An outside supplier has offered to supply the tiller extensions for $725000. If the company accepts the offer $86000 of fixed costs can be avoided. What is the financial advantage (disadvantage) of accepting the supplier's offer?
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- What is the conversion cost to manufacture insulated travel cups if the costs are: direct materials, $17,000; direct labor, $33,000; and manufacturing overhead, $70,000? A. $16,000 B. $50,000 C. $103,000 D. $120000Jonfran 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).A Company produces Optimist sailboats. The costs of producing 107000 tiller extensions for use in the boats are as follows:Direct labor $253000Direct materials 302000Variable overhead 66000Fixed overhead 185000An outside supplier has offered to supply the tiller extensions for $725000. If the company accepts the offer $86000 of fixed costs can be avoided. What is the financial advantage (disadvantage) of accepting the supplier’s offer?
- Concord Company produces Optimist sailboats. The costs of producing 107000 tiller extensions for use in the boats are as follows: Direct labor $253000 Direct materials 302000 Variable overhead 66000 Fixed overhead 185000 An outside supplier has offered to supply the tiller extensions for $725000. If Concord accepts the offer $86000 of fixed costs can be avoided. What is the financial advantage (disadvantage) of accepting the supplier’s offer? $26000 ($5000) ($26000) $5000ABC company manufactures a particular computer component. Currently, the cost per unit is as follows: Direct Materials;P50, Direct Labor,P500; Variable Overhead,P250; Fixed Overhead,P400XYZ company has obtained with an offer to sell 10,000 units of the component for P1,100 per unit. If ABC accepts the proposal, P2,500,000 of the fixed overhead will be eliminated. Should ABC make or buy the component? Select the correct response: Make due to savings of P3,000,000 Buy due to savings of P1,000,000 Buy due to savings of P2,500,000 Make due to savings of P500,000Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40: Number of parts produced annually 26,000 Fixed costs $41,000 Variable costs $67,000 Total cost to produce $108,000 Jackson Corporation can purchase the part from an outside supplier for $4.50 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corporation buys the part, what is the most Jackson Corporation can spend per unit so that operating income is equal to $98,000? Question 23 options: $2.98 $2.19 $3.77 $1.52
- Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Walters is considering an offer from a subcontractor to provide 2,000 units of product OP89 for $120,000. If Terry does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs: Cost per unit ($) Direct Materials 28 Direct Labor 18 Variable Overhead 16 Allocated Fixed Overhead 4 Required1. What is the relevant cost to make the product internally?2. What is the estimated increase or decrease in short-term operating profit of producing the product internally versus purchasing the product from a supplier?Howell Corporaon produces an execuve jet for which it currently manufactures a fuel valve; the cost ofthe valve is indicated below:Cost per UnitVariable costsDirect material $900Direct labor 600Variable overhead 300Fixed costsDepreciaon of equipment 500Depreciaon of building 200Supervisory salaries 300The company has an offer from Duvall Valves to produce the part for $2,000 per unit and supply 1,000 valves(the number needed in the coming year). If the company accepts this offer and shuts down producon ofvalves, producon workers and supervisors will be reassigned to other areas. The equipment cannot be usedelsewhere in the company, and it has no market value. However, the space occupied by the producon of thevalve can be used by another producon group that is currently leasing space for $55,000 per year.What is the incremental savings of buying the valves? (The answer should be stated in a per‐unit format and is a positive number)Kuat Drive Inc. manufactures machine parts for Star Destroyer engines. CEO Adhi Mundy is considering an offer from a subcontractor to provide 2,000 units of product R2D2 for $120,000. If Kuat Drive does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs: Cost per unit ($) Direct Materials 28 Direct Labor 18 Variable Overhead 16 Allocated Fixed Overhead 4 Questions: What is the relevant cost to make the product internally? What is the estimated increase or decrease in short-term operating profit of producing the product internally versus purchasing the product from a supplier? Which alternative is more attractive to Kuat Drive Inc, make or buy the machine parts? What strategic considerations likely bear on this make vs buy decision? (at least 2 considerations)
- Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Walters is considering an offerfrom a subcontractor to provide 2,000 units of product OP89 for $120,000. If Terry does not purchasethese parts from the subcontractor, it must continue to produce them in-house with these costs:Cost per unit($)Direct Materials 28Direct Labor 18Variable Overhead 16Allocated Fixed Overhead 4Required1. What is the relevant cost to make the product internally?2. What is the estimated increase or decrease in short-term operating profit of producing the productinternally versus purchasing the product from a supplier?3. Which alternative is more attractive to Terry Inc, make or buy the machine parts?4. What strategic considerations likely bear on this make vs buy decision? (at least 2 considerations)Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Walters is considering an offer from a subcontractor to provide 2,000 units of product OP89 for $120,000. If Terry does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs: Cost per unit ($) Direct Materials 28 Direct Labor 18 Variable Overhead 16 Allocated Fixed Overhead 4 Required3. Which alternative is more attractive to Terry Inc, make or buy the machine parts?4. What strategic considerations likely bear on this make vs buy decision? (at least 2 considerations)Quirch Inc. manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 4,200 units of product PQ107 for Valters for a price of $150,000. If Quirch does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: Cost per Unit Direct materials $54 Direct labor 34 Variable overhead 17 In addition to the above costs, if Quirch produces part PQ107, it would have a retooling and design cost of $17,100. The relevant costs of producing 4,200 units of product PQ107 internally are: