1.Star123 sells vacuum cleaners at unitary price of 1.000 €, with a volume of 2.000/year.There is a component X that could be bought outside. Star123 receives a bid for it at 50.If the company incurred the following costs in the previous year, decide if it is convenient toproduce internally or to buy outside.Referred to 2.000 piecesRaw materialPackaging20.0002.500Direct labour50.000DepreciationIndustrial costsAdministrative costs10.0008.0006.000Additional information:Direct labour referred to 5 workers: 2 of them will retire, 1 will be moved to the productionof component Y; 1 will decide to become a part time worker at 60 %, staying in theproduction of vacuum cleaners; the last one is impossible to place, due to the lack ofcompetence required to be employed in other departments- Depreciation refers to a machine dedicated to component X; if “buy", the machine will bereused in department Y, with a total evaluation of 48.000 and a residual life of 6 yearsIndustrial costs are referred to the whole plantAdministrative costs are spread out on the product using raw material as cost driver

Component X is required for production of vaccum cleaner, • it could be bought outside @ 50 per…

1. Star123 sells vacuum cleaners at unitary price of 1.000 €, with a volume of 2.000/year. There is a component X that could be bought outside. Star123 receives a bid for it at 50. If the company incurred the following costs in the previous year, decide if it is convenient to produce internally or to buy outside. Referred to 2.000 pieces 20.000 2.500 50.000 Raw material Packaging Direct labour Depreciation Industrial costs Administrative costs 10.000 8.000 6.000 Additional information: Direct labour referred to 5 workers: 2 of them will retire, 1 will be moved to the productic of component Y; 1 will decide to become a part time worker at 60 %, staying in the production of vacuum cleaners; the last one is impossible to place, due to the lack of competence required to be employed in other departments Depreciation refers to a machine dedicated to component X; if “buy", the machine will be reused in department Y, with a total evaluation of 48.000 and a residual life of 6 years Industrial costs are referred to the whole plant Administrative costs are spread out on the product using raw material as cost driver

1. Star123 sells vacuum cleaners at unitary price of 1.000 €, with a volume of 2.000/year. There is a component X that could be bought outside. Star123 receives a bid for it at 50. If the company incurred the following costs in the previous year, decide if it is convenient to produce internally or to buy outside. Referred to 2.000 pieces 20.000 2.500 50.000 Raw material Packaging Direct labour Depreciation Industrial costs Administrative costs 10.000 8.000 6.000 Additional information: Direct labour referred to 5 workers: 2 of them will retire, 1 will be moved to the productic of component Y; 1 will decide to become a part time worker at 60 %, staying in the production of vacuum cleaners; the last one is impossible to place, due to the lack of competence required to be employed in other departments Depreciation refers to a machine dedicated to component X; if “buy", the machine will be reused in department Y, with a total evaluation of 48.000 and a residual life of 6 years Industrial costs are referred to the whole plant Administrative costs are spread out on the product using raw material as cost driver

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 4EB: Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all...

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Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)
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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)
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Jansen Crafters has the capacity to produce 50,000 oak shelves per year and is currently selling 44,000 shelves for $32 each. Cutrate Furniture approached Jansen about buying 1,200 shelves for bookcases it is building and is willing to pay $26 for each shelf. No packaging will be required for the bulk order. Jansen usually packages shelves for Home Depot at a price of $1.50 per shell. The $1.50 per-shelf cost is included in the unit variable cost of $27, with annual fixed costs of $320.000. However, the $130 packaging cost will not apply in this case. The fixed costs will be unaffected by the special order and the company has the capacity to accept the order. Based on this information, what would be the profit if Jansen accepts the special order? A. Profits will decrease by $1,200. B. Profits will increase by $31,200. C. Profits will increase by $600. D. Profits will increase by $7,200.
Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?