The Mechanical Components Division manager asks you to recommend a make/buy decision on a major automotive subassembly that is currently purchased externally for a total of $3.9 million this year. This cost is expected to continue rising at a rate of $300,000 per year. Your manager asks that both direct and indirect costs be included when in-house manufacturing (make alternative) is evaluated. New equipment will cost $3.2 million, have a salvage of $0.5 million and a life of 6 years. Estimates of materials, labor costs, and other direct costs are $2.3 million, per year. Typical indirect rates, bases, and expected usage are shown. Perform the AW evaluation at MARR = 12% per year over a 6-year study period. Basis Direct labor cost Materials cost Number of inspections Department X Y Z The annual worth for the make decision is $ $2.35 per dollar $0.50 per dollar $20 per inspection The annual worth for the buy decision is $ The (Click to select) alternative is selected. (Click to select) buy make Rate Expected Usage $450,000 $855,000 4,500

The Mechanical Components Division manager asks you to recommend a make/buy decision on a major automotive subassembly that is currently purchased externally for a total of $3.9 million this year. This cost is expected to continue rising at a rate of $300,000 per year. Your manager asks that both direct and indirect costs be included when in-house manufacturing (make alternative) is evaluated. New equipment will cost $3.2 million, have a salvage of $0.5 million and a life of 6 years. Estimates of materials, labor costs, and other direct costs are $2.3 million, per year. Typical indirect rates, bases, and expected usage are shown. Perform the AW evaluation at MARR = 12% per year over a 6-year study period. Basis Direct labor cost Materials cost Number of inspections Department X Y Z The annual worth for the make decision is $ $2.35 per dollar $0.50 per dollar $20 per inspection The annual worth for the buy decision is $ The (Click to select) alternative is selected. (Click to select) buy make Rate Expected Usage $450,000 $855,000 4,500

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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