4. You are making a make-or-buy decision about an item that you sell for $12. If you outsource this item, it will cost you $5 each. If you make the item, you have two choices: a) buy a new machine for $135,000 and have a unit cost of $4.25 or b) buy an older model machine for $100,000 and the unit cost is $4.75 each. There is a 45% chance you will sell 75,000 units, and a 55% change you will sell 100,000 unites. a) Draw the decision tree appropriate to the alternatives and outcomes stated b) Calculate the EMV for all three options. Which is the best choice?

4. You are making a make-or-buy decision about an item that you sell for $12. If you outsource this item, it will cost you $5 each. If you make the item, you have two choices: a) buy a new machine for $135,000 and have a unit cost of $4.25 or b) buy an older model machine for $100,000 and the unit cost is $4.75 each. There is a 45% chance you will sell 75,000 units, and a 55% change you will sell 100,000 unites. a) Draw the decision tree appropriate to the alternatives and outcomes stated b) Calculate the EMV for all three options. Which is the best choice?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

29) Foamsoft sells customized boat shoes. Currently, it sells 16,850 pairs of shoes annually at an average price of $75 a pair. It is considering adding a lower-priced line of shoes which sell for $59 a pair. Foamsoft estimates it can sell 4,500 pairs of the lower-priced shoes but will sell 1,100 fewer pairs of the higher-priced shoes by doing so. What is the estimated value of the erosion cost that should be charged to the lower-priced shoe project?
Radar Company sells bikes for $500 each. The company currently sells 4,150 bikes per year and could make as many as 4,510 bikes per year. The bikes cost $300 each to make: $180 in variable costs per bike and $120 of fixed costs per bike. Radar receives an offer from a potential customer who wants to buy 360 bikes for $460 each. Incremental fixed costs to make this order are $70 per bike. No other costs will change if this order is accepted. (a) Compute the income for the special offer. (b) Should Radar accept this offer? (a) Special offer analysis Sales Variable costs Contribution margin Income (b) The company should $ Per Unit Total 460 $ 165,600 180 0
Radar Company sells bikes for $520 each. The company currently sells 4,350 bikes per year and could make as many as 4,690 bikes per year. The bikes cost $270 each to make: $160 in variable costs per bike and $110 of fixed costs per bike. Radar receives an offer from a potential customer who wants to buy 340 bikes for $500 each. Incremental fixed costs to make this order are $70 per bike. No other costs will change if this order is accepted. (a) Compute the income for the special offer. (b) Should Radar accept this offer? (a) Special offer analysis Contribution margin Income: (b) The company should Per Unit 0 Total
Kate figures that based on her target ROS she will have to sell 20, 500 units of PickleKeeper, a storage unit for cucumbers. Kate sells the product direct to consumers for $0.59 and spends $ 0.29 per unit to manufacture and sell it. With fixed costs of $5,000, her target ROS % must be around 9.5%. (Round your answer to the nearest 50 units when choosing an option from below). Question 1 options: True False
Susan Carrie is planning to sell her special pottery for $25 per unit. She purchases units from a local distributor for $11 each. She can return any unsold units for a full refund. Fixed costs for booth rental, including lighting and security is $8500. Required a) Compute the breakeven point in units sold. b) Suppose the unit purchased is $9 instead of $11, the fixed cost increases by $2000, but the selling price is unchanged. Compute the new breakeven point in units sold. c) Using the above data, explain how cost behaviour affects Patsy Smith's decision- making?
Go Fly A Kite is considering making and selling custom kites in two sizes. The small kites would be priced at $12.00 and the large kites would be $25.00 The variable cost per unit is $5.80 and $12.60, respectively. Jill, the owner, feels that she can sell 3,350 of the small kites and 1,925 of the large kites each year. The fixed costs would be $2,120 a year and the depreciation expense is $1,650. The tax rate is 34 percent. What is the annual operating cash flow? Multiple Choice $28,063 $15,018 O $31224 $28.624 $30,023
A cake shop wants to replace their aging bakery. For this, he wants to decide on one of the three situations with different furnaces and alternatives to buy and rent these furnaces. For the first alternative, he wants to buy a large furnace with a purchase cost of $ 48000 and a small furnace with a purchase cost of $ 13000. The annual usage cost of the big furnace, which has an economic life of 8 years, is $ 3000 and its scrap value is $ 12000. The small furnace has an annual usage cost of $ 550 and a scrap value of $ 3600 during its economic life of 4 years. For the second alternative, it is planned to buy a medium sized furnace with an annual purchase cost of $ 26000 and lease 2 of the small furnace with a rental cost of $ 6600. The annual usage cost of the medium size furnace with an economic life of 6 years is $ 1050 and its scrap value is $ 7500. In the third alternative, large and medium sized furnaces with rental costs of $ 25000 and $ 14000, respectively, are required to be…
Question: The Savannah Shirt Company is considering adding a new product line, a cloth shopping bag with custom screen printing that will be sold to grocery stores. If the current market price of cloth shopping bags is $1.25 and the company desires a net profit of 40%, what is the target cost? The company estimates the full product cost of the cloth bags will be $0.60. Should the company manufacture the cloth bags? Why or why not?
Meman
Suppose you want to buy a Tesla Model S, the world's leading all-electric, zero-emission car that has a 265-mile range and can be recharged in three hours. The Tesla Model S Performance model has a list price of $87,500. However, you want several options (Performance Plus Package, red multicoat armor paint, Tech Package, Sound Studio Package, home charging station, performance wheels, and others) that will cost $17,500. An extended warranty will add an additional $5,000. However, if you put $50,000 down now and finance the balance over the next year, you will receive a dealer rebate of $5,000 off the list price. The dealer will give you a $7,000 trade-in allowance for your 2010 Honda Civic DX four-door sedan. In addition, you will have to pay a state sales tax of $10,000, an auto registration fee of $1,000 to the state, and a $1,000 destination charge to ship and prep the car. But because the Tesla Model S is an alternative energy vehicle, you qualify for a $2,500 state rebate and a…
Radar Company sells bikes for $490 each. The company currently sells 4,150 bikes per year and could make as many as 4,490 bikes per year. The bikes cost $300 each to make: $175 in variable costs per bike and $125 of fixed costs per bike. Radar receives an offer from a potential customer who wants to buy 340 bikes for $470 each. Incremental fixed costs to make this order are $60 per bike. No other costs will change if this order is accepted. (a) Compute the income for the special offer. (b) Should Radar accept this offer? (a) Special offer analysis Per Unit Total Contribution margin Income (b) The company should
Need Help