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Racer Industries is currently purchasing Part No. 76 from an outside supplier for $85 per unit. Because of supplier reliability problems, the company is
Racer Industries is currently purchasing Part No. 76 from an outside supplier for $85 per unit. Because of supplier reliability problems, the company is considering producing the part internally in an idle manufacturing plant. Annual volume over the next 6 years is expected to total 295,000 units at variable manufacturing costs of $80 per unit. Racer must acquire $85,000 of new equipment if it reopens the plant. The equipment has a 6-year service life, a $14,500 salvage value, and will be depreciated by the straight-line method. Repairs and maintenance are expected to average $5,700 per year in years 4-6, and the equipment will be sold at the end of its life. PV of an ordinary annuity at 15% FV of $1 at FV of an ordinary annuity at 15% PV of $1 at Year 15% 15% 1 1.150 1.000 0.870 0.870 2.150 3.473 1.323 0.756 1.626 3 1.521 0.658 2.283 0.572 2.855 3.352 4 1.749 4.993 2.011 6.742 0.497 2.313 8.754 0.432 3.784 Required: Use the net-present-value method (total-cost approach) and a 15% hurdle rate to determine whether Racer should make or buy Part No. 76. Ignore income taxes. (Negative amounts should be indicated by a minus sign. Round your answers to the nearest dollar amount.) Buy: Purchase Make: Variable manufacturing costs New Equipment Repairs and maintenance Equipment sale Total Racer should make or buy
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A B 1 Answer 2 Make is better option for part no 76 3 4 Buy 5 Purchase 295000 units x 85 ...Get Instant Access to Expert-Tailored Solutions
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