Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

That old equipment for producing carburetors is worn out, said Bill Seebach, president of Hondrich Company. We need to make a decision quickly. The company

image text in transcribed
image text in transcribed
image text in transcribed
"That old equipment for producing carburetors is worn out," said Bill Seebach, president of Hondrich Company. "We need to make a decision quickly." The company is trying to decide whether it should rent new equipment and continue to make its carburetors Internally or whether it should discontinue production of its carburetors and purchase them from an outside supplier. The alternatives follow: Alternative f: Rent new equipment for producing the carburetors for $92,000 per year. Alternative 2: Purchase carburetors from an outside supplier for $18.80 each Hondrich Company's costs per unit of producing the carburetors internally (with the old equipment) are given below. These costs are based on a current activity level of 40,000 units per year: $ Direct materials Direct labour Variable overhead Fixed overhead ($1.15 supervision, $1.90 depreciation, and $5.00 general company overhead) 5.90 10.00 3.20 8.05 Total cost per unit $27.15 The new equipment would be more efficient and, according to the manufacturer, would reduce direct labour costs and variable overhead costs by 25%. Supervision cost ($46,000 per year) and direct materials cost per unit would not be affected by the new equipment. The new equipment's capacity would be 50,000 carburetors per year. The total general company overhead would be unaffected by this decision. Required 1. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. Assume that 40,000 carburetors are needed each year. a. What will be the total relevant cost of 40,000 subassemblies if they are manufactured internally as compared to being purchased? Total relevant cost (40,000 subassemblies) $ 724,000 b. What would be the per unit cost of the each subassembly manufactured internally? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Per unit cost of subasserbly $ 18.80 c. Which course of action would you recommend to the president? O Manufacture Internally Indifferent between the two alternatives O Purchase from the outside supplier 2. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. 0-1. What will be the total relevant cost of 46,000 subassemblies if they are manufactured internally? Total relevant cost (46,000 subassemblies) a-2. What would be the per unit cost of subassembly? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Per unit cost of subassembly 0-3. Which course of action would you recommend If 46,000 assemblies are needed each year? O Manufacture Internally Indifferent between the two alternatives O Purchase from the outside supplier b-1. What will be the total relevant cost of 50,000 subassemblies if they are manufactured internally? Total relevant cost (50,000 subassemblies) b-2. What would be the per unit cost of subassembly? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Per unit cost of subassembly b-3. Which course of action would you recommend if 50,000 assemblies are needed each year? Indifferent between the two alternatives Purchase from the outside supplier Manufacture internally 3. Not available in Connect

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Audit Is A Powerful Management Tool

Authors: Fateh Bouchene

1st Edition

6204366548, 978-6204366548

More Books

Students also viewed these Accounting questions

Question

Briefly describe how the percentiles are calculated for a data set.

Answered: 1 week ago

Question

Prepare a constructive performance appraisal.

Answered: 1 week ago

Question

List the advantages of correct report formatting.

Answered: 1 week ago