The Jonfran Company The Jonfran Company manufactures three different models of paper shredders. Each has a...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image](https://dsd5zvtm8ll6.cloudfront.net/si.experts.images/questions/2024/05/663a1d96e6652_694663a1d96bc6e5.jpg)
![image](https://dsd5zvtm8ll6.cloudfront.net/si.experts.images/questions/2024/05/663a1d976cd0e_695663a1d9734d13.jpg)
![image](https://dsd5zvtm8ll6.cloudfront.net/si.experts.images/questions/2024/05/663a1d97c2d8f_695663a1d97a3349.jpg)
Transcribed Image Text:
The Jonfran Company The Jonfran Company manufactures three different models of paper shredders. Each has a waste container. Jonfran estimates the following number of waste containers needed over the next 5 years: 2015, 50,000; 2016, 50,000; 2017, 52,000; 2018, 55,000; 2019, 55,000. Jonfran's current manufacturing costs for waste containers are as follows (based on 50,000 units): Direct materials Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead Supervision Depreciation on old equipment Product and process engineering Rent $10.00 8.00 4.00 $100,000 150,000 40,000 25,000 General administrative overhead 200,000 Allocation of general plant overhead 35,000 The following additional information is available: 1. The equipment used to manufacture waste containers must be replaced because it has broken. The old equipment is fully depreciated and has a current cash disposal price of $6,500. 2. The new equipment would cost $960,000. The equipment would go into service on January 1, 2015, and would have a 5-year useful life. Under the prevailing tax laws, depreciation is calculated on the double-declining-balance method over the 5 years, with depreciation in the fifth year being the book value of the equipment at the start of that year. The DDB method assumes a zero terminal salvage value at the end of 5 years, but the actual disposal price would be $12,000. 3. An outside supplier has offered to supply all the containers that Jonfran needs over the next 5 years at a fixed price of $29 per container. If the supplier's offer is accepted, Jonfran would not need to replace the equipment. 4. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in the fixed overhead at $45,000, would be eliminated. There would, however, be no change in general administrative overhead. 5. Product and process engineering costs are incurred to ensure that the manufacturing process for waste containers works smoothly. Although these costs are fixed in the short run with respect to units of waste containers produced, they can be saved in the long run if the container is no longer produced. If the waste container is outsourced, product and process engineering costs of $40,000 will be incurred for 2005 but not thereafter. 6. Rent costs of $25,000 are allocated to products on the basis of floor space used for manufacturing the product. If the waste container is discontinued, the space currently used to manufacture it would become available. The company could then use the space for storage and save $10,000 currently paid for outside storage. 7. General plant overhead costs are allocated to each department on the basis of direct manufacturing labor dollars. These costs will not change in total for the company as a whole, but no general plant overhead will be allocated to the waste container if it is no longer produced. 8. Additional working capital is needed to keep the new equipment running efficiently without stoppages. An investment of $50,000 is required at the outset and an additional $15,000 at the end of 2 years. This total is fully recoverable at the end of 5 years. 9. Jonfran has a 40% income tax rate. Its after-tax required rate of return on new equipment is 12%. Required Discussion Questions: 1. On the basis of the net present value criterion, should Jonfran purchase the waste containers from the outside supplier or purchase the new equipment? Prepare a financial analysis. List the assumptions underlying your baseline analysis. 2. Prepare a sensitivity analysis to examine how changes in the assumptions will affect your final computations. For example, you may want to consider (1) changes in tax rates; (2) changes in required rate of return; (3) changes in your prediction on the quantity of waste containers; and (4) any other change you can think of. 3. What non-financial and qualitative factors should Jonfran consider before coming to a decision? The Jonfran Company The Jonfran Company manufactures three different models of paper shredders. Each has a waste container. Jonfran estimates the following number of waste containers needed over the next 5 years: 2015, 50,000; 2016, 50,000; 2017, 52,000; 2018, 55,000; 2019, 55,000. Jonfran's current manufacturing costs for waste containers are as follows (based on 50,000 units): Direct materials Direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead Supervision Depreciation on old equipment Product and process engineering Rent $10.00 8.00 4.00 $100,000 150,000 40,000 25,000 General administrative overhead 200,000 Allocation of general plant overhead 35,000 The following additional information is available: 1. The equipment used to manufacture waste containers must be replaced because it has broken. The old equipment is fully depreciated and has a current cash disposal price of $6,500. 2. The new equipment would cost $960,000. The equipment would go into service on January 1, 2015, and would have a 5-year useful life. Under the prevailing tax laws, depreciation is calculated on the double-declining-balance method over the 5 years, with depreciation in the fifth year being the book value of the equipment at the start of that year. The DDB method assumes a zero terminal salvage value at the end of 5 years, but the actual disposal price would be $12,000. 