"In my opinion, we ought to stop making our own drums and accept that outside supplier's offer," said Wim Niewindt, managingdirector of Antilles Refining, N.V., of Aruba. "At a price of $20 per drum, we would be paying $4.45 less than it costs us tomanufacture the drums in our own plant. Since we use 65,000 drums a year, that would be an annual cost savings of $289,250,"Antilles Refining's current cost to manufacture one drum is given below (based on 65,000 drums per year):Direct materials$10.95Direct labor7.00Variable overhead1.60Fixed overhead ($2.50 general company overhead,$1.60 depreciation, and $0.80 supervision)4.90Total cost per drun$24.45A decision about whether to make or buy the drums is especially important at this time because the equipment being used to makethe drums is completely worn out and must be replaced. The choices facing the company are:Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $156,000 per year.Alternative 2: Purchase the drums from an outside supplier at $20 per drum.The new equipment would be more efficient than the equipment that Antilles Refining has been using and, according to theun run an outside supplier at $20 per drum.The new equipment would be more efficient than the equipment that Antilles Refining has been using and, according to themanufacturer, would reduce direct labor and variable overhead costs by 25%. The old equipment has no resale value. Supervisioncost ($52,000 per year and direct materials cost per drum would not be affected by the new equipment. The new equipment'scapacity would be 100,000 drums per year.The company's total general company overhead would be unaffected by this decision.Required:1. Assuming that 65,000 drums are needed each year, t hat is the financial advantage (disadvantage) of buying the drums from anoutside supplier?2. Assuming that 80,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from anoutside supplier?3. Assuming that 100,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from anoutside supplier?(For all requirements, enter any "disadvantages" as a negative value. Do not round intermediate calculations. Do not leave anycells blank.)mpany a wageni wpany over would be unnected by this decision.Required:1. Assuming that 65,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from anoutside supplier?2. Assuming that 80.000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from anoutside supplier?3. Assuming that 100,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from anoutside supplier?(For all requirements, enter any "disadvantages" as a negative value. Do not round intermediate calculations. Do not leave anycells blank.)Production Needs Financial advantage(in number of(disadvantage) ofdrums)buying the drums65,00080.000100,000

In accounting we have to make decisions like buy or make a particular asset. This includes…

The company's total general company overhead would be unaffected by this decision. Required: 1. Assuming that 65.000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? 2. Assuming that 80,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? 3. Assuming that 100,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? For all requirements, enter any "disadvantages" as a negative value. Do not round intermediate calculations. Do not leave any cells blank.)

The company's total general company overhead would be unaffected by this decision. Required: 1. Assuming that 65.000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? 2. Assuming that 80,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? 3. Assuming that 100,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? For all requirements, enter any "disadvantages" as a negative value. Do not round intermediate calculations. Do not leave any cells blank.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

