Reference no: EM131775811
Part 1 - Cool Cookie Company is considering replacing its giant dough mixer with a new one. The following data have been compiled to evaluate the decision.
Existing New
Original cost $16,000 $20,000
Annual operating cost $8,000 $6,000
Remaining life 10 years 10 years
Disposal value now $7,000 ---
What costs are relevant? What costs are sunk?
What should Cool Cookie Company do-keep the old mixer or buy the new?
For the option you picked, how much cash does the company save over 10 years (over the alternative)? [To answer this part, ignore the time value of money...in other words, assume a cost of capital (interest rate) of 0% in the future)...]
Part 2 - Bob's Fudge Factory currently makes fudge for retail and mail order customers. It also offers a variety of roasted nuts. Fudge sales have increased over the past year, so Bob is considering outsourcing the roasted nuts and using the roasting space to make additional fudge. A reliable supplier has quoted a price of $0.80 per pound for the roasted nuts. The following amounts reflect the in-house manufacturing costs per pound for the roasted nuts:
Direct materials $0.50
Direct labor 0.06
Unit-related support costs 0.10
Batch-related support costs 0.04
Product-sustaining support costs 0.05
Business-sustaining support costs 0.15
Total cost per pound $0.90
Should Bob's Fudge Factory outsource the roasted nuts? Why or why not? (Assume all the support costs above are avoidable if Bob outsources the roasting.)
Part 3 - ACME Manufacturing, Inc., is considering reorganizing its plant and increasing advertising. The following estimates have been prepared:
Before the change After the change
Total annual sales $700,000 $900,000
Costs as percentage of sales:
Direct materials 10% 9%
Direct labor 6% 4%
Support costs 9% 17%
What amount of annual change is projected for total support and manufacturing costs?
How will ACME's profit change with this reorganization? Should ACME go ahead with this plan?
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