Hana Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 4,900 units at $173 per unit. The equipment has a cost of $546,800, residual value of $41,200, and an 8-year life. The equipment can only be used to manufacture the phone. The cost to manufacture the phone follows: Cost per unit: Direct labor Direct materials Factory overhead (including depreciation) Total cost per unit $27.00 107.00 18.60 $152.60 Determine the average rate of return on the equipment. If required, round to the nearest whole percent.
Q: Hana Inc. is considering an investment in new equipment that will be used to manufacture a…
A: Average Rate of ReturnAverage Rate of Return measures the profitability of the investments on the…
Q: Pathways Appliance Company is planning to introduce a built-in blender to its line of small home…
A: Schedule showing the estimated annual net income from the proposal to manufacture…
Q: C Direct materials 1 2 Direct labor 3 Variable MOH Fixed MOH 560,000 105,000 70,000 455,000…
A:
Q: MSI is considering outsourcing the production of the handheld control module used with some of its…
A: The decision to buy or make the product depends on the cost of making and the cost of buying the…
Q: The TechHelp Company produces and sells 7,500 modular computer desks per year at a selling price of…
A: The most important factor while deciding to choose between two available alternatives is relevant…
Q: Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool.…
A: Working Note #1 Calculation of sales revenue: Sales revenue = No. of units sold * Selling price per…
Q: Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool.…
A: Cash Flow Statement: Cash Flow Statement is a fundamental financial statement that renders valuable…
Q: Waterways is considering the replacement of an antiquated machine that has been slowing down…
A: Cost accounting is the combination of two words, cost, and accounting. Cost is nothing but the…
Q: Waterways is considering the replacement of an antiquated machine that has been slowing down…
A: The question is based on the concept of Cost Accounting.
Q: Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool.…
A: Annual revenue = Annual sales x Price per unit = 6700 units x $36 per unit = $241,200 Selling…
Q: Neptune Company has developed a small Inflatable toy that it is anxlous to Introduce to Its…
A: Formulas:
Q: The Hershey Kayak Making Co. is considering whether or not to make a key part for one of its kayak…
A: Solution: Relevant cost of buying = Purchase cost + Cost of preparation of purchase contract
Q: Gelb Company currently manufactures 40,000 units per year of a key component for its manufacturing…
A: The decision to manufacture or buy needs to be taken on the basis of impact of cost changes arising…
Q: Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool.…
A: Residual value is the value of any asset left at the end of useful life of an asset. Depreciation is…
Q: nteliSystems manufactures an optical switch that it uses in its final product. InteliSystems…
A: Formula; Variable costs=Direct material+Direct labor+Varible overhead
Q: Smith Chemical has spent $244,000 to refine 73,000 gallons of acetone, which can be sold for $2.40 a…
A: Sales or Process Further Decision is the option to sell a product now or process it further to earn…
Q: Waterways has discovered that a small fitting it now manufactures at a cost of $1.00 per unit could…
A: Make cost is the cost to produce the product. Buy cost is the cost of purchasing or buying the…
Q: It is planning to reduce its labor costs by automating a critical task that is currently performed…
A: Present value means the actual amount is adjusted with the interest rate so as to get the present…
Q: Lingkod Company, a manufacturer of furniture sets, is considering to purchase the seat cushions…
A: Make-or-buy decisions should be based on the relevant cost of each option. Any costs that are…
Q: Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool.…
A:
Q: The production department of Y Company is planning to purchase a new machine to improve product…
A: Decision-making process: Decision making can be defined as the process of making choices through the…
Q: Higgins Machine Tools, Inc. is currently manufacturing one of its products on a hydraulic stamping…
A: a) Computation of revenue for the old machine per year: Cash flows of old machine:
Q: Gelb Company currently manufactures 46,500 units per year of a key component for its manufacturing…
A: Formula: Total Variable cost = Variable cost per unit x number of units Number of units to be…
Q: ABC Manufacturing Company is planning to reduce its labor costs by automating a critical task that…
A: The present value method is a method of finding the profitability of a project by discounting the…
Q: InteliSystems manufactures an optical switch that it uses in its final product. InteliSystems…
A: cost per unit = Direct material sper unit = $560000 / 70000 = $8per unit Direct labour per unit =…
Q: The Bremer Co. manufactures cordless telephones Bremer is planning to implement a JIT production…
A: JIT production system stands for just in time production represents the situation where the…
Q: Campbell Corporation, which makes and sells 79,400 radios annually, currently purchases the radio…
A: The differential analysis is made by the company to measure the difference in the cost and revenue…
Q: Riders, Ltd. is a manufacturer that produces motorized scooters. Currently, it is producing the…
A: Avoidable Cost is relevant cost in decision making process. and unavoidable cost is not relevant in…
Q: Micro Tek Inc. is considering an investment in new equipment that will be used to manufacture a…
A: Average rate of return = Average annual income / Average investment Where Average investment =…
Q: Amold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements…
A: In such project plans, we should compute the free cash flow every year, and then we should compute…
Q: Assume that if Sandhill Water accepts Clifton's offer, the company can use the freed-up…
A: Given,
Q: Bramble Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The…
A: Here, Details of Old Machine: Cost is $88,000 Overhaul Expenses required for four years is 12,000…
Q: MKM International is seeking to purchase a new CNC machine in order to reduce costs. Two alternative…
A: The company may decide to replace the old asset with a new asset. The company may also have several…
Q: Micro Tek Inc. is considering an investment in new equipment that will be used to manufacture a…
A: Average rate of return is described as the percentage of return or income expected from the…
Q: Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool.…
A: Net cash flow is the amount that a company generates from a project. Net cash flow = Total cash…
Q: Waterways has discovered that a small fitting it now manufactures at a unit cost of $1.00 could be…
A: Working Note: Purchasing Cost = No. of units needed x Purchasing Cost per unit = 465,000 units x…
Q: Expando, Inc., is considering the possibility of building an additional factory that would produce a…
A: NPV is the net present value is the difference between the present value of cash flow and initial…
Q: Searching for ways to cut costs and increase profit, one of the industrial engineers at Home Comfort…
A: a. The computation of PW is done below: The formulation for computing the above values as follows:…
Q: Kobe Company has manufactured 200 partially finished cabinets at a cost of $102,000. These can be…
A: Incremental income = Incremental Sales revenue – Incremental costs
Q: Smart Manufacturing Company is planning to reduce its labor costs by automating a critical task that…
A: Capital Budgeting Techniques helps to decide the investment project that should be selected.
