User Account

All Pages

make and buy, 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.

Related Discussions:- make and buy

Marginal costing, marginal costing decision making assignment questions

marginal costing decision making assignment questions

Transfer pricing, find full-cost& variable cost using transfer pricing meth...

find full-cost& variable cost using transfer pricing method

Multiple products, differentiate between multiple product , selling cots an...

differentiate between multiple product , selling cots and margin management

#, Describe the important role that the corporate level strategy has in rel...

Describe the important role that the corporate level strategy has in relation to the development of the business and functional strategy in a multi -business organization

Explain product cost, Explain product cost Product costs are those cost...

Explain product cost Product costs are those costs which are associated with and directly identifiable with the product. In other words, which are assigned to the product are p

What are the main limitations of breakeven charts, QUESTION 1: Part A ...

QUESTION 1: Part A What are the main components of a set of Financial Statements and what are their respective purposes? Part B Trial balances of Hans Ltd on 30 Ju

Multistage decision making under risk, Multi-stage decision making under ri...

Multi-stage decision making under risk (The use of decision trees) Sequencing is concerned with the selection of an appropriate sequence or order of performing a series of jobs

Classification of costs, identify and explain the many classification of co...

identify and explain the many classification of costs for planning, control,performance evaluation and decision making.

Accounting information system, I have 20pages preparing a system flowchart ...

I have 20pages preparing a system flowchart assignment

Public deposits, Deposits from the public are one of the important sources ...

Deposits from the public are one of the important sources of finance mainly for fine established big companies along with a vast capital base. The period of public deposits is rest

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: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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