Great Engine Company $($GEC$)$ Is trylng to decide whether it should purchase new equipment so that it can continue to make Its

engines $($a key component of Its final product$)$ Internally, or whether production should be discontinued and the engines purchased

from an outside supplier.

New equipment for producing the engines can be purchased at a cost of $$4,490,000.$ The equipment would have a five$-$year useful life

$($the company uses straight$-$line depreclation$)$ and a $$1,280,000$ salvage value. Alternatlvely, the englnes could be purchased from an

outside suppler. The supplier has offered to provide the englnes for $$165\mathrm{.}00$ each under a five$-$year contract.

GEC present costs per unlt of producing the engines Internally $($with the old equipment$)$ are given below. The costs are based on a

current actlvity level of $42,800$ engines per year:

The overhead amount of $$59\mathrm{.}00$ per unit Includes both varlable and fixed Items as follows:

Supervision was directly traceable to the manufacturing actlvity and primarlly Involved supervising the hourly labour and overseelng

production.

The new equipment would be more efficlent and would reduce direct labour costs and varlable overhead costs by $25\%.$ Supervision

cost $($ $$460,000$ per year$)$ and direct materlals cost per unlt would not be affected by the new equipment. The company has no other

use for the space now belng used to produce the engines. The company's total general overhead would not be affected by this

decision.

Required:

Assume that $42,800$ englnes are needed each year. Should GEC purchase new equipment and contInue manufacturing the engines,

or should It buy the engines from the outside supplier?

New equipment

Outside supplier

At what level of actlvity will the company be Indifferent between the two optlons? $($Do not round Intermedlate calculations and

round your final answer to nearest whole number.$)$Riel Compony menufactures o voriety of tool boxes. The firm is currently operoting at $80\%$ of its full copocity of $5,800$ mochine$-$hours

per month. Each unit requires $30$ minutes of mochine time. Its sales mansger has been looking for special orders to make productive

use of the excess copscity. JCL Ltd$.,$ o potentisl customer, hos offered to buy $10,000$ tool boxes at $$15\mathrm{.}10$ per box, provided that the

entire quantity is delivered in two months. The current per$-$box cost dats are sa follows:

Dinect materisls

Total unit product cost $,\frac{3\mathrm{.}90}{\text{\$}15\mathrm{.}18}$

Both fixed and varisble overhesd are allocsted using direct labour$-$hours as o bsse. Variable overhesd is $$3\mathrm{.}40$ per direct labour$-$hour.

Without the order, Riel would hove enough business to operste at $4,640$ direct lobour$-$hours in each of the next two months. The

regular selling price of the tool boxes is $$18\mathrm{.}10.$ A sales commission of $50$ cents per unit is paid to soles representatives on sll regular

soles.

No additionsl selling or administrative expenses are anticipated on account of accepting this special order and no commissions will be

psid on this specisl order.

The production manager is concerned about the labour time that $10,000$ boxes would require. She cannot schedule overtime because

Riel has a policy ogainst it JCL will not accept fewer than $10,000$ tool boxes. Therefore, in order to fill the special order, it would be

necessory for Riel Compsny to divert some of its regular soles to the special order.

Required:

$1-$a$.$ Prepare contribution morgin income statements for the two$-$month period both with and without the special order. $($Leave no cells

blank $-$ be certaln to enter $"0"$ wherever required.$)$

$1-$b$.$ Based on finsncial considerations, should Riel sccept the order?

Accept

Not Accept

This port of the question is not port of your Connect sssignment.