Q: To automatically insert electronic components in printed circuit boards for a cell phone production…
A: Net Present Value(NPV) is excess of present value(PV) of cash inflows over PV of cash outflows…
Q: Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of…
A: The differential analysis is performed when two alternatives are available with the organisation.
Q: Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool.…
A: Depreciation is a non cash expense and does not involve any cash outflow. Hence, fixed factory…
Q: quickly
A: Note: $121,000 that has been spent on marketing survey can be considered as a sunk cost & need…
Q: Micro Tek Inc. is considering an investment in new equipment that will be used to manufacture a…
A: Formula: Average Investment = ( Initial investment + Residual value ) / 2
Q: Waterways has discovered that a small fitting it now manufactures at a unit cost of $1.00 could be…
A: Opportunity cost refers to that cost which is saved in case one alternative is selected over the…
Q: Mighty Safe Fire Alarm is currently buying 57,000 motherboards from MotherBoard, Inc. at a price of…
A: Comparing the cost in both cases i.e buy and make and whose cost is less and increase the profit…
Average
Can you please help?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?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)Variety Artisans has a bottleneck in their production that occurs within the engraving department. Arjun Naipul, the COO, is considering hiring an extra worker, whose salary will be $45,000 per year, to solve the problem. With this extra worker, the company could produce and sell 3,500 more units per year. Currently, the selling price per unit is $18 and the cost per unit is $5.85. Using the information provided, calculate the annual financial impact of hiring the extra worker.
- 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?Nico Parts, Inc., produces electronic products with short life cycles (of less than two years). Development has to be rapid, and the profitability of the products is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that post-purchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was 130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be 120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, Cathy McCourt. The following conversation was recorded: BRIAN: Mark, as you know, we agreed that a profit of 15 per unit is needed for this new product. Also, as I look at the projected market share, 25 percent isnt acceptable. Total profits need to be increased. Cathy, what suggestions do you have? CATHY: Simple. Decrease the selling price to 125 and we expand our market share to 35 percent. To increase total profits, however, we need some cost reductions as well. BRIAN: Youre right. However, keep in mind that I do not want to earn a profit that is less than 15 per unit. MARK: Does that 15 per unit factor in preproduction costs? You know we have already spent 100,000 on developing this product. To lower costs will require more expenditure on development. BRIAN: Good point. No, the projected cost of 120 does not include the 100,000 we have already spent. I do want a design that will provide a 15-per-unit profit, including consideration of preproduction costs. CATHY: I might mention that post-purchase costs are important as well. The current design will impose about 10 per unit for using, maintaining, and disposing our product. Thats about the same as our competitors. If we can reduce that cost to about 5 per unit by designing a better product, we could probably capture about 50 percent of the market. I have just completed a marketing survey at Marks request and have found out that the current design has two features not valued by potential customers. These two features have a projected cost of 6 per unit. However, the price consumers are willing to pay for the product is the same with or without the features. Required: 1. Calculate the target cost associated with the initial 25 percent market share. Does the initial design meet this target? Now calculate the total life-cycle profit that the current (initial) design offers (including preproduction costs). 2. Assume that the two features that are apparently not valued by consumers will be eliminated. Also assume that the selling price is lowered to 125. a. Calculate the target cost for the 125 price and 35 percent market share. b. How much more cost reduction is needed? c. What are the total life-cycle profits now projected for the new product? d. Describe the three general approaches that Nico can take to reduce the projected cost to this new target. Of the three approaches, which is likely to produce the most reduction? 3. Suppose that the Engineering Department has two new designs: Design A and Design B. Both designs eliminate the two nonvalued features. Both designs also reduce production and logistics costs by an additional 8 per unit. Design A, however, leaves post-purchase costs at 10 per unit, while Design B reduces post-purchase costs to 4 per unit. Developing and testing Design A costs an additional 150,000, while Design B costs an additional 300,000. Assuming a price of 125, calculate the total life-cycle profits under each design. Which would you choose? Explain. What if the design you chose cost an additional 500,000 instead of 150,000 or 300,000? Would this have changed your decision? 4. Refer to Requirement 3. For every extra dollar spent on preproduction activities, how much benefit was generated? What does this say about the importance of knowing the linkages between preproduction activities and later activities?Shelby Industries has a capacity to produce 45.000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves dont require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
- Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 65 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are 12,960,000 per year. The total labor minutes available are 1,440,000. During the year, the cell was able to produce 0.6 units of the product per hour. Suppose also that production incentives exist to minimize unit product costs. Required: 1. Compute the theoretical conversion cost per unit. 2. Compute the applied conversion cost per minute (the amount of conversion cost actually assigned to the product). 3. Discuss how this approach to assigning conversion cost can improve delivery time performance. Explain how conversion cost acts as a performance driver for on-time deliveries.Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.
- Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 8%, and the projects’ expected net costs are listed in the following table: What is the IRR of each alternative? What is the present value of the costs of each alternative? Which method should be chosen?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.
