PIM Industries Incorporated manufactures electronics components. Each unit costs $45 before the final test. The final test rejects, onaverage, 6% of the 60,000 units manufactured per year. The average rejection rate of the industry is 4%. A consultant has determinedthat poor lighting is the most likely cause of this high rejection rate. It would cost $175,000 to install adequate lighting in the assemblydepartment, which would be useful for 5 years. With adequate lighting (which will cost an additional $6,500 of operating costs peryear), the firm expects to reduce its rejection rate to no higher than the industry average.Required:1-a. What would be the projected five-year impact on operating profit?Five-year projected effect on operating income1-b. Based solely on the relevant cost analysis you performed, should the firm install the lighting?YesO No

Net Annual Savings = Savings due to rejections - Annual Operating Costs

Answered: PIM Industries Incorporated…

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

Artisan Metalworks has a bottleneck in their production that occurs within the engraving department. Jamal Moore, the COO, is considering hiring an extra worker, whose salary will be $55,000 per year, to solve the problem. With this extra worker, the company could produce and sell 2,900 more units per year. Currently, the selling price per unit is $26.00 and the cost per unit is $7.60. Direct materials $3.40 Direct labor 1.10 Variable overhead 0.40 Fixed overhead (primarily depreciation of equipment) 2.70 Total $7.60 Using the information provided, calculate the annual financial impact of hiring the extra worker. What is the profit?
"I'm not sure we should lay out $335,000 for that automated welding machine," said Jim Alder, president of the Superior Equipment Company. "That's a lot of money, and it would cost us $91,000 for software and installation, and another $56,400 per year just to maintain the thing. In addition, the manufacturer admits it would cost $54,000 more at the end of three years to replace worn-out parts." "I admit it's a lot of money," said Franci Rogers, the controller. "But you know the turnover problem we've had with the welding crew. This machine would replace six welders at a cost savings of $121,000 per year. And we would save another $8,200 per year in reduced material waste. When you figure that the automated welder would last for six years, I'm sure the return would be greater than our 18% required rate of return." "I'm still not convinced," countered Mr. Alder. "We can only get $20,500 scrap value out of our old welding equipment if we sell it now, and in six years the new machine will…
The Elberta Fruit Farm of Ontario is considering buying a cherry-picking machine to replace the part-time workers it usually hires to harvest its annual cherry crop. The machine shakes the cherry tree, causing the cherries to fall onto plastic tarps that funnel the cherries into bins. The company gathered the following information: The farm pays part-time workers $200,000 per year to pick the cherries. The cherry picker would cost $540,000, have a 8-year useful life with no salvage value, and be depreciated using the straight-line method. The cherry picker’s annual out-of-pocket costs would be cost of an operator and an assistant, $85,000; insurance, $4,000; fuel, $12,000; and a maintenance contract, $15,000. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate the annual savings in cash operating costs provided by the cherry picker. 2a. Compute the cherry picker’s simple rate of return. 2b. Would…
Middle Industries produces a sensor for use in manufacturing. It produces the sensor in a plant with an annual practical capacity of 75,000 units. The variable cost of the sensor is $185.00 per unit, and the fixed costs of the plant are $12,375,000 annually. Current annual demand is 55,000 sensors. Middle Industries bought the plant because it was close to its other manufacturing facilities and was available for sale when they were searching for a location. Required: What cost per sensor should the cost system report to facilitate management decision making? What is the cost of excess capacity? What cost per sensor would the cost system report if the smallest manufacturing plant that could be built was able to produce 75,000 sensors? What would be the cost of excess capacity?
Fyodor Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Machine Division has asked the Parts Division to provide it with 6,000 special parts each year. The special parts would require $21 per unit in variable production costs. The Machine Division has a bid from an outside supplier for the special parts at $31.20 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the QR4 that it presently is producing. The QR4 sells for $40 per unit and requires $20 per unit in variable production costs. Packaging and shipping costs of the QR4 are $2 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 30,000 units of the QR4 each year. Production and sales of the QR4 would drop by 5% if the new special part is produced for the Machine Division.…
Futura Company purchases the 40,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $8.40 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $9.20 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 3.10 2.70 1.50 1.00 0.60 0.30 $9.20 Total $ 60,000 $ 40,000 $ 12,000 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $60,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $80,000 per period. Depreciation is…
In the last 6 months, demand for one of Appleby Company's products has dropped off considerably, due mainly to it becoming obsolescent as a result of technological change. Knowing that the equipment used in the manufacture of this product may not be easy to sell, Appleby spent $50,000 on consultants to determine whether it could use the equipment to produce a new product under license by another company. The consultant has determined that this product would have variable production costs of $65 per unit and should sell at a price of $90/unit. The licensing royalty is 5% of gross product revenue. Estimated annual demand is 20,000 units per year. Additional annual operating costs related to this product are $30,000/year (excluding depreciation). Depreciation on the equipment is $15,000. Annual depreciation expense is a: O a. Sunk cost O b. Relevant cost O c. Both sunk and Irrelevant cost Od. Irrelevant cost
Jupiter Game Company manufactures pocket electronic games. Last year Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed costs. In an attempt to improve its product, the company is considering replacing a component part that has a cost of $2.50 with a new and better part costing $4.50 per unit in the coming year. A new machine also would be needed to increase plant capacity. The machine would cost $18,000 with a useful life of six years and no salvage value. The company uses straight-line depreciation on all plant assets. (Ignore income taxes). 1) If the firm holds the sales price constant and makes the suggested changes, how many units of product will the company have to sell to make the same net income as last year?
Futura Company purchases the 67,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.30 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $12.00 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 5.00 3.20 1.60 1.20 0.60 0.40 $ 12.00 Total $ 107,200 $ 80,400 $ 26,800 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $107,200) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $87,000 per period.…
Futura Company purchases the 76,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.60 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $13.70 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 6.00 3.50 1.80 1.40 0.60 0.40 $ 13.70 Financial advantage Total $ 221,600 $ 136,800 $ 106,400 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $136,800) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $86,000…
Futura Company purchases the 66,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.50 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $11.40 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit $ 4.00 3.50 1.90 1.10 0.50 0.40 $11.40 Total $ 125,400 $ 72,600 $ 26,400 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $125,400) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $88,000 per period.…
HH Co. uses corrugated cardboard to ship its product to customers. Currently, the company’s returns department incurs annual overhead costs of $126,000 and forecasts 6,000 returns per year. Management believes it has found a better way to package its products. As a result, the company expects to reduce the number of shipments that are returned due to damage by 3%. In addition, the initiative is expected to reduce the department’s annual overhead by $14,000.Compute the returns department’s standard overhead rate per return (a) before the sustainability improvement and (b) after the sustainability improvement.

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS