Camino Jet Engines Corporation (Continued) The company built eight (8) CJE-27 jet engines to satisfy a special order. Upon inspection, the engines were determined to be defective. The company now must decide between scrapping these engines or reworking them to meet the specifications of the buyer. Each engine cost $900,000 per unit to manufacture. The engines can be sold as scrap (spare parts) for $450,000 each or they can be reworked for $480,000 each and sold for the full price of $2,000,000 each. If the defective engines are scrapped, the company could build 8 more engines to satisfy the special order. The new engines could then be sold at the full price. If the company chose to rework, it would not be able to build the new engines. Required: 1. Calculate the incremental income from selling the 8 engines as scrap. Enter your answer in the schedule below. 2. Calculate the relevant benefits and relevant costs for reworking and selling the 8 engines, including opportunity costs. Enter your answers in the schedule below. Comparison Scrap 8 Engines Rework 8 Engines Relevant benefits Relevant costs (incl. opportunity costs) Income (loss)

Camino Jet Engines Corporation (Continued) The company built eight (8) CJE-27 jet engines to satisfy a special order. Upon inspection, the engines were determined to be defective. The company now must decide between scrapping these engines or reworking them to meet the specifications of the buyer. Each engine cost $900,000 per unit to manufacture. The engines can be sold as scrap (spare parts) for $450,000 each or they can be reworked for $480,000 each and sold for the full price of $2,000,000 each. If the defective engines are scrapped, the company could build 8 more engines to satisfy the special order. The new engines could then be sold at the full price. If the company chose to rework, it would not be able to build the new engines. Required: 1. Calculate the incremental income from selling the 8 engines as scrap. Enter your answer in the schedule below. 2. Calculate the relevant benefits and relevant costs for reworking and selling the 8 engines, including opportunity costs. Enter your answers in the schedule below. Comparison Scrap 8 Engines Rework 8 Engines Relevant benefits Relevant costs (incl. opportunity costs) Income (loss)

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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im Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $75,200, the accumulated depreciation is $30,100, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $156,400. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Operations Proposed Operations Sales $238,400 $238,400 Direct materials $81,200 $81,200 Direct labor 56,400 — Power and maintenance 5,300 27,800 Taxes, insurance, etc. 1,900 6,200 Selling and administrative expenses 56,400 56,400 Total expenses $201,200…
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Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $80,700, the accumulated depreciation is $32,300, its remaining useful life is 5 years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $167,900. The automatic machine has an estimated useful life of 5 years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: PresentOperations ProposedOperations Sales $255,800 $255,800 Direct materials $87,200 $87,200 Direct labor 60,500 — Power and maintenance 5,600 29,900 Taxes, insurance, etc. 2,000 6,700 Selling and administrative expenses 60,500 60,500 Total expenses $215,800 $184,300…
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Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $77,800, the accumulated depreciation is $31,100, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $161,800. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Operations Proposed Operations Sales $246,600 $246,600 Direct materials $84,000 $84,000 Direct labor 58,400 — Power and maintenance 5,400 28,800 Taxes, insurance, etc. 1,900 6,500 Selling and administrative expenses 58,400 58,400 Total expenses $208,100…
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