Borges Machine Shop, Inc., has a 1-year contract for the production of 250,000 gear housings for a new off-roadvehicle. Owner Luis Borges hopes the contract will be extended and the volume increased next year. Borges hasdeveloped costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturingsystem (FMS), and expensive, but efficient, dedicated machine (DM). The cost data follow:Annual contracted unitsAnnual fixed costPer unit variable costGeneral-PurposeEquipment (GPE)250,000$100,000$18.00Flexible ManufacturingSystem (FMS)250,000$225,000$14.00DedicatedMachine (DM)250,000$525,000$13.00The option GPE is best when the contracted volume is below units (enter your response as a whole number). The option GPE is best when the contracted volume is below 75,000 units (enter your response as a whole number).The option FMS is best when the contracted volume is between 75001 and 325,000 units (enter your responses aswhole numbers).The option DM is best when the contracted volume is over 325,000 units (enter your response as a whole number).

Decision-making in costing refers to the process of using cost information to make informed…

Borges Machine Shop, Inc., has a 1-year contract for the production of 250,000 gear housings for a new off-road vehicle. Owner Luis Borges hopes the contract will be extended and the volume increased next year. Borges has developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing system (FMS), and expensive, but efficient, dedicated machine (DM). The cost data follow: Annual contracted units Annual fixed cost Per unit variable cost General-Purpose Equipment (GPE) 250,000 $100,000 $18.00 The option GPE is best when the contracted volume is below Flexible Manufacturing System (FMS) 250,000 $225,000 $14.00 Dedicated Machine (DM) 250,000 $525,000 $13.00 units (enter your response as a whole number).

Borges Machine Shop, Inc., has a 1-year contract for the production of 250,000 gear housings for a new off-road vehicle. Owner Luis Borges hopes the contract will be extended and the volume increased next year. Borges has developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing system (FMS), and expensive, but efficient, dedicated machine (DM). The cost data follow: Annual contracted units Annual fixed cost Per unit variable cost General-Purpose Equipment (GPE) 250,000 $100,000 $18.00 The option GPE is best when the contracted volume is below Flexible Manufacturing System (FMS) 250,000 $225,000 $14.00 Dedicated Machine (DM) 250,000 $525,000 $13.00 units (enter your response as a whole number).

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 3CMA: Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each...

