If bmw makes the components the unit costs of direct

Assignment Help Accounting Basics

Reference no: EM13577600

Suppose a BMW executive in Germany is trying to decide whether the company should continue to manufacture an engine component or purchase it from Frankfurt Corporation for $50 each. Demand for the coming year is expected to be the same as for the current year, 200,000 units. Data for the current year follow:

Direct Material $5,000,000
Direct Labor 1,900,000
Factory overhead, variable 1,100,000
Factory overhead, fixed 3,000,000
Total costs 11,000,000

If BMW makes the components, the unit costs of direct material will increase by 10%. If BMW buys the components, 30% of the fixed costs will be avoided. The other 70% will continue regardless of whether the components are manufactured or purchased. Assume that variable overhead variable varies with output volume.

1.Prepare a schedule that compares the make-or-buy alternatives. Show totals and amounts per unit. Compute the numerical difference between making and buying. Assume that the capacity now used to make the components will become idle if the components are purchased.

2.Assume also that the BMW capacity in question can be rented to a local electronics firm for $1,150,000 for the coming year. Prepare a schedule that compares the net relevant costs of the three alternatives: make, buy, and leave capacity idle, buy and rent. Which is the most favorable alternative. By how much in total?

Reference no: EM13577600

Questions Cloud

Maggie brown works for a clipping service from her home she : maggie brown works for a clipping service from her home. she spends three to four hours per day reading newspaper

A local drugstore owner knows that on average 100 people : a local drugstore owner knows that on average 100 people per hour stop by his store. find the probability that in a

Define the null and alternative hypotheses find the : the manufacturer of a particular all-season tire claims that the tires last for 22000 miles. after purchasing the tires

Usaco is the wholly-owned us subsidiary of asiaco a : usaco is the wholly-owned u.s. subsidiary of asiaco a japanese parent corporation that manufactures automobiles and

If bmw makes the components the unit costs of direct : suppose a bmw executive in germany is trying to decide whether the company should continue to manufacture an engine

The irs is conducting a transfer pricing examination of : the irs is conducting a transfer pricing examination of usaco a wholly-owned u.s. subsidiary of forco. usaco purchases

Does a state have the authority to require a us-based : does a state have the authority to require a u.s.-based multinational corporation to compute its state taxable income

A sample of 11 girls had a mean score of 170 and a : in a recent study on gender differences in education a sample of 7 boys had a mean score of 16.5 and a standard

Present the balances in accounts receivable and allowance : at the end of the fiscal year 2012 the turner corporation showed the following selected account balancessales all on

User Account

All Pages