Question
U-RIDE, Inc. currently produces the electric engines that are used in golf carts made and sold by the Company. Electco has offered to sell the
U-RIDE, Inc. currently produces the electric engines that are used in golf carts made and sold by the Company. Electco has offered to sell the electric engines to U-RIDE at a price of $270 each.
Current production information follows:
| Unit-level material and labor | $ | 225 | |
| Facility-level depreciation of manufacturing equip. | $ | 6,000 | /month |
| Product-level engine production supervisor's salary | $ | 3,000 | /month |
| Annual facility-level utilities | $ | 20,000 | |
U-RIDE is currently operating profitably producing and selling 3,000 engines a year using 80% of its manufacturing capacity. Which of the following is true?
Multiple Choice
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U-RIDE should make the engines for cost savings of $45 per unit.
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Buying the units would increase U-RIDE's cost by $33 per unit.
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U-RIDE has avoidable costs of greater than $270 per unit and should therefore buy the engines.
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Buying the units would increase profitability by $78 per unit.
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2)
U-RIDE, Inc. currently produces the electric engines that are used in golf carts made and sold by the Company. Electco has offered to sell the electric engines to U-RIDE at a price of $270 each.
Current production information follows:
| Unit-level material and labor | $ | 225 | |
| Facility-level depreciation of manufacturing equip. | $ | 6,000 | /month |
| Product-level engine production supervisor's salary | $ | 3,000 | /month |
| Annual facility-level utilities | $ | 20,000 | |
Buying the engines will free up manufacturing capacity that could be used to make a new economy line golf cart that would produce an additional $105,000 profit per year. U-RIDE is currently operating profitably producing and selling 3,000 engines annually. Based on this information, which of the following is true?
Multiple Choice
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a) The $105,000 is not relevant because it is an estimate.
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b) Buying the units would increase U-RIDE's cost by $33 per unit.
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c) U-RIDE has avoidable costs of less than $270 per unit and should therefore buy engines.
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d) The cost of buying the engines is $2 per unit less than the relevant cost of making the units.
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Public Sector Accounting And Auditing In Europe The Challenge Of Harmonization
Authors: I. Brusca, E. Caperchione, S. Cohen, F Manes Rossi
2015th Edition
1137461330, 978-1137461339
