Suppose a BMW executive in Germany is trying to decide whetherthe company should continue to manufacture anengine component or purchase itfrom Frankfurt Corporation for $50 each in the next year Demand for the comingyearis expected to be the same as for the current year, 200,000 units. Data for thecurrent year is as follows:If BMW makes the components, the unit costs of direct material will increase by 10%. If BMW buys the components, 30%of the fixed costs will be avoided. Theother 70% will continue regardless of whether the components are manufacturedorpurchased. Assume that variable overhead varies with output volume.(1) Prepare a schedule that compares the make-or-buy alternatives. Show totals andamounts per unit. Compute thenumerical difference between making and buying. Assume that the capacity now used to make the components willbecome idle if thecomponents are purchasedDirect materialDirect laborFactory overhead, variableFactory overhead, fixedTotal costs$5,000,000$1,900,000$1,100,000$3,000,000$11,000,000

Direct materials are raw materials that are directly used in the production of a finished product.…

Answered: Suppose a BMW executive in Germany is…

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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Suppose a BMW executive in Germany is trying to decide whetherthe company should continue to manufacture an engine component or purchase itfrom Frankfurt Corporation for $50 each in the next year Demand for the comingyear is expected to be the same as for the current year, 200,000 units. Data for thecurrent year is as follows: If BMW makes the components, the unit costs of direct material will increase by10%. If BMW buys the components, 30% of the fixed costs will be avoided. Theother 70% will continue regardless of whether the components are manufactured orpurchased. Assume that variable overhead varies with output volume. Assume also that the BMW capacity in question can be rented to a localelectronics firm for $1,150,000 for the coming year, Prepare a schedule thatcompares the net relevant costs of the three alternatives: make, buy and leavecapacity idle, buy and rent. Which is the most favorable alternative? By how muchin total?
Suppose a BMW executive in Germany is trying to decide whetherthe company should continue to manufacture an engine component or purchase itfrom Frankfurt Corporation for $50 each in the next year Demand for the comingyear is expected to be the same as for the current year, 200,000 units. Data for thecurrent year is as follows: If BMW makes the components, the unit costs of direct material will increase by10%. If BMW buys the components, 30% of the fixed costs will be avoided. Theother 70% will continue regardless of whether the components are manufactured orpurchased. Assume that variable overhead varies with output volume. (1) Prepare a schedule that compares the make-or-buy alternatives. Show totals andamounts per unit. Compute the numerical difference between making and buying.Assume that the capacity now used to make the components will become idle if thecomponents are purchased
The Falling Snow Company is considering production of a lighted world globe that the company would price at a markup of 0.30 above full cost. Management estimates that the variable cost of the globe will be $62 per unit and fixed costs per year will be $240,000. Assuming sales of 1,200 units, what is the full selling price of a globe with a 0.30 markup? Round to two decimal places.
Boeing makes a product for airplane travel. The startup cost of the product to customers is 12887. The product costs about 1200 per year to operate. The expected life of the product is 4 years. Airbus also makes a similar device. Its startup cost is 11450. The product costs 2076 per year to operate. The expected life of the product is 4 years. What is the EVC of each product? How much more/less should the customers be willing to pay for Boeing's product?
Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.10. The machine will increase fixed costs by $12,000 per year. The information they will use to consider these changes is shown here. A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places. Current New Machine Units Sold 221,000 Sales Price Per Unit $2.10 Variable Cost Per Unit $1.70 Contribution Margin Per Unit $0.40 %24 Fixed Costs $60,000 Break-Even (in units) 150,000 Break-Even (in dollars) $315,000 B. What will the impact be on net operating income if Flanders purchases the new machinery? Current New Machine Sales $464,100 Variable Costs 375,700 Contribution Margin $88,400 Fixed Costs 60,000 Net Income (Loss) $28,400 C. What would your recommendation be to Flanders regarding this purchase? a. The new equipment will increase fixed costs substantially but net income will still…
ABC imports special herbal oil from Morocco to the U.S. The fixed operating costs are USD 300,000 per year. The contracted variable costs are MAD (Moroccan Dirham) 400 per gallon of oil sold. As a finance manager, you have decided to set the catalog price for the oil at USD 80 per gallon, which is good for one year. You are not sure about the quantity of oil that ABC can sell in the coming year, but your best estimate is 50,000 gallons. Depending on the competition and the overall demand, the sale quantity can be as low as 10,000 gallons or as high as 90,000 gallons. For simplicity, please assume that the sale revenues as well as the costs will arrive at the end of the year. MAD is pegged to a basket of two currencies—USD and EUR. Your bank estimates that one MAD equals approximately USD 0.0234 plus EUR 0.0731. The spot exchange rates and the 1-year zero-coupon interest rates in different currencies are as follows: Traders conversion. USD/MAD…
What is the OCF?
Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.10. The machine will increase fixed costs by $11,500 per year. The information they will use to consider these changes is shown here. A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places. Current New Machine Units Sold 218,000 fill in the blank 1 Sales Price Per Unit $2.15 $fill in the blank 2 Variable Cost Per Unit $1.75 $fill in the blank 3 Contribution Margin Per Unit $0.40 $fill in the blank 4 Fixed Costs $56,000 $fill in the blank 5 Break-Even (in units) 140,000 fill in the blank 6 Break-Even (in dollars) $301,000 $fill in the blank 7 B. What will the impact be on net operating income if Flanders purchases the new machinery? Current New Machine Sales $468,700 $fill in the blank 8 Variable Costs 381,500 fill in the blank 9 Contribution Margin…
The ABC Corporation is considering introducing a new product, which will require buying new equipment for a monthly payment of $5,000. Each unit produced can be sold for $20.00. ABC incurs a variable cost of $10.00 per unit. Suppose that ABC would like to realize a monthly profit of $50,000. How many units must they sell each month to realize this profit?
Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.10. The machine will increase fixed costs by $12,250 per year. The information they will use to consider these changes is shown here. A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places. Current New Machine Units Sold 214,000 fill in the blank 1 Sales Price Per Unit $2.15 $fill in the blank 2 Variable Cost Per Unit $1.70 $fill in the blank 3 Contribution Margin Per Unit $0.45 $fill in the blank 4 Fixed Costs $67,500 $fill in the blank 5 Break-Even (in units) 150,000 fill in the blank 6 Break-Even (in dollars) $322,500 $fill in the blank 7 B. What will the impact be on net operating income if Flanders purchases the new machinery? Current New Machine Sales $460,100 $fill in the blank 8 Variable Costs 363,800 fill in the blank 9 Contribution Margin…
Wrangler Western has some of its jeans stonewashed under a contract with independent U.S. Garment Corp. If U.S. Garment’s operating cost per machine is $22,000 per year for years 1 and 2 and then it increases by 8% per year through year 10, what is the present worth in year 0 of the machine operating cost at an interest rate of 10% per year?
Kako Ltd is considering introducing a new product unto the market. This will require the injection of capital to the tune of GH¢20,000 for the purchase of the equipment for production. The cost of the building that Kako Ltd intends to use for the project is GH¢30,000. The Production and Marketing department has presented the information in the table below: 2019 Variable cost per unit of the product GH¢2 Selling price per unit GH¢6 Quantity 4000 units per annum Again the following information should be taken not of: • Feasibility studies cost the company GH¢2000 • Test marketing expenses amounts to GH¢3000 • Variable cost will increase by 5% per annum • Selling price will increase by 10% per annum • Marketing expense will be 5% of sales revenue per year • An initial working capital investment of GH¢2000 will be made. Subsequently, net working capital at the end of each year will be equal to 10 percent of sales for that year. In the final…

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