The Rodgers Company makes 27,000 units of a certain component each year for use in one of its products. The cost per unit for the component at this level of activity is as follows: Rodgers has received an offer from an outside supplier who is willing to provide 27,000 units of this component each year at a price of $25 per component. Assume that direct labor is a variable cost. None of the fixed manufacturing overhead would be avoidable if this component were purchased from the outside supplier. Direct Materials Direct Labor Variable Manufacturing Overhead $ 5.80 $ 6.50 $ 4.20 $ 12.00 Fixed Manufacturing Overhead The management of Dewitz Corporation is considering a project that would require an initial investment of $65,000. No other cash outflow would be required. The present value of the cash inflow would be $72,800. The profitability index of the project is closes to:
The Rodgers Company makes 27,000 units of a certain component each year for use in one of its products. The cost per unit for the component at this level of activity is as follows: Rodgers has received an offer from an outside supplier who is willing to provide 27,000 units of this component each year at a price of $25 per component. Assume that direct labor is a variable cost. None of the fixed manufacturing overhead would be avoidable if this component were purchased from the outside supplier. Direct Materials Direct Labor Variable Manufacturing Overhead $ 5.80 $ 6.50 $ 4.20 $ 12.00 Fixed Manufacturing Overhead The management of Dewitz Corporation is considering a project that would require an initial investment of $65,000. No other cash outflow would be required. The present value of the cash inflow would be $72,800. The profitability index of the project is closes to:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Rodgers Company makes 27,000 units of a
certain component each year for use in one of its
products. The cost per unit for the component at
this level of activity is as follows:
Rodgers has received an offer from an outside
supplier who is willing to provide 27,000 units of
this component each year at a price of $25 per
component. Assume that direct labor is a variable
cost. None of the fixed manufacturing overhead
would be avoidable if this component were
purchased from the outside supplier.
Direct Materials
Direct Labor
Variable Manufacturing Overhead
Fixed Manufacturing Overhead
$
5.80
$
6.50
$
4.20
$
12.00
The management of Dewitz Corporation is considering a project that would require an initial investment of $65,000. No
other cash outflow would be required. The present value of the cash inflow would be $72,800. The profitability index of
the project is closes to:
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