A company is analyzing a make-versus-purchase situation for a component used in several products, and the engineering department has developed these data: Option A: Purchase 10,000 items per year at a fixed price of $8.46 per item. The cost of placing the order is negligible according to the present cost accounting procedure. Option B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials = $5.11 per item and direct labor = $1.32 per item. Manufacturing overhead is allocated at 200% of direct labor (= $2.64 per item). Based on these data, should the item be purchased or manufactured? The total cost of Option A is $. (Round to the nearest dollar.) S

A company is analyzing a make-versus-purchase situation for a component used in several products, and the engineering department has developed these data: Option A: Purchase 10,000 items per year at a fixed price of $8.46 per item. The cost of placing the order is negligible according to the present cost accounting procedure. Option B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials = $5.11 per item and direct labor = $1.32 per item. Manufacturing overhead is allocated at 200% of direct labor (= $2.64 per item). Based on these data, should the item be purchased or manufactured? The total cost of Option A is $. (Round to the nearest dollar.) S

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 5E

See similar textbooks

Similar questions

Sally Statistics is implementing a system of statistical process control (SPC) charts in her factory in an effort to reduce the overall cost of scrapped product. The current cost of scrap is $X per month. If a 75% learning curve is expected in the use of the SPC charts to reduce the cost of scrap, what would the percentage reduction in monthly scrap cost be after the charts have been used for 6 months? (Hint: Model each month as a unit of production.)
Estimate the cost of a 0.75 million gallon per day (MGD) induced-draft packed tower for air-stripping trihalomethanes from drinking water if the cost for a 2.9- MGD tower is $153,200. The exponent in the cost- capacity equation is 0.47. The cost of a 0.75 million gallon per day induced-draft packed tower is $
Assume that Freda Farmer has just purchased a new combine. She has calculated total fixed cost to be $2280. per year and estimates a total variable cost of $9.50 per acre. What will her average fixed cost per acre be if she combines 1,200 acres per year? 900 acres per year, What is the additional cost of combining an additional acre? Assume that Freda plans to use the combine only for custom work on 1,000 acres per year. How much should she charge per acre to be sure all costs are covered? If she would custom harvest 1,500 acres per year
Company A has fixed expenses of $15,000 per year and each unit of product has a $0.20 variable cost. Company B has fixed expenses of $6,000 per year and can produce the same product at a $0.60 variable cost per unit. At what number of units of annual production will Company A have the same overall cost as Company B? (i.e., find the breakeven point)
Determine the minimum-cost trade-off between the MTBF and the MTTR for a system requiring 0.98 availability. The MTTR must be between 10 and 28 hr, and the MTBF must be at least 1200 hr. Consider the cost functions as: a. C(x) = 0.0002x2 ; C(y) = 12500/y b. C(x) = 2x; C(y) = 2000-y 2.
Oscar has owned a Ford automobile dealership for over 25 years. Since he has been heavily involved in the sales of cars, Oscar believes that there are 3 different types of customers with the following willingness to pays: Sunroof Navigation System Customer A $3,000 $1,200 Customer B $1,800 $600 Customer C $150 $1,800 Although not realistic, assume that incremental costs are $0. As the owner of the dealerships, Oscar has the final say on pricing for each customer. Suppose that Oscar knows the willingness to pay of Customer A, B and C as soon as he meets them. What price should Oscar charge to each customer to maximize profits? What is the total amount of profits for the 3 customers and what is the total amount of consumer surplus for the 3 customers? Show your calculations.
A labor-intensive process has a fixed cost of $338,000 and a variable cost of $143 per unit. A capital-intensive (automated) process for the same product has a fixed cost of $1,244,000 and a variable cost of $92.50 per unit. How many units must be produced and sold at $197 each for the automated process to be preferred to the labor-intensive process?
If the cost of an 8000-operation-per-second assembly line robot is $80,000 and the cost for one with twice the capacity is $120,000, the value of the exponent in the cost-capacity equation is closest to:a. 0.51b. 0.58c. 0.62d. 0.69
The Vera Molding company has two alternatives for meeting a customer requirement for 10,500 units of specialty molding. If done in-house, the fixed cost would be $325,000 with variable cost at $25 per unit. Alternative two is to outsource for a total cost of $60 per unit. a. What is the breakeven quantity? b. Should the firm make the 9,000 units in-house or outsource?
In 2019, X Company sold 5,250 units of its only product. Total revenue was $1,345,575, total variable costs were $542,325, and total fixed costs were $735,000. In 2020, there are only two expected changes: variable costs will decrease by $4.70 per unit, and fixed costs will decrease by $24,900. How many units must X Company sell in 2020 in order to earn $33,000?
The estimated cost for a multitube cyclone system with a capacity of 60,000 cubic feet per minute is $450,000. (a) If the $200,000 actual cost for a 35,000 cubic feet per minute system was used in the cost-capacity equation, what was the value of the exponent? (b) What can be concluded about the economy of scale of the costs between the two systems?
A suburban lawn-care company has nonincremental fixed costs of $6,000 per month. It currently services 400 lawns per month at an average price of $30 per lawn. The company’s variable costs are $15 per lawn. If the company’s total sales increase beyond 550 lawns per month (i.e., 150 more lawns than are currently serviced), new equipment would have to be purchased that would involve incremental fixed costs of $760 per month. (a) Calculate the breakeven sales level for a $5 per lawn price increase. Show your work. (b) Calculate the breakeven sales level for a $5 per lawn price decrease. Show your work. (Hint: consider the possibility of incremental fixed costs.) (c) Data from past price changes indicates that the company can expect a price elasticity of –1.2. Based on this price elasticity, calculate the unit sales change that the company could expect from a $5 price increase. Then calculate the unit sales change that the company could expect from a $5 price decrease. Show…