Please see attached file for details. Below are the 4 questions relating to the case - please be very detailed on your calculations and how you get to the numbers. I am struggling to understand so I want to ensure I know where every questions comes from. I need to learn this. Also be sure to read the questions and ensure the answer is appropriate to the question.

- Re-compute the predetermined rate assuming that the new machine will be installed. Explain why the new predetermined overhead rate is higher (or lower) than the rate that was originally estimated for the year 2014.

- What effect (if any) would this new rate have on the cost of jobs that do not use the new automated milling machine? Why?

- Why would managers be concerned about the new overhead rate?

- After seeing the new predetermined overhead rate, the production manager admitted that she probably wouldnt be able to eliminate all of the 6,000 direct labor-hours. She had been hoping to accomplish the reduction by not replacing workers who retire or quit, but that would not be possible. As a result, the real labor savings would be only about 2,000 hoursone worker. In the light of this additional information, evaluate the original decision to acquire the automated milling machine from Central Robotics.

Smith Fabricators Corporation Smith Fabricators Corporation manufactures a variety of parts for the automotive industry. The company uses a job-order costing system with a plant-wide predetermined overhead rate based on direct labor-hours. On December 10, 2013, the company's controller made a preliminary estimate of the predetermined overhead rate for 201 The new rate was based on the estimated total manufacturing overhead cost of $2,475,000 and the estimated 52,000 total Cost labor-hours cost/direct labor hour $2,475,000 52000 $47.60 This new predetermined overhead rate was communicated to top managers in a meeting on December 11. The rate did not cause any comment because it was within a few pennies of the overhead rate that had been used during 2 One of the subjects discussed at the meeting was a proposal by the production manager to purchase an automated milling The president of Smith Fabricators, Kevin Reynolds, agreed to meet with the regional sales representative from Central Rob On the day following the meeting, Mr. Reynolds met with Jay Warner, Central Robotics' sales representative. The following Reynolds: Larry Winter, our production manager, asked me to meet with you since he is interested in installing an auto skeptical. You're going to have to show me this isn't just another expensive toy for Larry's people to play wit Warner: That shouldn't be too difficult, Mr. Reynolds. The automated milling machine center has three major advant methods you are using. It can process about twice as many parts per hour as your present milling machines up-front programming costs, but once those have been incurred, almost no setup is required on the machin code of the standard operation, load the machine's hopper with raw material, and the machine does the re Reynolds: Yeah, but what about cost? Having twice the capacity in the milling machine area won't do us much good. T Warner: I was getting there. The third advantage of the automated milling machine center is lower cost. Larry Winte estimated that the automated equipment would eliminate the need for about 6,000 direct labor-hours a ye Reynolds: Warner: Reynolds: Warner: Reynolds: Warner: Reynolds: Warner: The wage rate in the milling area averages about $21 per hour. Fringe benefits raise that figure to about $30 Don't forget your overhead. Next year the overhead rate will be about $48 per hour. So including fringe benefits and overhead, the cost per direct labor-hour is about $78. That's right. Since you can save 6,000 direct labor-hours per year, the cost savings would amount to about $468,000 a ye That's pretty impressive, but you aren't giving away this equipment are you? Several options are available, including leasing and outright purchase. Just for comparison purposes, our 60 $300,000 per year. Reynolds: Sold! When can you install the equipment? Shortly after this meeting, Mr. Reynolds informed the company's controller of the decision to lease the new equipment, wh period. The controller realized that this decision would require a re-computation of the predetermined overhead rate for th the manufacturing overhead and the direct labor-hours for the year. After talking with both the production manager and th controller discovered that in addition to the annual lease cost of $300,000, the new machine would also require a skilled te at a cost of $45,000 per year to maintain and program the equipment. Both of these costs would be included in factory ove manufacturing overhead cost, which is almost entirely fixed. The controller assumed that the new machine would result in from the levels that had initially been planned. When the revised predetermined overhead rate for the year 2014 was circulated among the company's top managers, ther 1) Re-compute the predetermined rate assuming that the new machine will be installed. Explain why the new predeterm than the rate that was originally estimated for the year 2014. 2) What effect (if any) would this new rate have on the cost of jobs that do not use the new automated milling machine? 3) Why would managers be concerned about the new overhead rate? 4) After seeing the new predetermined overhead rate, the production manager admitted that she probably wouldn't be labor-hours. She had been hoping to accomplish the reduction by not replacing workers who retire or quit, but that wou labor savings would be only about 2,000 hoursone worker. In the light of this additional information, evaluate the orig milling machine from Central Robotics. d on direct labor-hours. ed overhead rate for 2014. e estimated 52,000 total direct labor-hours for 2014: had been used during 2013. se an automated milling machine center built by Central Robotics. ntative from Central Robotics to discuss the proposal. entative. The following discussion took place: sted in installing an automated milling machine center. Frankly, I am arry's people to play with. has three major advantages. First, it is much faster than the manual resent milling machines. Second, it is much more flexible. There are some required on the machines for standard operations. You just punch in the he machine does the rest. on't do us much good. That center is idle much of the time anyway. lower cost. Larry Winters and I looked over your present operations, and we 0 direct labor-hours a year. What is your direct labor cost per hour? that figure to about $30 per hour. 8. t to about $468,000 a year. arison purposes, our 60-month lease plan would require payments of only the new equipment, which would be installed over the Christmas vacation ned overhead rate for the year 2014 since the decision would affect both duction manager and the sales representative from Central Robotics, the d also require a skilled technician/programmer who would have to be hired e included in factory overhead. There would be no other changes in total machine would result in a reduction of 6,000 direct labor-hours for the year any's top managers, there was considerable dismay. = This is given information = Questions why the new predetermined overhead rate is higher (or lower) mated milling machine? Why? probably wouldn't be able to eliminate all of the 6,000 direct e or quit, but that would not be possible. As a result, the real mation, evaluate the original decision to acquire the automated iven information