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Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each month for use in production. The facilities now being used to produce Part 730 have fixed monthly overhead costs of 150,000 and a theoretical capacity to produce 60,000 units per month. If Aril were to buy Part 730 from an outside supplier, the facilities would be idle, and 40% of fixed costs would continue to be incurred. There are no alternative uses for the facilities. The variable production costs of Part 730 are 11 per unit. Fixed overhead is allocated based on planned production levels. If Aril Industries continues to use 30,000 units of Part 730 each month, it would realize a net benefit by purchasing Part 730 from an outside supplier only if the suppliers unit price is less than: a. 12.00. b. 12.50. c. 13.00. d. 14.00.
Borges Machine Shop, Inc., has a 1-year contractfor the production of 200,000 gear housings for a new off-roadvehicle. Owner Luis Borges hopes the contract will be extendedand the volume increased next year. Borges has developed costsfor three alternatives. They are general-purpose equipment(GPE), flexible manufacturing system (FMS), and expensive, butefficient, dedicated machine (DM). The cost data follow: GENERAL-PURPOSE EQUIPMENT(GPE) FLEXIBLEMANUFACTURINGSYSTEM (FMS) DEDICATEDMACHINE(DM) Annual contractedunits 200,000 200,000 200,000Annual fi xed cost $100,000 $200,000 $500,000Per unit variable cost $ 15.00 $ 14.00 $ 13.00Which process is best for this contract?
Borges Machine Shop, Inc., has a 1-year contract for the production of 75,000 gear housings for a new off-road vehicle. Owner Luis Borges hopes the contract will be extended and the volume increased next year. Borges has developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing system (FMS), and expensive, but efficient, dedicated machine (DM) The cost data follow General Purpose Equipment (GPE) Flexible Manufacturing System (FMS) 75,000 $125,000 $15.00 Annual contracted units Annual fixed cost Per unit vanable cost Based on the total cost, the process that is best suited for the current contracted volume is Suppose the contracted volume changes to 275,000 gear housings. Based on the total cost, the process that is best suited for the new volume is Suppose the contracted volume changes to 375,000 gear housings. Based on the total cost, the process that is best suited for the new volume is Dedicated Machine (DM) 75,000 $225,000 $14.00…
A large electronics manufacturer is considering outsourcing the manufacturing of a diaphragm used in its large speaker. The company estimates that annual fixed costs of manufacturing the part in-house, which include equipment, maintenance, and management, amounts to$6.9million. The variable costs of labor and material are$7per unit. The company has an offer from a major subcontractor to produce the part for \$12 per unit. However, the subcontractor wants the company to share in the costs of the equipment. The electronics company estimates that the total cost would be$3.4million, which also includes management oversight for the new supply contact. The company must consume more than diaphragms to make the manufacturing the part in-house option least costly. (Enter your response rounded up to the nearest whole number.).
Concord Corporation manufactures widgets. Bowden Company has approached Concord with a proposal to sell the company widgets at a price of $88000 for 100000 units. The following costs are associated with Concord's production process when 100000 units are produced: Direct material Direct labor Manufacturing overhead Total $ 33000 29500 48500 $111000 Manufacturing overhead of $12150 of costs will be eliminated if the components are no longer produced by Concord. What is the incremental cost or savings to Concord if the widgets are bought instead of made? $23000 incremental savings $13350 incremental cost $10850 incremental savings $23000 incremental cost
Axdew Limited is considering whether to manufacture an improved, more expensive version of their current line of best-selling lava lamps. Axdew currently spends $15,000 per year on maintenance and $80,000 on full-time salaries for staff. Maintenance costs are expected to remain the same but an additional labourer will need to be hired at an annual cost of $30,000. Manufacture of the newer version will require re-tooling of its existing machinery at a cost of $40,000. Axdew paid consultants a fee of $30,000 for a feasibility study to determine the viability of the new product. Which of the costs discussed above need to be considered by management in deciding whether to proceed with the new product? Justify your answer.
Rossignol makes downhill ski equipment. Assume that Atomic has offered to produce ski poles for Rossignol for $18 per pair. Rossignol needs 100,000 pairs of poles per period. Rossignol can only avoid $125,000 of fixed costs if it outsources; the remaining fixed costs are unavoidable. Rossignol currently has the following costs at a production level of 100,000 pairs of poles: Manufacturing Costs Total Cost Cost per pair (100,000 pairs) Direct Materials $750,000 $7.50 Direct Labor 80,000 0.80 Variable MOH 520,000 5.20 Fixed MOH 650,000 6.50 Total $2,000,000 $20.00 1. Should Rossignol outsource ski pole production if the next best use of the freed capacity is to leave it idle? What effect will outsourcing have on Rossignol's operating income? 2. If the freed capacity could be used to produce ski boots that would provide $500,000 of operating income, should Rossignol outsource ski pole production?
Waterways has discovered that a small fitting it now manufactures at a unit cost of $1.00 could be bought elsewhere for $0.81 per unit. Waterways has unit fixed manufacturing costs of $0.20 that cannot be eliminated by buying this unit. Waterways needs 465,000 of these units each year.If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 400 of these units each year. The cost of the unit is $12.33. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,344, and the unit cost of producing the units would be $9.40. Without considering the possibility of making the timing unit, evaluate whether Waterways should buy or continue to make the small fitting. The company should make the fitting. Incremental cost / (savings) will be 4,650 What is Waterways’ opportunity cost if it chooses to buy the small…
Peggy Lane Corp., a producer of machine tools, wants to move to a larger site. Two alternative locations have been identified: Bonham and McKinney. Bonham would have fixed costs of $800,000 per year and variable costs of $14,000 per standard unit produced. McKinney would have annual fixed costs of $940,000 and variable costs of $12,800 per standard unit. The finished items sell for $28,000 each. a) The volume of output at which both the locations have the same profit = standard units (round your response to the nearest whole number). b) Básed on the analysis of the volume, after rounding the numbers to the nearest whole number, Bonham is superior below standard units. c) Based on the analysis of the volume, after rounding the numbers to the nearest whole number, McKinney is superior above standard units. d) The break-even point for Bonham is units. (Enter your response rounded to the nearest whole number.)
Waterways has discovered that a small fitting it now manufactures at a cost of $1.00 per unit could be bought elsewhere for $0.81 per unit. Waterways has fixed costs of $0.20 per unit that cannot be eliminated by buying this unit. Waterways needs 476,000 of these units each year.If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 600 of these units each year. The cost of the unit is $13.22. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,334, and the cost of producing the units would be $10.20 a unit.
Waterways has discovered that a small fitting it now manufactures at a unit cost of $1.00 could be bought elsewhere for $0.81 per unit. Waterways has unit fixed manufacturing costs of $0.20 that cannot be eliminated by buying this unit. Waterways needs 465,000 of these units each year.If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 400 of these units each year. The cost of the unit is $12.33. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,344, and the unit cost of producing the units would be $9.40. Without considering the possibility of making the timing unit, evaluate whether Waterways should buy or continue to make the small fitting. The company should (make or buy?) the fitting. Incremental cost / (savings) will be