Midas Industries manufactures 20,000 components per year. The manufacturing cost of components was determined as follows: Direct materials 100,000 ,Direct labor 160,000, Variable manufacturing overhead 60,000, Fixed manufacturing overhead 80,000. An outside supplier has offered to sell the component for 17. If it purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for 10,000. If Midas purchases the component from the supplier instead of manufacturing it, the effect on income would be: A. 70,000 increase. B.50,000 decrease. C.10,000 decrease. D.30,000 increase.
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- Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?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)Markson and Sons leases a copy machine with terms that include a fixed fee each month of $500 plus a charge for each copy made. The company uses the high-low method to analyze costs. If Markson paid $360 for 5,000 copies and $280 for 3,000 copies, how much would Markson pay if it made 7,500 copies?
- Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?Damon Industries manufactures 30,000 components per year. The manufacturing costs of the components was determined as follows: Direct materials 150,000 Direct labor 170,000 Variable manufacturing overhead 70,000 Fixed manufacturing overhead 90,000 An outside supplier has offered to sell the component for $14. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $11,000. If Damon purchases the component from the supplier instead of manufacturing it, the effect on operating profits would be a: $19,000 decrease • $41,000 increase $49,000 decrease $89,000 increaseDamon Industries manufactures 29,000 components per year. The manufacturing costs of the components was determined as follows: Direct materials $ 145,000 Direct labor 169,000 Variable manufacturing overhead 69,000 Fixed manufacturing overhead 89,000 An outside supplier has offered to sell the component for $14. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $10,900. If Damon purchases the component from the supplier instead of manufacturing it, the effect on operating profits would be a: $81,100 increase. $12,100 decrease. $33,900 increase. $55,100 decrease.
- Damon Industries manufactures 16,000 components per year. The manufacturing costs of the components were determined as follows: Direct materials $ 134,000 Direct labor 21,500 Variable manufacturing overhead 61,000 Fixed manufacturing overhead 81,000 An outside supplier has offered to sell the component for $15. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $11,700. If Damon purchases the component from the supplier instead of manufacturing it, the effect on operating profits would be a:AlphaBrona Industries manufactures 50,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials $ 80,000 Direct labor 100,000 Variable overhead 30,000 Fixed overhead 60,000 Total $270,000 An outside supplier has offered to sell the component to AlphaBrona for $10 per unit. Fixed costs will remain the same if the component is purchased from an outside supplier. What will be the effect on income if AlphaBrona Industries purchases the component from the outside supplier? a. $290,000 decrease b. $290,000 increase c. $45,000 decrease d. $45,000 increaseRegis Company manufactures plugs at a cost of $40 per unit, which includes $5 of fixed overhead. Regis needs 30,000 of these plugs annually (as part of a larger product it produces). Orlan Company has offered to sell these units to Regis at $39 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If the plugs are purchased and the facility rented, Regis Company wishes to realize $100,000 in net savings annually. To achieve this goal, the minimum annual rent on the facility must be: Question 16 options: a) $120,000. b) $100,000. c) $70,000. d) $310,000. e) $220,000.
- Regis Company manufactures plugs at a cost of $36 per unit, which includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually (as part of a larger product it produces). Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If Regis Company purchases the plugs but does not rent the unused facility, the company would:This Little Light, Inc. is a manufacturer of lamps. Little Light makes 40,000 units per year of a part that it uses in the manufacturing of each lamp. At this activity level, the unit production cost is $7.17. Of this amount, $4.71 is for unit variable production costs. The remainder is for fixed production costs and equals $98,400. Little Light has identified an outsider supplier who sells the needed part. If the part is purchased from the outsider supplier, 15% of Little Light's fixed manufacturing costs will be eliminated. Assume Little Light will need 50,000 of the part next year and that the freed up capacity can be rented out to another company for $31,740. At what purchase price will Little Light be economically indifferent between making the part and buying the part? $4.70 $4.86 $5.97 $5.50 $5.64Beat Company manufactures 8,000 units of a certain component per year. This component is used in the production of the main product. The following are the costs to make the component per unit: Direct materials $4 Direct labor $4 Variable overhead $3 Fixed overhead $5 If Beat Company buys the component from an outside supplier, the company can rent out the released facilities for P12,360 a year. The cost of the component per unit as quoted by the supplier is P15. 25% of fixed overhead applied in the manufacture of the component will continue regardless of what decision is made. For all purchase made by the company, freight and handling costs are applied at 2% of the purchase price. The direct materials cost presented above is exclusive of such freight and handling cost. What is the advantage or disadvantage of buying the component?A. P12,240 advantage B. 24,600 advantage C. 5,400 disadvantage D. 8,600 advantage