Required information[The following information applies to the questions displayed below.]Ellington Company manufactures a line of motorbikes and dirt bikes under the trade name CrossCountry. The companyhas been in business for almost 20 years and has maintained a profitable share of the recreational vehicle market due toits reputation for high-quality products. In addition, Ellington's engineering department has kept the company in theforefront by incorporating the latest technology in the Cross Country bikes. Most subassembly work for the bikes issubcontracted to reliable vendors. However, the final assembly and inspection of all products is performed at Ellington'splant.Ellington recently developed a new braking system for the Cross Country Model-500 dirt bike. Because of the company'scurrent availability of production capacity, Jim Walsh, production manager, recommended that the first lot of the newbraking system be manufactured in-house rather than by subcontractors. This 240-unit production run has now beencompleted. The cumulative average labor hours per unit for the braking system was 240 hours. Ellington's experiencewith similar products indicates that a learning curve of 80% is applicable and that the learning factor can be expected toextend only through the fourth production run (240 per batch) for a total of 960 units.Ellington's direct labor cost is $35 per direct labor hour. Its management must decide whether to continue producing thebraking system in its own plant or to subcontract this work. Joyce Lane, Ellington's purchasing agent, has received aproposal from MACQ, a company specializing in component assembly. MACQ has done work in the past for Ellington andhas proved to be a high-quality and reliable vendor. The terms of MACQ's proposal are negotiable, and before beginningdiscussions with them, Joyce has decided to conduct some relevant financial analysis.Required:1. Ellington Company has an immediate requirement for a total of 1,800 units of the braking system. Determine the company's futuredirect labor costs to produce the required braking system units if it manufactures the units in-house.2. A consultant has advised Joyce that the learning rate for this application might be closer to 75%. What is the effect on projectedcosts of using a 75% learning rate as opposed to an 80% learning rate? (Do not round intermediate calculations.)1. Future direct labor cost2. The firm will have a savingincreaseof

Learning curves help predict future performance improvements based on past trends. This can help in…

Ellington Company manufactures a line of motorbikes and dirt bikes under the trade name CrossCountry. The company has been in business for almost 20 years and has maintained a profitable share of the recreational vehicle market due to its reputation for high-quality products. In addition, Ellington's engineering department has kept the company in the forefront by incorporating the latest technology in the Cross Country bikes. Most subassembly work for the bikes is subcontracted to reliable vendors. However, the final assembly and inspection of all products is performed at Ellington's plant.

Ellington Company manufactures a line of motorbikes and dirt bikes under the trade name CrossCountry. The company has been in business for almost 20 years and has maintained a profitable share of the recreational vehicle market due to its reputation for high-quality products. In addition, Ellington's engineering department has kept the company in the forefront by incorporating the latest technology in the Cross Country bikes. Most subassembly work for the bikes is subcontracted to reliable vendors. However, the final assembly and inspection of all products is performed at Ellington's plant.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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