Answer:
Bloomington Inc.
Indication of Liability Amount on the Balance Sheet at December 31, 2019:
Situation Liability Amount
a. $220,000
b. $0
c. $3,100
d. $0
Explanation:
For Bloomington to recognize a liability or record it in its financial statements, the probability that an outflow of economic resources will occur in the future must be established. Bloomington must also be able to reliably measure the amount of the liability. These two conditions are satisfied in situations A and C. For situation B, the contract is not in force as at December 31, 2019, since the drill press will be purchased in January, 2020. Lastly, for situation D, the amount of the profit-sharing bonus cannot be reasonably and reliably ascertained because the amount to apply the 5% is not clear or known.
XYZ Company has a variable cost ratio of 40%, fixed expenses of $200,000, and desires to earn operating income of $100,000. Total sales revenue required to achieve XYZ Company's desired operating income is:
Answer:
Sales revenue = $500,000
Explanation:
Below is the calculation:
Formula for variable cost ratio = Total variable expenses (Total variable cost) / Net Sales = 40%
40% = Total variable cost / Net Sales
Total variable cost = 0.40 Net sales
Operating income = Total revenue - fixed cost - variable cost
100,000 = Total revenue - 200,000 - 0.40 total revenue
300,000 = 0.60 total revenue
Total Revenue = 300,000/ 0.6
Sales revenue = $500,000
1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,400, the monthly sales volume increases by 100 units, and the total monthly sales increase by $9,500? 1-b. Should the advertising budget be increased?
Answer:
a. Income before advertising budget increase:
= Contribution margin - Fixed costs
= (38 * 3,600) - 79,000
= $57,800
Income after advertising budget increases:
= Sales - Variable expenses - Fixed expenses
Sales = (3,600 + 100 units) * 95 per unit
= $351,500
Variable expenses = 60% * 351,500
= $210,900
Fixed expenses = 79,000 + 8,400 advertising
= $87,400
Income = 351,500 - 210,900 - 87,400
= $53,200
b. Income decreased with the increase in advertising so Advertising budget should not be increased.
Southwest Airlines wants to raise $20 million to finance the renovation of their corporate offices, and the company wishes to raise the funds through direct finance. Which of the following methods could it use?
a. It could issue $20 million in stocks.
b. It could sell $20 million in bonds.
c. It could borrow $20 million from a bank.
d. It could choose either A or B.
Answer:
D
Explanation:
Direct finance is when a company or individual borrows money directly from the financial market without the aid of a financial intermediary.
Examples include :
issuing bondsissuing sharesIndirect finance is when a company or individual borrows money through a financial intermediary. for example, borrowing from a bank
Seeing his son graduate from college is most likely a short-term goal for a
person of which of these ages?
A. 8 years old
B. 58 years old
C. 28 years old
D. 18 years old
The answer is c 28 years old
Transactions for Jayne Company for the month of June are presented below.
June:
1 Issues common stock to investors in exchange for $5,000 cash.
2 Buys equipment on account for $1,100.
3 Pays $740 to landlord for June rent.
12 Sends Wil Wheaton a bill for $700 after completing welding work.
Required:
Journalize the transaction.
Answer:
June 1
Debit : Cash $5,000
Credit : Common Stock $5,000
June 2
Debit : equipment $1,100
Credit : account payable $1,100
Explanation:
Journalize the transaction.
The spot price of an investment asset that provides no income is $32.10 and the risk-free rate for all maturities (with continuous compounding) is 6.25%. What is the 4-year forward price? Answer with two decimal digits accuracy. Example: 52.12
Answer:
$41.22
Explanation:
Forward price = Spot price*(1 + Risk free rate)^Time of contractContinuous compounding rate = e^(0.0625) = 1.06449445892 = 1.0645
Forward price = $32.10 * (1.0645)^4
Forward price = $32.10 * 1.28405215218
Forward price = $41.2180741
Forward price = $41.22
So, the 4-year forward price is $41.22.
When Chernobyl melted down in the Soviet Union, the: a. price of U.S. basketballs increased. b. prices of assets reacted slowly to the information. c. price of U.S. potatoes increased. d. stock prices of U.S. nuclear plants increased.
Answer: d. stock prices of U.S. nuclear plants increased.
Explanation:
Chernobyl was a nuclear power plant in the former Soviet Union that was being used to produce electricity until it suffered a meltdown that effectively rendered the surrounding areas unlivable.
