Yardwork Tools Corp manufactures garden tools in a factory in Taneytown, Maryland. Recently, the company designed a collection of tools for professional use rather than consumer use. Management needs to make a good decision about whether to produce this line in their existing space in Maryland, where space is available or to accept an offer from a manufacturer in Taiwan. Data concerning the decision are as follows: Expected annual sales of tools (in units) 660,000 Average selling price of tools $11 Price quoted by Taiwanese company, in New Taiwanese Dollars (NTD) 27,300 Current exchange rate 9,100 NTD = $1 Variable manufacturing costs $2.85 per unit Incremental annual fixed manufacturing costs associated with the new product line $310,000 Variable selling and distribution costsª $0.50 per unit Annual fixed selling and distribution costsª $250,000 ªSelling and distribution costs are the same regardless of whether the tools are manufactured in Maryland or imported. Requirement 1. Should Yardwork Tools Corp manufacture the 660,000 garden tools in the Maryland facility or purchase them from the supplier in Taiwan? Explain. The cost of manufacturing 660,000 garden tools in the Maryland facility is $2,191,000 and the cost of purchasing 660,000 garden tools from the Taiwan supplier is $1,980,000 . Part 2 Yardwork Tools Corp should purchase the garden tools from the Taiwan supplier because it is $211,000 less than the relevant costs to manufacture the garden tools in Maryland. Part 3 Requirement 2. Yardwork Tools Corp believes that the U.S. dollar may weaken in the coming months against the New Taiwanese Dollar and does not want to face any currency risk. Assume that Yardwork Tools Corp can enter into a forward contract today to purchase 27,300 NTD for $4.70. Should Yardwork Tools Corp manufacture the 660,000 garden tools in the Maryland facility or purchase them from the Taiwan supplier? Explain. Yardwork Tools Corp manufacture the garden tools in Maryland because the relevant costs of to manufacture the garden tools in Maryland is than the cost of to purchase them.

Yardwork Tools Corp manufactures garden tools in a factory in Taneytown, Maryland. Recently, the company designed a collection of tools for professional use rather than consumer use. Management needs to make a good decision about whether to produce this line in their existing space in Maryland, where space is available or to accept an offer from a manufacturer in Taiwan. Data concerning the decision are as follows: Expected annual sales of tools (in units) 660,000 Average selling price of tools $11 Price quoted by Taiwanese company, in New Taiwanese Dollars (NTD) 27,300 Current exchange rate 9,100 NTD = $1 Variable manufacturing costs $2.85 per unit Incremental annual fixed manufacturing costs associated with the new product line $310,000 Variable selling and distribution costsª $0.50 per unit Annual fixed selling and distribution costsª $250,000 ªSelling and distribution costs are the same regardless of whether the tools are manufactured in Maryland or imported. Requirement 1. Should Yardwork Tools Corp manufacture the 660,000 garden tools in the Maryland facility or purchase them from the supplier in Taiwan? Explain. The cost of manufacturing 660,000 garden tools in the Maryland facility is $2,191,000 and the cost of purchasing 660,000 garden tools from the Taiwan supplier is $1,980,000 . Part 2 Yardwork Tools Corp should purchase the garden tools from the Taiwan supplier because it is $211,000 less than the relevant costs to manufacture the garden tools in Maryland. Part 3 Requirement 2. Yardwork Tools Corp believes that the U.S. dollar may weaken in the coming months against the New Taiwanese Dollar and does not want to face any currency risk. Assume that Yardwork Tools Corp can enter into a forward contract today to purchase 27,300 NTD for $4.70. Should Yardwork Tools Corp manufacture the 660,000 garden tools in the Maryland facility or purchase them from the Taiwan supplier? Explain. Yardwork Tools Corp manufacture the garden tools in Maryland because the relevant costs of to manufacture the garden tools in Maryland is than the cost of to purchase them.

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 2CMA

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Expected annual sales of tools (in units)	660,000
Average selling price of tools	$11
Price quoted by Taiwanese company, in New Taiwanese Dollars (NTD)	27,300
Current exchange rate	9,100 NTD = $1
Variable manufacturing costs	$2.85 per unit
Incremental annual fixed manufacturing costs associated with the new product line	$310,000
Variable selling and distribution costsª	$0.50 per unit
Annual fixed selling and distribution costsª	$250,000

Part 2

Yardwork Tools Corp	should	purchase the garden tools from the Taiwan supplier because it is	$211,000	less
than the relevant costs to manufacture the garden tools in Maryland.

Part 3

Requirement 2.

Yardwork Tools

Corp believes that the U.S. dollar may weaken in the coming months against the New Taiwanese Dollar and does not want to face any currency risk. Assume that

Yardwork Tools

Corp can enter into a forward contract today to purchase

27,300

NTD for

$4.70.

Should

Yardwork Tools

Corp manufacture the

660,000

garden tools in the Maryland facility or purchase them from the Taiwan supplier? Explain.

Yardwork Tools Corp		manufacture the garden tools in Maryland because the relevant costs of
to manufacture the garden tools in Maryland is		than the cost of		to purchase them.

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The cost of manufacturing 660,000 garden tools in the Maryland facility is	$2,191,000	and the cost of purchasing
660,000 garden tools from the Taiwan supplier is	$1,980,000	.