Suppose that a firm has the option to make or buy a part. Its annual requirement is 19,000 units. A supplier is able to supply the part at $12 per unit. Thefirm estimates that it costs $600 to prepare the contract with the supplier. To make the part, the firm must invest $23,000 in equipment, and the firmestimates that it costs $8 per unit to make the part.MAKE OPTION BUY OPTION$23,000$600$12COSTSFixed CostVariable Cost$8Annual Requirement - 19,000 unitsThe data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questionsbelow.Open spreadsheetQuestions1. What is the break-even point? Round your answer to the nearest whole number.2. What is the total cost at the break-even point? Round your answer to the nearest dollar.

Variable costs are costs that vary with the change in the level of output whereas fixed costs are…

Answered: Suppose that a firm has the option to…

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 that a firm has the option to make or buy a part. Its annual requirement is 11,000 units. A supplier is able to supply the part at $6 per unit. The firm estimates that it costs $800 to prepare the contract with the supplier. To make the part, the firm must invest $29,000 in equipment, and the firm estimates that it costs $3 per unit to make the part. COSTS MAKE OPTION BUY OPTION Fixed Cost $29,000 $800 Variable Cost $3 $6 Annual Requirement = 11,000 units 4. What is the total cost for the buy option? Round your answer to the nearest dollar. 5. What is the cost difference (make – buy)? Round your answer to the nearest dollar. Use the minus sign to enter a negative difference, if any. 6. To obtain the lowest production cost, should the firm make or buy the part?
= Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.91 million per year. Your upfront setup costs to be ready to produce the part would be $8.07 million. Your discount rate for this contract is 8.3%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? a. What does the NPV rule say you should do? The NPV of the project is $ 4.52 million. (Round to two decimal places.) What should you do? (Select the best choice below.) A. The NPV rule says that you should not accept the contract because the NPV 0. OD. The NPV rule says that you should not accept the contract because the NPV>0. b. If you take the contract, what will be the change in the value of your firm? If you take the contract, the value added to the firm will be $ million. (Round to two decimal places.)
Your storage firm has been offered $95,700 in one year to store some goods for one year. Assume your costs are $95,200, payable immediately, and the cost of capital is 8.2%. Should you take the contract? The NPV will be $ (Round to the nearest cent.) Should you take the contract? (Select from the drop-down menu.) The contract be taken.
Your storage firm has been offered $95,400 in one year to store some goods for one year. Assume your costs are $96,700, payable immediately, and the cost of capital is 8.4%. Should you take the contract? The NPV Will Be $______ (Round to the nearest cent)
Your storage firm has been offered $96,900 in one year to store some goods for one year. Assume your costs are $95,200, payable immediately, and the cost of capital is 8.1%. Should you take the contract? The NPV will be $ Should you take the contract? The contract (Round to the nearest cent.) be taken (Select from the drop-down menu.)
Mix Electronics purchases 2,400,000 units per year of a component with a purchase price of P50. The fixed cost is P15 per order, and the carrying cost is 30% of the purchase price.a. Calculate the EOQ.b. Calculate the EOQ if the order cost is zero. c. Calculate the EOQ if the order cost is P10 per order.d. What is the implication to the firm if there is a decrease in the order cost?
Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.83 million per year. Your upfront setup costs to be ready to produce the part would be $8.02 million. Your discount rate for this contract is 8.1%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? Question content area bottom Part 1 a. What does the NPV rule say you should do? The NPV of the project is $XXX enter your response here million. (Round to two decimal places.) Part 2 What should you do? (Select the best choice below.) A. The NPV rule says that you should accept the contract because the NPV less than 0. B. The NPV rule says that you should not accept the contract because the NPV less than 0. C. The NPV rule says that you should not accept the contract because the NPV greater…
Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.91 million per year. Your upfront setup costs to be ready to produce the part would be $8.07 million. Your discount rate for this contract is 8.3%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? www. a. What does the NPV rule say you should do? The NPV of the project is $ 4.52 million. (Round to two decimal places.) What should you do? (Select the best choice below.) OA. The NPV rule says that you should not accept the contract because the NPV 0. OD. The NPV rule says that you should not accept the contract because the NPV > 0. ct
Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.89 million per year. Your upfront setup costs to be ready to produce the part would be $8.23 million. Your discount rate for this contract is 8.5%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? a. What does the NPV rule say you should do? The NPV of the project is $ million. (Round to two decimal places.)
Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.99 million per year. Your upfront setup costs to be ready to produce the part would be $8.06 million. Your discount rate for this contract is 8.1%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm? *round to two decimal places*
Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash flows from the contract would be $4.83 million per year. Your upfront setup costs to be ready to produce the part would be $8.13 million. Your discount rate for this contract is 7.9%. a. What does the NPV rule say you should do? b. If you take the contract, what will be the change in the value of your firm?
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