48 Endothon Company presently manufactures and assembles all the parts forits toy tractor product. Another company has offered to sell the parts toEndothon for $8.25 per unit. If Endothon buys the parts instead of makingthem, the space used in producing the parts could be used for a new productline, which is scheduled to begin production next year. If Endothon continues toproduce the parts itself, then Endothon will have to rent manufacturing space inan adjacent building for $10,000 in order to house the new product line.Below is the cost information related to the production of the toy tractor parts:Direct materialsDirect laborVariable manufacturing overheadFixed manufacturing overheadTotal manufacturing costs$4.601.802.301.3010.00Estimated sales for the toy tractor are 10,000 units per year. The fixedmanufacturing overhead is indirect and will still be incurred regardless of whichdecision is made.By how much will Endothon Company's net income change if it decides to stopmaking the parts and buy the parts from another company?◇ It will increase by $14,500.It will decrease by $14,500.It will increase by $27,500.It will decrease by $27,500.

Step 1: Cost of Making Variable costs per unit = Direct materials + Direct labor + Variable…

Answered: 48 Endothon Company presently…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 31P: Jonfran Company manufactures three different models of paper shredders including the waste...

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Scrooge McDuck Safe Limited is considering buying the hinges it uses in the manufacture of vaults from an outside vendor. Currently, Scrooge McDuck Safe Limited makes the hinges in its own manufacturing facility. Scrooge McDuck Safe Limited can buy the hinges for $1.50 each. The company uses 900,000 hinges each year. Fixed cost for Scrooge McDuck Safe Limited would not change if the company stopped making the hinges. Information about Scrooge McDuck Safe Limited's cost to manufacture the 900,000 casters follows: Per Unit $.50 .10 Total Direct material $450,000 90,000 360,000 225.000 $1,125,000 Direct labor Variable overhead Fixed overhead Total .40 25 $1.25 Required: A. Prepare a relevant cost schedule that indicates whether Scrooge McDuck Safe Limited should buy the hinges or continue to make them. B. If Scrooge purchased the hinges, management has approached you that a dial producer wishes to rent the vacant space for $150,000 to produce their dials. Does this change your decision??…
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 container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
Reubens Deli currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are: A potential supplier has offered to sell Reuben the rolls for $0.90 each. If the rolls are purchased, 30% of the fixed overhead could be avoided, If Reuben accepts the offer, what will the effect on profit be?
Wantage Company makes decorative wedding cakes. The company is considering buying the cakes rather than baking them, which will allow it to concentrate on decorating. The company averages 100 wedding cakes per year and incurs the following costs from baking wedding cakes: (Click the icon to view the costs.) Fixed costs are primarily the depreciation on kitchen equipment such as ovens and mixers. Wantage expects to retain the equipment. Wantage can buy the cakes for $24. 11. 12. Should Wantage make the cakes or buy them? Why? If Wantage decides to buy the cakes, what are some qualitative factors that Wantage should also consider? 11. Should Wantage make the cakes or buy them? Why? (For the Difference column, use a minus sign or parentheses only when the cost of outsourcing exceeds the cost of making the cakes in-house.) Difference Make cakes Outsource cakes (make - outsource) Cake costs Variable costs: Direct materials Direct labor Variable manufacturing overhead Purchase cost Total…
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3
Tony and Steve a re considering whether to purchase a new "bending brake." This machine puts precise bends in a material used in their vinyl siding business. The machine will cost$70,000. Tony and Steve estimate that the machine will generate profits as follows: $20,000 in its first year; $15,000 in years 2, 3, and 4; and $10,000 in years 5 and 6. They believe the machine will have no value after year 6.a) Should they purchase the machine if they believe they can make ll% on their money in other investments of similar risk?b) Should they purchase the machine if they believe they can makeonly 4% on their money in other investments of similar risk?
Tate Inc. and Booth Inc. are two small manufacturing companies that are considering leasing a cutting machine together. If Tate rents the machine on its own, it will cost $26,000. If Booth rents the machine alone, it will cost $14,000. If they rent the machine together, the cost will decrease to $36,000. Q. Calculate Tate’s and Booth’s respective share of fees using the Shapley value method
4
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CompanyX, a small (fictitious) company, is considering switching to the 2-year Acme2 battery for the smartphones it issues to employees. CompanyX supplies 1 phone each to 100 employees. The battery that CompanyX currently uses lasts 1 year, costs CompanyX $50 for the battery itself, and costs CompanyX $60 in labor to replace each battery. Assume the replacement labor cost stays constant no matter what battery is used. What is the VIU price for the Acme2 battery in this application? HINT: First, calculate the current annual cost related to batteries, and then set that amount to the VIU cost equation, including parts and labor. $160 $110 $50 $42.50

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