I uploaded for you the solution from my instructor , I want you to change it and make it look different. For example, the written parts do a paraphrase to it and make it not look the same. and the claculation try to change the format and the looks but not the answers , because the answeres are right

Problem 9-7 (75 minutes) (LO1 CC3, 4) 1. The Afl5.60 per drum general overhead cost is not relevant to the decision, since this cost will be the same regardless of whether the company decides to make or buy the drums. Also, the present depreciation figure of Afl3.20 per drum is not a relevant cost, since it represents a sunk cost (in addition to the fact that the old equipment is worn out and must be replaced). The cost (depreciation) of the new equipment is a relevant cost, since the new equipment will not be purchased if the company decides to accept the outside supplier's offer. The cost of supervision is relevant to the decision, since this cost can be avoided by buying the drums. Outside supplier's price Differential Costs Per Drum Make Buy Afl36.00 Direct materials Direct labour (Afl12.00 70%) Variable overhead (Afl3.00 70%) Supervision Depreciation Afl20.70 Total cost Afl34.95 8.40 Total Differential Costs 120,000 Drums Make Buy Afl4,320,000 Afl2,484,00 0 1,008,000 2.10 1.50 2.25 * Afl36.00 252,000 180,000 270,000 Afl4,194,00 0 Afl1,620,000 6 years = fl270,000 per year; Afl270,000 per year 120,000 drums = Afl2.25 per drum. Afl4,320,000 Problem 9-7 (continued) 2. a. Notice that unit costs for both supervision and depreciation will change if the company needs 150,000 drums each year. The reason is that these fixed costs will be spread over a greater number of units, thereby reducing the cost per unit. Outside supplier's price Direct materials Direct labour Variable overhead Supervision (Afl180,000 150,000 drums) Depreciation (Afl270,000* 150,000 drums) Total cost Differential Cost Per Drum Make Buy Afl36.0 0 Afl20.7 0 8.40 2.10 1.20 1.80 Afl34.2 Afl36.0 0 0 Total Differential Cost 150,000 Drums Make Buy Afl5,400,000 Afl3,105,000 1,260,000 315,000 180,000 270,000 Afl5,130,000 Afl5,400,000 The company should purchase the new equipment and make the drums if 150,000 units per year are needed. * Afl1,620,000 6 years = Afl270,000 per year Problem 9-7 (continued) b. Again, notice that the unit costs for both supervision and depreciation decrease with the greater volume of units. Outside supplier's price Direct materials Direct labour Variable overhead Supervision (Afl180,000 180,000 drums) Depreciation (Afl270,000* 180,000 drums) Total cost Differential Costs Per Drum Make Buy Afl36.0 0 Afl20.70 8.40 2.10 1.00 1.50 Afl36.0 Afl33.70 0 Total Differential Cost 180,000 Drums Make Buy Afl6,480,00 0 Afl3,726,00 0 1,512,000 378,000 180,000 270,000 Afl6,066,00 Afl6,480,00 0 0 The company should purchase the new equipment and make the drums if 180,000 units per year are needed. * Afl1,620,000 6 years = Afl270,000 per year Problem 9-7 (continued) 3. Other factors that the company should consider include: a. Will volume in future years be increasing, or will it remain constant at 120,000 units per year? (If volume increases, then buying the new equipment becomes more desirable, as shown in the computations above.) b. Can quality control be maintained if the drums are purchased from the outside supplier? c. Will costs for materials and labour increase in future years, thereby increasing the cost of making the drums? (The supplier will be locked in to an Afl36 price.) d. Will the outside supplier be dependable in meeting shipping schedules? e. Can the company begin making the drums again if the supplier proves to be undependable, or are there alternative suppliers? f. What is the labour outlook in the supplier's industry (e.g., are frequent labour strikes likely)? g. If the outside supplier's offer is accepted and the need for drums increases in future years, will the supplier have the added capacity to provide more than 120,000 drums per year? Problem 9-8 (45 minutes) (LO1 CC4) 1. Product RG-6 yields a contribution margin of $8 per unit ($22 - $14 = $8). If the plant closes, this contribution margin will be lost on the 16,000 units (8,000 units 2) that could have been sold during the two-month period. However, the company will be able to avoid certain fixed costs as a result of closing down. The analysis is: Contribution margin lost by closing the plant for two months ($8 per unit 16,000 units).................................. Costs avoided by closing the plant for two months: Fixed manufacturing overhead cost ($150,000 - $105,000 = $45,000; $45,000 2 months = $90,000).......................................................................... $90,000 Fixed selling costs ($30,000 10% 2 months)............... 6,000 Net disadvantage of closing, before start-up costs............... Add start-up costs................................................................. Disadvantage of closing the plant......................................... $(128,000) 96,000 (32,000) ( 8,000) $ (40,000) No, the company should continue to operate at the reduced level of 8,000 units produced and sold each month. Closing will result in a $40,000 greater loss over the two-month period than if the company continues to operate. An additional factor is the potential loss of goodwill among the customers who need the 8,000 units of RG-6 each month. By closing down, the needs of these customers will not be met (no inventories are on hand), and their business may be permanently lost to another supplier. Problem 9-8 (continued) Alternative Solution: Sales (8,000 units $22 2) Less variable expenses (8,000 units $14 2) Contribution margin Less fixed costs: Fixed manufacturing overhead costs ($150,000 2) Fixed selling costs ($30,000 2) Total fixed costs Net loss before start-up costs Start-up costs Net operating loss Plant Kept Open $ 352,000 224,000 128,000 Plant Closed $ -0-0-0- 300,000 210,000 * 60,000 360,000 (232,000) -0$(232,000) 54,000 ** 264,000 (264,000) (8,000) $(272,000) * $105,000 2 = $210,000. ** $30,000 90% = $27,000 2 = $54,000. Difference: Net Income Increase or (Decrease) $(352,000) 224,000 (128,000) 90,000 6,000 96,000 (32,000) (8,000) $ (40,000) Problem 9-8 (continued) 2. Birch Company will be indifferent at a level of 11,000 total units sold over the two-month period. The computations are: Cost avoided by closing the plant for two months (see above)................................................................................ $96,000 Less start-up costs................................................................. 8,000 Net avoidable costs............................................................... $88,000 Net avoidable costs $88,000 = Per unit contribution margin $8 per unit = 11,000 units Verification: Operate at 11,000 Close for Units for Two Two Months Months Sales (11,000 units $22 per unit)...................................... $ 242,000 $ -0Less variable expenses (11,000 units $14 per unit)....................................................................... 154,000 -0Contribution margin.............................................................. 88,000 -0Less fixed expenses: Manufacturing overhead ($150,000 and $105,000, 2 months).................................................... 300,000 210,000 Selling ($30,000 and $27,000, 2 months)........................................................................... 60,000 54,000 Total fixed expenses.............................................................. 360,000 264,000 Start-up costs........................................................................ -08,000 Total costs.............................................................................. 360,000 272,000 Net operating loss................................................................. $(272,000) $(272,000)