An existing compressor supply only 70% of the requirements of a manufacturing plant. It costs P 24,000.00 annually for its operation and maintenance and can be sold now for P 15,000.00. A small compressor which will furnish the required 30% can be purchased for P 27,000.00 with an annual operating and maintenance cost of P 13,500.00. A full capacity compressor which can supply the above total requirements can be purchased for P 60,000.00 with an annual operational cost of P 32,000.00. If each compressor is expected to have a useful life of 10 years with 10% of the first cost as salvage value and the company is expected 18% rate of return. Which alternative would you recommend?

An existing compressor supply only 70% of the requirements of a manufacturing plant. It costs P 24,000.00 annually for its operation and maintenance and can be sold now for P 15,000.00. A small compressor which will furnish the required 30% can be purchased for P 27,000.00 with an annual operating and maintenance cost of P 13,500.00. A full capacity compressor which can supply the above total requirements can be purchased for P 60,000.00 with an annual operational cost of P 32,000.00. If each compressor is expected to have a useful life of 10 years with 10% of the first cost as salvage value and the company is expected 18% rate of return. Which alternative would you recommend?

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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Lander Parts, Inc., produces various automobile parts. In one plant, Lander has a manufacturing cell with the theoretical capability to produce 450,000 fuel pumps per quarter. The conversion cost per quarter is 9,000,000. There are 150,000 production hours available within the cell per quarter. Required: 1. Compute the theoretical velocity (per hour) and the theoretical cycle time (minutes per unit produced). 2. Compute the ideal amount of conversion cost that will be assigned per subassembly. 3. Suppose the actual time required to produce a fuel pump is 40 minutes. Compute the amount of conversion cost actually assigned to each unit produced. What happens to product cost if the time to produce a unit is decreased to 25 minutes? How can a firm encourage managers to reduce cycle time? Finally, discuss how this approach to assigning conversion cost can improve delivery time. 4. Assuming the actual time to produce one fuel pump is 40 minutes, calculate MCE. How much non-value-added time is being used? How much is it costing per unit? 5. Cycle time, velocity, MCE, conversion cost per unit (theoretical conversion rate actual conversion time), and non-value-added costs are all measures of performance for the cell process. Discuss the incentives provided by these measures.
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