"In my opinion, we ought to stop making our own drums and accept that outside supplier's offer," said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. "At a price of $20 per drum, we would be paying $4.45 less than it costs us to manufacture the drums in our own plant. Since we use 65,000 drums a year, that would be an annual cost savings of $289,250." Antilles Refining's current cost to manufacture one drum is given below (based on 65,000 drums per year): Direct materials Direct labor Variable overhead Fixed overhead ($2.50 general company overhead, $1.60 depreciation, and $0.80 supervision) Total cost per drum A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are: Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $156,000 per year. Alternative 2:…
"We ought to stop making our own drums and accept that outside supplier's offer," said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. "At a price of $20 per drum, we would be paying $5.45 less than it costs us to manufacture the drums in our own plant. Because we use 80,000 drums a year, that equals an annual cost savings of $436,000." Antilles Refining's current cost to manufacture one drum is given below (based on 80,000 drums per year): Direct materials Direct labor Variable overhead Fixed overhead ($2.90 general company overhead, $1.80 depreciation, and $0.75 supervision) Total cost per drum A decision about whether to make or buy the drums is especially important at this time because the equipment used to make the drums is completely worn out and must be replaced. The choices facing the company are: $ 12.00 6.50 1.50 Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $180,000 per year. Alternative 2: Purchase…
We ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $20 per drum, we would be paying $5.25 less than it costs us to manufacture the drums in our own plant. Because we use 95,000 drums a year, that equals an annual cost savings of $498,750.” Antilles Refining’s current cost to manufacture one drum is given below (based on 95,000 drums per year): Direct materials $ 10.60 Direct labor 6.50 Variable overhead 1.50 Fixed overhead ($3.90 general company overhead, $1.55 depreciation, and $1.20 supervision) 6.65 Total cost per drum $ 25.25 A decision about whether to make or buy the drums is especially important at this time because the equipment used to make the drums is completely worn out and must be replaced. The choices facing the company are: Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $342,000 per…
Make or Buy Decisions “In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $18 per drum, we would be paying $5 less than it costs us to manufacture the drums in our own plant. Since we use 60,000 drums a year, that would be an annual cost savings of $300,000.” Antilles Refining’s current cost to manufacture one drum is given below (based on 60,000 drums per year): A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are: Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $135,000 per year. Alternative 2: Purchase the drums from an outside supplier at $18 per drum. The new equipment would be more efficient than the equipment that Antilles Refining…
Waterways has discovered that a small fitting it now manufactures at a cost of $1.00 per unit could be bought elsewhere for $0.81 per unit. Waterways has fixed costs of $0.20 per unit that cannot be eliminated by buying this unit. Waterways needs 476,000 of these units each year.If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 600 of these units each year. The cost of the unit is $13.22. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,334, and the cost of producing the units would be $10.20 a unit.
The Arthur Company manufactures kitchen utensils. The company is currently producing well below its full capacity. The Benton Company has approached Arthur with an offer to buy 25,000 utensils at $0.70 each. Arthur sells its utensils wholesale for $0.80 each; the average cost per unit is $0.78, of which $0.14 is fixed costs. If Arthur were to accept Benton's offer, what would be the increase in Arthur's operating profits?
Marigold Corp. is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $27 and Marigold would sell it for $60. The cost to assemble the product is estimated at $13 per unit and the company believes the market would support a price of $64 on the assembled unit. What decision should Marigold make and why? Sell before assembly because the company will be better off by $9 per unit. Sell before assembly because the company will be better off by $4 per unit. Process further because the company will be better off by $18 per unit. Process further because the company will be better off by $20 per unit.
The Arthur Company manufactures kitchen utensils. The company is currently producing well below its full capacity. The Benton Company has approached Arthur with an offer to buy 17,000 utensils at $0.85 each. Arthur sells its utensils wholesale for $0.96 each; the average cost per unit is $0.91, of which $0.10 is fixed costs. If Arthur were to accept Benton's offer, what would be the increase in Arthur's operating profits? Multiple Choice O O $850. $1,020. $680. $1,870.
Muscat Inc. has been manufacturing its own Camera for its Mobile Phone. The company is currently operating at 100% of capacity. Variable manufacturing overhead cost is OMR 3 per unit. The direct materials and direct labor cost per unit to make the camera are OMR 4 and OMR 6, respectively, fixed cost is OMR 50,000. Normal production is 50,000 Mobile Phone per year.
Expo Lube is interested in producing and selling an industrial line of oil filters. Market research indicates that wholesale customers are currently willing to pay $8 for similar filters, and that Expo Lube could sell 80,000 units per year at that price. a. If Expo Lube requires a 19 percent return on sales, what is its target cost for the proposed industrial line of filters? b. Assume that market research reveals several of Expo Lube’s direct competitors are likely to lower the wholesale price of similar filters to $7 per unit. To remain competitive, what will Expo Lube’s target cost have to be to maintain a 19 percent return on sales? c. At a wholesale price of $7, Expo Lube estimates that it can sell 83,100 industrial filters per year instead of 80,000 units. Assuming its target costs are attainable, how much more or less profit per year will the company earn at the $7 wholesale price compared to the initial wholesale price estimate of $8?
Comdex Inc. manufactures parts for the telecom industry. One of its products that currently sells for $160 is now facing a new competitor that offers the same product for $140. The parts currently cost Comdex $130. Comdex believes it must reduce its price to $140 to remain competitive. What is the target cost of the product if Comdex desires a 25% profit on sales dollars?
Waterways has discovered that a small fitting it now manufactures at a unit cost of $1.00 could be bought elsewhere for $0.81 per unit. Waterways has unit fixed manufacturing costs of $0.20 that cannot be eliminated by buying this unit. Waterways needs 465,000 of these units each year.If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 400 of these units each year. The cost of the unit is $12.33. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,344, and the unit cost of producing the units would be $9.40. Without considering the possibility of making the timing unit, evaluate whether Waterways should buy or continue to make the small fitting. The company should make the fitting. Incremental cost / (savings) will be 4,650 What is Waterways’ opportunity cost if it chooses to buy the small…