3. An outside supplier has offered to supply all the containers that Jonfran needs over the next 5 years at a fixed price of $29 per container. If the supplier's offer is accepted, Jonfran would not need to replace the equipment. 4. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in the fixed overhead at $45,000, would be eliminated. There would, however, be no change in general administrative overhead. 5. Product and process engineering costs are incurred to ensure that the manufacturing process for waste containers works smoothly. Although these costs are fixed in the short run with respect to units of waste containers produced, they can be saved in the long run if the container is no longer produced. If the waste container is outsourced, product and process engineering costs of $40,000 will be incurred for 2005 but not thereafter. 6. Rent costs of $25,000 are allocated to products on the basis of floor space used for manufacturing the product. If the waste container is discontinued, the space currently used to manufacture it would become available. The company could then use the space for storage and save $10,000 currently paid for outside storage. 7. General plant overhead costs are allocated to each department on the basis of direct manufacturing labor dollars. These costs will not change in total for the company as a whole, but no general plant overhead will be allocated to the waste container if it is no longer produced. 8. Additional working capital is needed to keep the new equipment running efficiently without stoppages. An investment of $50,000 is required at the outset and an additional $15,000 at the end of 2 years. This total is fully recoverable at the end of 5 years. 9. Jonfran has a 40% income tax rate. Its after-tax required rate of return on new equipment is 12%. Required Discussion Questions: 1. On the basis of the net present value criterion, should Jonfran purchase the waste containers from the outside supplier or purchase the new equipment? Prepare a financial analysis. List the assumptions underlying your baseline analysis. 2. Prepare a sensitivity analysis to examine how changes in the assumptions will affect your final computations. For example, you may want to consider (1) changes in tax rates; (2) changes in required rate of return; (3) changes in your prediction on the quantity of waste containers; and (4) any other change you can think of. 3. What non-financial and qualitative factors should Jonfran consider before coming to a decision?
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
Technology is revolutionizing the way businesses, and entire supply chains, manage their inventory and track inventory costs. For this discussion forum, let's educate each other on the types of...
-
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste...
-
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste...
-
Northland Corporation is a small information-systems consulting firm that specializes in helping companies implement standard sales-management software. The market for Northalndss services is very...
-
Because the dividend payments on preferred stock are not a tax-deductible expense, the explicit cost of this form of financing is high. What are some of the offsetting advantages to the issuing firm...
-
Given the I = $30,000 Sn = 22000 - 2,000n Bn = 30,000 - 3,000n O&Mn = 30,000 (1 + 0.15)n-1 and tm = 0.40 where 1 = Asset purchase price Sn = Market value at the end of year Bn = Book value at the...
-
Which of the following would be IDC? a. Labor costs to build a road to the drillsite b. Labor costs to build a road to a producing well c. Cost of a drillstem test d. Cost of surface casing e....
-
You are graduating from college at the end of this semester and after reading. The Business of Life box in this chapter, you have decided to invest $5,000 at the end of each year into a Roth IRA for...
-
Sunshine Sushi, a Japanese restaurant, has the following adjusted trial balance with accounts listed in alphabetical order. For the bank loan, $79,100 is due in 2024. For Notes receivable, $40,000...
-
Figure below shows an idealized view of a liquid film of viscosity u that is draining under gavity down the side of a flat vertical wall. Such a situation would be approximated by the film left on...
-
Define the loop gain factor.
-
Which provides stronger evidence against H0: a P-value of 0.05 or a P-value of 0.50?
-
What are the two general types of feedback and what are the advantages and disadvantages of each type?
-
Define the following terms: a. Point estimate b. Confidence interval c. Confidence level
-
State the following: a. The five attestation general standards. b. The two attestation standards of field work. c. The four attestation standards of reporting.
-
The company could be either international or local. If it is an international company, it should not be operating in Uzbekistan; if it is a local company - is should not be operating internationally....
-
Review Exhibit 11.4. Analyze each product on the graph according to the characteristics that influence the rate of adoption. For example, what can you conclude from the data about the relative...
-
Refer to Exhibits 4-4 and 4-5. Suppose manufacturing costs were the same, but there was an ending work-in-process inventory of $3 million. The cost of the completed goods would therefore be $37...
-
Ithalid Company began business on January 1, 2006, with assets of $150,000 cash and equity of $150,000 capital shares. In 2006 it manufactured some inventory at a cost of $60,000, including $12,000...
-
Blackstone Tools produced 12,000 electric drills during 2006, although expected production was only 10,500 drills. The companys fixed overhead rate is $7 per drill. Absorption-costing operating...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App