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In building their plant, the officers of the International Leather Company had the choice between alternatives:
One alternative is to build in Metro Manila where the plant would cost P2,000,000. Labor would cost annually P120,000 and annual
The second alternative would be to build in Bulacan a plant costing P2,250,000. Labor would cost P100,000 and overhead would be P55,000. Taxes and insurances would be 3% of the first cost.
The cost of raw materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers of the company choose?
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- In building their plant, the officers of the International Leather Company had the choice alternatives. One alternative is to build Metro Manila where the plant would cost P2,000,000. Labor would cost annually P120,000 and annual overhead P40,000. Taxes and insurance would total 5% of the first cost of the plant The second alternative would be to build in Bulacan a plant costing P2,250,000. Labor would cost P100,000 annually and overhead would be P55,000. Taxes and insurance would be 3% of the first cost. The cost of raw materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers company choose?SHOW YOUR SOLUTIONS AND CASHFLOW. THANK YOU! THE LESSON IS ALL ABOUT ALTERNATIVE COSTS 1. In building their plant, the officers of the International Leather Company had the choice between alternatives: One alternative is to build in Metro Manila where the plant would cost P2,000,000. Labor would cost annually P120,000 and annual overhead P40,000. Taxes and insurance would total 5% of the first cost of the plant. The second alternative would be to build in Bulacan a plant costing P2,250,000. Labor would cost annually P100,000 and overhead would be P55,000. Taxes and insurance would total 3% of the first cost. The cost of raw materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers of the company choose?Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $300,000, has a four-year life, and requires $101,000 in pretax annual operating costs. System B costs $380,000, has a six-year life, and requires $95,000 in pretax annual operating costs. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 22 percent and the discount rate is 10 percent. Calculate the EAC for both conveyor belt systems. System A 156,921.11 System B 147,417.49 %24 %24
- In building their plant, the officers of the International Leather Company had the choice between alternatives: One alternative is to build in Metro Manila where the plant would cost P2,000,000. Labor would cost annually P120,000 and annual overhead would be 40,000. Taxes and insurance would total 5% of the first cost of the plant. The second alternative would be to build in Bulacan a plant costing P2,250,000. Labor would cost annually P100,000 and overhead would be P55,000. Taxes and insurance would be 3% of the first cost. The cost of raw materials would be the same in neither plant. If capital must be recovered within 10 years and money is worth at least 20%, which site should the officers of the company choose using the RORAI method and what is its RORAI? a. RORAI = 18.56% (in metro manila) b. RORAI = 11.15% (in metro manila) c. RORAI = 21.76% (in Bulacan) d. RORA = 5.67% (in metro manila)Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $325,000, has a four-year life, and requires $121,000 in pretax annual operating costs. System B costs $405,000, has a six-year life, and requires $115,000 in pretax annual operating costs. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 22 percent and the discount rate is 11 percent. Calculate the EAC for both conveyor belt systems. (A negative answer should be Indicated by a minus sign. Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System BHagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $340,000, has a 4-year life, and requires $133,000 in pretax annual operating costs. System B costs $420,000, has a 6-year life, and requires $127,000 in pretax annual operating costs. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 25 percent and the discount rate is 10 percent. Calculate the EAC for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B Which conveyor belt system should the firm choose? System B System A
- Letang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $320,000, has a four-year life, and requires $117,000 in pretax annual operating costs. System B costs $400,000, has a six-year life, and requires $111,000 in pretax annual operating costs. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 21 percent and the discount rate is 10 percent. Calculate the EAC for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)Each year, the company needs atleast 10,000 parts. A supplier has offered to sell a component to the company for ₱54 each. However, if the company choose to outsource the component of the product, it can use the facilities to make another product that would yield a total contribution margin of ₱60,000 per year. The unit cost for making the components is shown below A. How much is the total cost to make the component? B. How much is the total cost to buy the component? C. How much is opportunity cost in the given problem? D. What should be the optimal decision for the company?Peggy Lane Corp., a producer of machine tools, wants to move to a larger site. Two alternative locations have been identified: Bonham and McKinney. Bonham would have fixed costs of $800,000 per year and variable costs of $14,000 per standard unit produced. McKinney would have annual fixed costs of $940,000 and variable costs of $12,800 per standard unit. The finished items sell for $28,000 each. a) The volume of output at which both the locations have the same profit = standard units (round your response to the nearest whole number). b) Básed on the analysis of the volume, after rounding the numbers to the nearest whole number, Bonham is superior below standard units. c) Based on the analysis of the volume, after rounding the numbers to the nearest whole number, McKinney is superior above standard units. d) The break-even point for Bonham is units. (Enter your response rounded to the nearest whole number.)
- Stirling Windows Inc. of Hong Kong is considering purchasing an automated cutting machine for use in the production of its stained-glass windows. The machine would cost $800,000. (All currency amounts are in Hong Kong dollars.) An additional $550,000 would be required for installation costs and for software. Management believes that the automated machine would provide substantial annual reductions in costs, as shown below: Annual Reductionin Costs Labour costs $ 140,000 Material costs $ 96,000 The new machine would require considerable maintenance work to keep it in proper adjustment. The company’s engineers estimate that maintenance costs would increase by $5,000 per month if the machine were purchased. In addition, the machine would require a $81,000 overhaul at the end of the fifth year. The new cutting machine would be usable for ten years, after which it would be sold for its scrap value of $300,000. It would replace an old…Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $260,000, has a four-year life, and requires $80,000 in pretax annual operating costs. System B costs $366,000, has a six-year life, and requires $74,000 in pretax annual operating costs. Suppose LISC always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 30 percent and the discount rate is 9 percent. Calculate the EAC for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EAC System A $ System B $ Which conveyor belt system should the firm choose? System B System AOrange is currently buying 50,000 motherboard from MotherBoard, Inc. at a price of P65 per board. Orange is considering making its own boards. The costs to make the board are as follows: Direct Materials P32 per unit, Direct labor P10 per unit, Variable Factory Overhead P16.00, Fixed Costs for the plant would increase by P75,000. Which option should be selected and why? a. Make - P350,000 increase in profits b. Make - P275,000 increase in profits c. Buy - P75,000 more in profits d. Buy - P275,000 more in profits