In response to this disaster, the stock prices of U.S. nuclear power plants went up because the Soviet meltdown not only reduced the supply of nuclear powered electricity but also showed that American engineering was superior and so people bought more American nuclear plant shares which took its price up.
Cray Company started year 2 with $60,000 in its cash and common stock accounts. During year 2 Cray paid $45,000 cash for employee compensation. Assume this is the only transaction that occurred in year 2. Required Determine the total amount of assets at the end of year 2, assuming Cray is a manufacturing company and the employees were paid to make products. Determine the amount of expense recognized on the year 2 income statement, assuming Cray is a manufacturing company and the employees were paid to make products. Determine the total amount of assets at the end of year 2, assuming Cray is a service company. Determine the amount of expense recognized on the year 2 income statement, assuming Cray is a service company.
Answer:
Hi BubbleTeaLover!
Here you go:
Manufacturing:
Total Assets: $60,000
Total Expenses: $0
Service:
Total Assets: $15,000
Total Expenses: $45,000
True or false: Demand is created through meeting customer buying criteria, awareness (promotion) and accessibility (sales distribution), and credit terms.
Answer:
false
Explanation:
Professional Products Inc., a wholesaler of office products, was organized on February 5 of the current year, with an authorization of 100,000 shares of preferred 2% stock, $50 par and 650,000 shares of $25 par common stock. The following selected transactions were completed during the first year of operations:
Feb. 5. Issued 700,000 shares of common stock at par for cash.
Feb. 5. Issued 1,200 shares of common stock at par to an attorney in payment of legal fees for organizing the corporation.
Apr. 9. Issued 40,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $120,000, $280,000, and $80.000, respectively.
June 14. Issued 25,000 shares of preferred stock at $82 for cash.
Journalize the transactions.
Answer:Please find answers below
Explanation:
Being the issue of 700,000 shares of common stock at par for cash
Date Accounts and explanation Debit Credit
5th Feb Cash (700,000 shares × $25) $17,500,000
To Common Stock $17,500,000
Being the issue of 1200 shares of common stock at par for legal fees
Date Accounts and explanation Debit Credit
5th Feb Legal Fees (1200 shares × $25) $30,000
To Common Stock $30,000
Being the issue of the common stock in exchange of assets
Date Accounts and explanation Debit Credit
9th Apr Land $120,000
Building $280,000
Equipment $80,000
To Common Stock (40,000 shares × $25) $1,000,000
To Paid in capital excess of par value
(error noticed as the debit and credit balance do not tall after computation the amount of land, building and equipment $120,000, $280,000, and $80.000,with respect to the common stock of 40,000 shares × $25)
Being the issuance of the preferred stock.
Date Accounts and explanation Debit Credit
14th Jun Cash (25,000 shares × $82) $2,050,000
To preferred Stock (25,000 shares × $50) $1,250,000
To Paid in capital excess of par value $800,000
A foreign company (whose sales will not affect Benjamin's market) offers to buy 3,000 units at $6.40 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $500 and selling and administrative costs by $200. If Benjamin accepts the offer, its profits will:
Answer:
Increase by $18,500
Explanation:
Data and Calculation
Sales $19,200
Less Expenses $700
Net Income $18,500
If Benjamin accepts the offer, its profits will: increase by $18,500
Felix's profit is maximized when he produces teddy bears. When he does this, the marginal cost of the last teddy bear he produces is $ , which is than the price Felix receives for each teddy bear he sells. The marginal cost of producing an additional teddy bear (that is, one more teddy bear than would maximize his profit) is $ , which is than the price Felix receives for each teddy bear he sells. Therefore, Felix's profit-maximizing quantity corresponds to the intersection of the curves. Because Felix is a price taker, this last condition can also be written as .
how to assess a peers written assignment
I don't understand ur question
To determine the net cash provided (used) by operating activities, it is necessary to analyze Group of answer choices the current year's income statement. a comparative balance sheet. additional information. all of these.
Answer:
All of these.
Explanation:
All of these are the correct answer because to determine the net cash from the operating activities, there is a requirement of the current year's income statement, additional information such as depreciation and amortization and a comparative balance sheet. In order to get cash from operating activities, the changes and non-cash capital, other non-cash adjustments, depreciation is added to the net income.
Ida Sidha Karya Company is a family-owned company located on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $875. Selected data for the company’s operations last year follow: Units in beginning inventory 0 Units produced 14,000 Units sold 12,000 Units in ending inventory 2,000 Variable costs per unit: Direct materials $ 200 Direct labor $ 420 Variable manufacturing overhead $ 64 Variable selling and administrative $ 23 Fixed costs: Fixed manufacturing overhead $ 860,000 Fixed selling and administrative $ 410,000 Required: 1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan
Answer:
Unitary product cost= $745.43
Explanation:
The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.
Direct materials $200
Direct labor $420
Variable manufacturing overhead $ 64
Fixed manufacturing overhead $ 860,000
First, we need to calculate the unitary fixed overhead:
Unitary fixed overhead= 860,000 / 14,000= $61.43
Now, the unitary product cost:
Unitary product cost= 200 + 420 + 64 + 61.43
Unitary product cost= $745.43
Situation 1: There is a Head of Human Resource (HR) in a recognized Multinational National Company (MNC). You are a marketing executive in that company. You have made a communication with the HR regarding an emergency short time leave in a Critical moment of the Company’s turnover.
In this case how you will communicate with him and convince him to provide you a short-term leave. The things to be aware of.
1. HR is a rudy person.
2. He isn't very familiar with you.
3. Company is now at a Critical Moment and there is a lot of turnovers.
4. HR is about the age of 45+
And also provide an alternative answer if the situation gets negative over you.
Ans.
Answer:
As a marketing executive of the company looking to beg an emergency leave from a HR person who is considered to be rudy, unfamiliar with me, 45+ age and also that the company is experiencing a lot of turnovers, the best way to approach the HR would be to:
1. Write an official letter to him making the intentions clear.
2. Politely ask him to consider your request even though you two are not very familiar with each other.
3. Stress the importance of the emergency and why you have to leave.
Do government statisticians calculate GDP by simply adding up the total sales of all business firms in one year? Explain.
Answer:
No
Explanation:
No, because the gross domestic product is determined by encompassing the final product. If the total sales are used to determine the GDP then the false value of GDP will come up because the problem of double counting will arise. Many firms sell their goods to other firms which is intermediate goods for the other firms.
A bailment is different from a gift because:___.
a. a gift requires consideration, but a bailment does not.
b. a gift is always a contract, but a bailment is generally not a contract.
c. a gift requires delivery, but a bailment does not.
d. in a bailment, only possession of the property is transferred to the bailee, whereas with a gift, both possession and ownership must pass to the donee.
Answer: d. in a bailment, only possession of the property is transferred to the bailee, whereas with a gift, both possession and ownership must pass to the donee.
Explanation:
When you give a person a gift, you are giving the person both ownership of that gift and the possession as well. For instance, if you give a person a car as a gift, that person now owns the car and will use it as they please.
With a bailment, there is no transfer of ownership. The bailor is simply giving the bailee possession of the property in question which means that after the bailee is done with the property, they have to return it back to the bailor.
Calculate the end of the year cash balance based on the information below:
Beginning of the year cash balance 1,600
Revenue 1,200
Net income 450
Depreciation 100
Negative changes in operating assets and liabilities 60
Acquisitions of PP 300
Dividends paid in the current year 110
Increase in long-term debt 500
Answer: $2,180
Explanation:
Net income is already derived from revenue so adding revenue would be double counting.
Depreciation is a non cash expense so should be added back to cash holdings.
Negative changes in operating assets and liabilities reduces cash.
Acquisitions of Property and Plants reduces cash
Dividends also reduce cash
Increase in debt increases cash.
Cash balance is therefore:
= Beginning of year cash + Net income + Depreciation + Increase in long-term debt - Negative changes in operating assets and liabilities - Acquisitions of PP - Dividends paid in current year
= 1,600 + 450 + 100 + 500 - 60 - 300 - 110
= $2,180
Net income is derived from revenue so adding revenue give double counting
Depreciation is a non cash expense so should be added back to cash holdings
Negative changes in operating assets and liabilities reduces cash
Acquisitions of Property and Plants reduces cash
Dividends reduce cash
Increase in debt increases cash
Cash balance based on the information is:
= Beginning of year cash + Net income + Depreciation + Increase in long-term debt - Negative changes in operating assets and liabilities - Acquisitions of PP - Dividends paid in current year
= 1,600 + 450 + 100 + 500 - 60 - 300 - 110
= 2,180
What are Operating Assets?Operating assets are those assets acquired for use in the conduct of the ongoing operations of a business. This means assets that are needed to generate revenue.
Examples of operating assets are cash, prepaid expenses, accounts receivable, inventory, and fixed assets. If there are recognized intangible assets, such as technology licenses needed to manufacture goods, these should also be considered operating assets.
Assets not considered to be operating assets are those used for long-term investment purposes, such as marketable securities.
Assets no longer used for operations, such as assets held for sale, are also not considered to be operating assets.
Further, a non-cash asset that is held for investment purposes, such as an investment property, is not considered an operating asset.
What is Liability?A liability is something a person or company owes, usually a sum of money.
Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.
Liability is Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses.
Liabilities can be contrasted with assets.
Liabilities refer to things that you owe or have borrowed; assets are things that you own or are owed.
To learn more about Operating Asset here
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NoFly Corporation sells three different models of a mosquito "zapper." Model A12 sells for $53 and has variable costs of $45. Model B22 sells for $101 and has variable costs of $81. Model C124 sells for $406 and has variable costs of $315. The sales mix of the three models is A12, 59%; B22, 27%; and C124, 14%. What is the weighted-average unit contribution margin? (Round answer to 2 decimal places, e.g. 15.50.) Weighted-Average Unit Contribution Margin $ ______.
Answer:
$22.86
Explanation:
Model A12 Model B22 Model C124
Selling price per unit $53 $101 $406
Variable costs per unit $45 $81 $315
Contribution margin per unit $8 $20 $91
Weighted-Average Unit Contribution Margin = (Model A12 Contribution margin per unit * Sales mix) + (Model B22 Contribution margin per unit * Sales mix) + (Model C124 Contribution margin per unit * Sales mix)
Weighted-Average Unit Contribution Margin = ($8 * 59%) + ($20 * 27%) + ($91 * 14%)\
Weighted-Average Unit Contribution Margin = $4.72 + $5.4 + $12.74
Weighted-Average Unit Contribution Margin = $22.86
Hillside Manufacturing Company uses 2,000 units of bearings per year. The bearings are purchased from a supplier in Florida. The following information is known for the problem:
Annual demand, D 2.000 units $10
Purchase price per unit, P
Holding cost per unit per year expressed as a percent of per-unit purchase price 20% $125
Ordering cost per order. S
Lead time. L 6 days 250
Number of working days per year
Answer the following questions. Write your final answer only (without intermediate steps) for the fill-in-the-blank questions.
Question 2 (2 points) The holding cost (H) = $ A/ per unit per year. Use 2-decimal accuracy for the final answer, e.g., 0.12, when necessary.
Question 3 (2 points) The economic order quantity (EOQ) = units. Round the final answer (if it is not an integer) to the nearest integer.
Question 4 (2 points) Based on the EOQ, the average inventory = A units. Round the final answer (if it is not an integer) to the nearest integer.
Question 5 (2 points) A/ Total annual inventory holding cost = $ . Round the final answer (if it is not an integer) to the nearest integer.
Question 6 (2 points) The optimal number of orders per year = A orders. Round the final answer (if it is not an integer) to the nearest integer.
Question 7 (2 points) Total annual inventory cost (excluding the purchase cost) = $ A Round the final answer (if it is not an integer) to the nearest integer
Question 8 (2 points) A units. Round Reorder point (ROP) = the final answer (if it is not an integer) to the nearest integer.
Question 9 (2 points) If the management decides to order 2,000 units (instead of the EOQ quantity obtained above) per order, the total annual inventory cost (excluding the purchase cost) = $ A Round the final answer (if it is not an integer) to the nearest integer.
Answer:
2. holding cost is $2
3. EOQ = 500 units
4. Average inventory = 250units
5. total annual hoding cost = $500
6. number of orders is 4
7. total annual inventory = $1000
8. reorder point = 48
9. $2125
Explanation:
2. holding cost = 20% * $10
the holding cost is 20 percent of the purchase price for each unit
= 0.2*10
= $2.00
3. the EOQ
= 2*2000*$125/$2
= 250000
[tex]EOQ=\sqrt{250000}[/tex]
= 500 units
4.average inventory = EOQ/2
= 500/2 = 250 units
5. total annual hoding cost = average inventory * holding cost
= 250*2
= $500
6. number of orders= 2000 units/EOQ
= 2000/500
= 4 0rders
7. total annual inventory cost = ordering cost annual + holding cost annual
ordering annual cost = 2000/500*125
= 500
total annual inventory cost = 500 + 500 = $1000
8. reorder point
wwe first calculate the daily demand; = 2000/250 = 8
ROP = 8*6 = 48
9. annual ordring = 2000/2000 * 125
= $125
annual holding = 2000/2 * holding cost of $2
= $2000
total annual inventory = 125 + 2000
= $2125
Frank and Daniel both agreed to volunteer for a company project cleaning and organizing the district warehouse. There were to be 50 volunteers. Upon arrival, they discovered volunteer turnout was low. They were assigned to the northwest corner of the warehouse where they were to meet Trixie, who would give them their assignment. When they arrived, Trixie was nowhere to be found but they did find two push-brooms leaning against the wall. Frank took a seat on a box to wait for Trixie and his assignment. Daniel grabbed one of the push-brooms and began sweeping. While he was sweeping, Daniel thought, "This is why my desk looks so tidy, while Frank’s desk looks like a disaster." Which of the following statements is likely true of this scenario? Multiple Choice I
a. n this weak situation, Frank’s laziness trait is activated. In this strong situation, Daniel’s neurotic trait is activated.
b. In this weak situation, Daniel’s introversion trait is activated. In this strong situation Frank’s conscientiousness trait is activated.
c. In this weak situation, Daniel’s extraversion trait is activated.
Answer:
a. In this weak situation, Frank’s laziness trait is activated. In this strong situation, Daniel’s neurotic trait is activated.
Explanation:
A trait can be defined as the characteristics of a person that describes his nature and his behavior. It is the result of one's genes or are influence from surrounding or nature.
A neurotic trait of a person helps the person to deal with the stress. It is a tendency towards shyness, anxiety, etc.
In the context, it is given that both Frank and Daniel volunteered themselves for cleaning a district warehouse. They were assigned the northwest corner of the warehouse to clean. Daniel found a push-broom and started sweeping and cleaning the floor, while Frank waited for Trixie to arrive who will assigned them their job.
In this situation, it shows the laziness trait of Frank who felt too lazy to start his work before someone assigning them to him while Daniel is active and it shows his neurotic trait because of which Daniel started his job and did not waited for Trixie to come.
Thus the correct option is (a).
What is Brad doing when he starts dialoguing with his colleagues about their opinions related to tobacco use at the hospital
Answer: Using collective strategies
Explanation:
Collective strategies has to do with the organizing of people in order to be able to change health damaging environment and this is done through several strategies such as the provision of educational forums, building coalitions, lobbying for legislative changes etc.
Therefore, Brad dialogue with his colleagues about their opinions related to tobacco use at the hospital is the use of collective strategies.
Generally Accepted Accounting Principles (GAAP), the accounting rule book. In the following scenario, please indicate which GAAP rule is being violated and why. Follow up with comments about why you think the rule exits and is important.
Scenario: XYZ Inc. was in the process of preparing its financial statements. XYZ is hoping to get approved for a loan from the First National Big Bank. XYZ's sole shareholder Slick, notices that the cash listed on the balance sheet is $4,000. Slick suggests that the balance sheet should include his personal current cash balance of $100,000. Slick convinces the company accountant to change cash on XYZ's balance sheet to $104,000. After all, he would gladly put his personal cash in if needed.
Answer: Business Entity Concept
Explanation:
The Business entity concept posits that the owners of a business and the business itself, are different entities. This means that transactions involving the two are not to be mixed up but are to be recorded separately.
The reason this concept exists is to ensure that a business is analyzed and treated on its on merit and not that of its owner because the owner might be successful and the business isn't. The reverse is also true.
XYZ Inc violates this concept here by mixing the accounts of the owner and the business in order to influence a loan decision. This goes against accounting concepts and gave the company an incorrect valuation.
A loan processing operation that processes an average of 7 loans per day. The operation has a design capacity of 10 loans per day and an effective capacity of 8 loans per day. A furnace repair team that services an average of 3 furnaces a day if the design capacity is 9 furnaces a day and the effective capacity is 8 furnaces a day.
a. Utilization ____________ %
b. Efficiency ____________ %
Would you say that systems that have higher efficiency ratios than other systems will always have higher utilization ratios than those other systems?
Answer:
Efficiency = Actual Output / Effective Capacity * 100%
Utilization = Actual Output / Design Capacity * 100%
Loan processing operation
Actual output = 9 loans per day
Design capacity = 10 loans per day
Effective capacity = 8 loans per day
Utilization = 9/10 * 100
Utilization = 90.0%
Efficiency = 9/8 x 100
Efficiency = 112.5%
Furnace repair team
Actual output = 3 furnaces per day
Design capacity = 9 furnaces per day
Effective capacity = 8 furnaces per day
Utilization = 3/9 * 100
Utilization = 33.3%
Efficiency = 3/8 * 100
Efficiency = 37.5 %
A game has a saddle point when the maximin payoff value equals the minimax payoff value. true or false
Answer:
True
Explanation:
To answer this question, I'll use the following illustration.
Minimax = <10,18,15>
Maximax = <8,4,10>
The payoff of the minimax is 10 (i.e. the smallest) and the payoff of the maximax is 10 (i.e. the largest)
Both payoffs are equal; hence, 10 is the saddle point.
You are an executive with an internet merchandizing company. Azzamon Inc. You have been assigned the task of analyzing whether to add a new warehouse in Atlanta or in Boston. A consulting firm whom you paid $100 K to do a study has narrowed the choice down to these two cities. You currently have two other warehouses in other cities. You must decide whether the following is relevant or irrelevant to the decision of where to locate the warehouse? Consultant Fee: Relevant Irrelevant
Answer:
Azzamon Inc.
Consultant Fee:
Irrelevant.
Explanation:
The consultant fee is not relevant to the decision of where to locate the warehouse. It is like a sunk cost that has already been incurred. The two cities recommended by the consultant will be considered based on their relevant statistics and data and not based on the fee paid to the consultant. A relevant cost impacts the decision at hand. One relevant cost for making a decision of this nature is the cost of installing facilities at the locations.
A car dealer acquires a used car for $14,000, with terms FOB shipping point. Compute total inventory costs assigned to the used car if additional costs include
$250 for transportation-in.
$300 for shipping insurance.
$900 for car import duties.
$150 for advertising.
$1,250 for sales staff salaries.
$180 for trimming shrubs.
For computing inventory, what cost is assigned to the used car? Included in Inventory Cost Expensed as incurred Cost 14.000 900 Cost Transportation in Import duties Insurance during shipment Advertising Sales staff salaries 300 150 1,250 16.850S 0 $
Answer: $15,450
Explanation:
The inventory cost of the car is every cost that was incurred to get it to the car dealer and ready for sale.
Total inventory cost assigned is:
= Cost of car + transportation-in + shipping insurance + car import duties
= 14,000 + 250 + 300 + 900
= $15,450
You have just made your first $4,400 contribution to your retirement account. Assume you earn a return of 13 percent per year and make no additional contributions. a. What will your account be worth when you retire in 29 years
Answer: $152,309.69
Explanation:
You are looking for the future value of this amount in 29 years assuming it will be compounded annually.
Future value = Amount * (1 + rate)^ number of years
= 4,400 * ( 1 + 13%)²⁹
= $152,309.69
Lakeview Engine, Inc., produces engines for the watercraft industry. An outside manufacturer has offered to supply several component parts used in the engine assemblies, which are currently being produced by Lakeview. The supplier will charge Lakeview $325 per engine for the set of parts. Lakeview’s current costs for those part sets are direct materials, $145; direct labor, $85; and manufacturing overhead applied at 100% of direct labor. Variable manufacturing overhead is considered to be 20% of the total, and fixed overhead will not change if the part sets are acquired from the outside supplier.
What would be the net cost advantage or disadvantage if Lakeview decided to purchase the parts?
Answer:
Lakeview Engine, Inc.
The net cost disadvantage if Lakeview decided to purchase the parts from the supplier per part is:
= $78
Explanation:
a) Data and Calculations:
Price by outside supplier per engine = $325
Current costs of manufacturing the engine:
Direct materials per unit = $145
Direct labor per unit = $85
Variable manufacturing overhead (20%) = $17
Fixed manufacturing overhead (80%) = $68
Total variable manufacturing cost per unit = $247
Incremental Analysis:
Make Buy Incremental
Production costs:
Variable manufacturing costs per unit:
Direct materials per unit $145
Direct labor per unit $85
Variable manufacturing per unit $17
Total variable manufacturing costs $247 $325 $78
b) Therefore, it costs more to Lakeview to buy the part from the outside supplier than it does when it makes it internally. Lakeview should continue making the parts.
