Hondrich Company's costs per unit of producing the oil drums internally (with the old equipment) are given below. These costs are based on a current activity level of 40,000 units per year: Direct materials Direct labour Variable overhead Fixed overhead ($1.25 supervision, $1.80 depreciation, and $4.00 general company overhead) Total cost per unit $ 6.00 8.00 3.20 7.05 $24.25 The new equipment would be more efficient and, according to the manufacturer, would reduce direct labour costs and variable overhead costs by 25%. Supervision cost ($50,000 per year) and direct materials cost per unit would not be affected by the new equipment. The new equipment's capacity would be 62,500 oil drums per year. The total general company overhead would be unaffected by this decision. Required: 1. Rafuse is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. Assume that 40,000 oil drums are needed each year. a. What will be the total relevant cost of 40,000 subassemblies if they are manufactured internally as compared to being purchased?

Hondrich Company's costs per unit of producing the oil drums internally (with the old equipment) are given below. These costs are based on a current activity level of 40,000 units per year: Direct materials Direct labour Variable overhead Fixed overhead ($1.25 supervision, $1.80 depreciation, and $4.00 general company overhead) Total cost per unit $ 6.00 8.00 3.20 7.05 $24.25 The new equipment would be more efficient and, according to the manufacturer, would reduce direct labour costs and variable overhead costs by 25%. Supervision cost ($50,000 per year) and direct materials cost per unit would not be affected by the new equipment. The new equipment's capacity would be 62,500 oil drums per year. The total general company overhead would be unaffected by this decision. Required: 1. Rafuse is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. Assume that 40,000 oil drums are needed each year. a. What will be the total relevant cost of 40,000 subassemblies if they are manufactured internally as compared to being purchased?

Name: "That old equipment for producing oil drums is worn out,” said Jillia
Uploaded: 2024-03-20T06:32:49.000Z
Channel: Bartleby
Description: "That old equipment for producing oil drums is worn out,” said Jillian Rafuse, president of Hondrich Company. "We need to make adecision quickly." The company is trying to decide whether it should rent new equipment and continue to make its oil drum

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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