elly Slater desires to purchase a new front office computer system for his Surfers Paradise Inn. After considerable discussion with purveyors, he has narrowed his choices to systems sold by M. Fanning ltd. and Jamie O’Brien and Co. The associated costs of each system are as follows: M. Fanning ltd. O’Brien and Co. Initial Costs 29,000 31,000 Annual Costs: Labour 22,000 22,000 Utilities 800 600 Supplies 1,500 1,500 Maintenance 2,500 1,500 Salvage Value (in 8 years) 3,000 5,000

elly Slater desires to purchase a new front office computer system for his Surfers Paradise Inn. After considerable discussion with purveyors, he has narrowed his choices to systems sold by M. Fanning ltd. and Jamie O’Brien and Co. The associated costs of each system are as follows: M. Fanning ltd. O’Brien and Co. Initial Costs 29,000 31,000 Annual Costs: Labour 22,000 22,000 Utilities 800 600 Supplies 1,500 1,500 Maintenance 2,500 1,500 Salvage Value (in 8 years) 3,000 5,000

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 31P: Jonfran Company manufactures three different models of paper shredders including the waste...

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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)
.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?
Nelly Technology manufactures a particular computer component. Currently, the costs per unit are asfollows:Direct material P 50Direct labor 500Variable overhead 250Fixed overhead 400Fur Inc. has obtained Nelly with a offer to sell 10,000 units of the component for P1,100 per unit. IfNelly accepts the proposal, P2,500,000 of the fixed overhead will be eliminated. Should Nelly makeor buy the component?
An automobile spare part manufacturer has set up a project for developing a new machine for one of its production lines. The engineering department has provided a project proposal that estimates the following investment requirements: ) An initial investment of RM 300,000 to be paid for purchasing the new machine. i) An additional cost is needed to install the machines and integrate it into the overall production system and it is estimated to take one (1) year for completion. There are three cost categories involved: • Engineering labor cost, estimated to be 1200 hours at a cost of RM 100/hour. • None-engineering labor cost, estimated to be 3000 hours at a cost of RM 50/hour. Assorted material cost, estimated to be RM 100,000. iv) The machine has to be overhauled every 2 year, and it costs RM 20.000 beginning the third year of the project. They will not overhaul the machine in the last year of its life. v) The production will be started in the second year, and it will be up-to-speed by…
Your manufacturing company is interested in developing a cost model to price a AM part that will be manufactured for production. Based on data that they have collected: Machine and ancillary equipment cost : $1,000,000 Equipment depreciation cost per year: $130,000 Machine Maintenance cost per year: $50,000 Machine operator cost per hour : $40/hr Set up and prep time for each build : 30 min Post processing time per build: 1 hr Material Cost per Kg: $275/kg Amount of material needed per part: 100mgs/part They estimate the following: a. Number of parts made per year: 60,000 b. Each build can build 200 parts simultaneously on a single platform c. Build time for each platform of 200 parts: 25 hrs d. The factory will run 24/7 for 200 days in a year. Under this scenario what will be the cost per part ?
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) $5000
Juanita Company must decide whether to make or buy some of its components for the appliances it produces. The costs of producing 166,000 electrical cords for its appliances are as follows: $90,000 $32,000 $20,000 $24,000 Direct materials Variable overhead Direct labor Fixed overhead Instead of making the electrical cords at an average cost per unit of $1.00 ($166,000/166,000), the company has an opportunity to buy the cords at $0.90 per unit. If the company purchases the cords, all variable costs will be eliminated. What is the total relevant cost per unit in deciding either to buy or produce the component? After considering the incremental costs and benefits, should the company continue to produce or buy the cords from the supplier?
Concord Corporation manufactures widgets. Bowden Company has approached Concord with a proposal to sell the company widgets at a price of $88000 for 100000 units. The following costs are associated with Concord's production process when 100000 units are produced: Direct material Direct labor Manufacturing overhead Total $ 33000 29500 48500 $111000 Manufacturing overhead of $12150 of costs will be eliminated if the components are no longer produced by Concord. What is the incremental cost or savings to Concord if the widgets are bought instead of made? $23000 incremental savings $13350 incremental cost $10850 incremental savings $23000 incremental cost
A manufacturer produces hacksaw blades. Recently, the manufacturer has decided to enhance its product line and offer band blades. Two alternatives are being analyzed: purchase band blades overseas or produce them in-house. If the band blades are made in-house, the manufacturer will not be able to produce hacksaw blades, forgoing a $30,000 profit contribution. Revenue from sale of band blades $180,000 Outside purchase 170,000 Direct material and labor 100,000 Variable manufacturing overhead 50,000 Avoidable fixed manufacturing overhead 10,000 Calculate the incremental cost of making and purchasing band blades, respectively.
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)
Assume that HASF furniture Inc., as described, currently purchases the chair cushions for its lawn set from an outside vendor for $30 per set. Modern Furniture’s chief operations officer wants an analysis of the comparative costs of manufacturing these cushions to determine whether bringing the manufacturing in-house would save the firm money. Additional information shows that if Modern furniture’s were to manufacture the cushions, the materials cost would be $16 and the labor cost would be $10 per set and that it would have to purchase cutting and sewing equipment, which would add $25,000 to annual fixed costs. Required Computation for 10,000 units What amount should have been inccrued if company produce 10,000 units What amount should have been inccrued if company purhcase 10,000 units from outside What amount company save if company make 10,000 cushions
Ouzts Corporation is considering Alternative A and Alternative B. Costs associated with the alternatives are listed below: $ 57,100 Materials costs Processing costs $ 37,900 Equipment rental $ 13,300 Occupancy costs $ 22,500 What is the financial advantage (disadvantage) of Alternative B over Alternative A? Multiple Choice O $(23,300) $107,500 $130,800 Alternative A Alternative B $ 41,000 $ 37,900 $(119,150) $ 13,300 $ 15,300

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bartleby, a Learneo, Inc. business

	M. Fanning ltd.	O’Brien and Co.
Initial Costs	29,000	31,000
Annual Costs:
Labour	22,000	22,000
Utilities	800	600
Supplies	1,500	1,500
Maintenance	2,500	1,500
Salvage Value (in 8 years)	3,000	5,000