20-21

20. J Skate, Inc. currently manufactures the wheels that it uses for its in-line skates. The annual costs to manufacture the 150,000 wheels needed each year are as follows Total Cost $165,000 Direct materials. Direct labor Variable manufacturing overhead Fixed manufacturing overhead 45,000 60,000 300.000 $570.000 K Company has offered to provide J with all of its annual wheel needs for $3.50 per wheel. If J accepts is offer, 75% of the fixed manufacturing overhead above could be eliminated. Also, J would be able to rent out the space which could generate $72,000 of income annually Based on this information, would J be financially better off to continue making the wheels or to buy them from K? Support your answer by showing computations of the costs of making vs. buying the wheels 21. A corporation is studying a project that would have a ten-year lide and would require a $450,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project Sales Less cash variable expenses Contribution margin.. Less fixed expenses: $500,000 200.000 300,000 Fixed cashexpenses Depreciation expenses. $150,000 5000 195.000 105.000 Net operating income The company's required rate of return is 12%. The payback period for this project is closest to: A) 3 years B) 2 years C) 4.28 years D) 9 years