors, other than the preceding ones, should the accountant bring to the attention of management to assist them in making their decision? Include the considerations that might be applied to the outside supplier.
Posted Date: 5/17/2013 5:26:17 AM | Location : Palestinian Territory, Occupied



Your posts are moderated

Related Questions
What is the objective of performance budgeting, What is the objective of pe...
What is the objective of performance budgeting The objectives of performance budgets is to provide a closer linkage between planning and action and also to provide a common bas
Saddle point, Saddle Point The saddle point in a payoff matrix is one w...
Saddle Point The saddle point in a payoff matrix is one which is the smallest value in its row and the largest value in its column. It is also termed as equilibrium point in th
Explian national income and economic welfare, Question 1: (a) Discuss t...
Question 1: (a) Discuss the main features and problems which Mauritius has to face as a small island developing country. (b) What are the factors which have led to the f
Calculate transfer price - management control system, Calculate Transfer Pr...
Calculate Transfer Price - Management Control System? Question: Compute the Transfer Price for Product X and Y and the Standard Cost of Product Z as the intra company pricing r
Selective inventory management, Selective Inventory Management The inve...
Selective Inventory Management The inventory of an industrial firm generally comprises thousands of items with diverse prices, usage and lead time, as well as procurement and/o
Marginal returns and negative marginal returns, 1) What is the difference b...
1) What is the difference between decreasing marginal returns and negative marginal returns? 2.) "A firm in monopolistic competition maximizes its profit by producing where it
Balanced score card, Balanced Score Card This is a popular approach in ...
Balanced Score Card This is a popular approach in current management thinking which consists of a variety of indicators both financial and non-financial. The balanced scorecard
Extra shift decision, EXTRA SHIFT DECISION These decisions are concerne...
EXTRA SHIFT DECISION These decisions are concerned with whether or not a company should work for 8 hrs, 16hrs, or 24 hrs a day or week days only or weekends also. The factors
Decision making, Trinco Ltd (Trinidad & Tobago-T&T) has been negotiating a ...
Trinco Ltd (Trinidad & Tobago-T&T) has been negotiating a contract with a potential customer in Jamaica. Before the negotiations started the Jamaican company agreed to pay $10,000
Describe the limitations of management accounting, Describe the Limitations...
Describe the Limitations of management accounting: 1. Based on accounting information: the correctness and effectiveness of managerial decisions will depend upon the quality

Related Discussions:- make and b

Explain the objectives of management accounting, Explain the Objectives of ...

Explain the Objectives of management accounting? 1. Planning and policy formulation: the object of management accounting is to supply necessary data to the management for fo

Negotiated prices-transfer pricing methods, Negotiated prices Where mar...

Negotiated prices Where market based prices are not applicable, it has been argued that allowing managers to bargain with each other in order to establish transfer prices devel

Operating leverage, How do you compare two companies operating leverage? Mu...

How do you compare two companies operating leverage? Must the sales volume be set the same or the net operating income?

Total annual inventory cost , Ross White's machine shop uses 2,500 brackets...

Ross White's machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant by the year. These brackets are purchased from a supplier 100 miles

Relevant Cost, Advantage of relevant cost

Advantage of relevant cost

Industrial Grinders, accepted#Regarding the Overhead costs, these are alloc...

accepted#Regarding the Overhead costs, these are allocated based on Direct Labor;

EXERCISE 3-12 Computing Predetermined Overhead Rates, 1. Compute the prede...

1. Compute the predetermined overhead rate.

Determining optimum cash balance, One of the main deities of the financial ...

One of the main deities of the financial manager is to keep a sound liquidity position for the firm hence the dues are settled as and while they mature. Separately from this the fi

Make and b, The Rohr Company’s old equipment for making subassemblies is wo...

The Rohr Company’s old equipment for making subassemblies is worn out. The company is considering two courses of action: (a) Completely replacing the old equipment with new equipme

Organizing-motivation-role of management accountant, Organizing (1) It is...

Organizing (1) It is the establishment of the framework within which the required activities are to be performed and the designation of who should perform such activities. It inc

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd