Make or Buy Terry Inc. manufactures machine parts for aircraft engines. CEO Buck
ID: 2571869 • Letter: M
Question
Make or Buy Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Walters is considering an offer from a subcontractor to provide 1,900 units of product OP89 for $95,000. If Terry does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs:
Calculate the additional cost or savings of producing the product internally versus purchasing the product externally, from a supplier..
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WorksheetDifficulty: 3 HardLearning Objective: 11-03 Use relevant cost analysis and strategic analysis in the make, lease, or buy decision.
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2.
value:
10.00 points
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Disposal of Assets A company has an inventory of 3,500 different parts for a line of cars that has been discontinued. The net book value (NBV) of this inventory is $65,000. The parts can be either remachined at a total additional cost of $32,500 and then sold for $45,000 or sold as-is for $3,250.
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eBook & Resources
WorksheetDifficulty: 3 HardLearning Objective: 11-04 Use relevant cost analysis and strategic analysis in the decision to sell before or after additional processing.
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3.
value:
10.00 points
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Replacement of an Asset An uninsured boat costing $105,000 was wrecked the first day it was used. It can be either sold as-is for $10,500 cash and replaced with a similar boat costing $107,000 or rebuilt for $90,000 and be brand new as far as operating characteristics and looks are concerned.
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eBook & Resources
WorksheetDifficulty: 3 HardLearning Objective: 11-01 Define the decision-making process and identify the types of cost information relevant for decision making.
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4.
value:
10.00 points
Required information
Profit from Processing Further Deaton Corporation manufactures products A, B, and C from a joint process. Joint costs are allocated on the basis of relative sales value at the split-off point. Additional information for Deaton Corporation follows:
All of the above
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Make or Buy Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Walters is considering an offer from a subcontractor to provide 1,900 units of product OP89 for $95,000. If Terry does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs:
Explanation / Answer
Relevant cost of Manufacturing the product: Direct Material (1900 units@25) 47500 Direct labour(1900 units@ 15) 28500 Variable overheads(1900 units@ 13) 24700 Relevant cost of Manufacturing the product: 100700 Additional cost incurred on manufacture of product versus buying: Cost of buying the product from supplier 95000 Relevant cost of manufacture 100700 Additonal cost incurred in Manufacturing 5700
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