X Company is considering buying a part next year that they currently make. This year's production costs for 9,000 units of this part were:

Ã‚Â

Ã‚Â | TotalÃ‚Â Ã‚Â |
Per-Unit |

Materials | $27,000 | $3.00Ã‚Â Ã‚Â Ã‚Â |

Direct labor [all variable] | 29,790 | 3.31Ã‚Â Ã‚Â Ã‚Â |

Variable overhead | 34,200 | 3.80Ã‚Â Ã‚Â Ã‚Â |

Fixed overhead | 47,700 | 5.30Ã‚Â Ã‚Â Ã‚Â |

A company has offered to supply this part for $12.34 per unit. If X Company buys the part, $9,540 of the fixed overhead can be avoided. Also, if X Company buys the part, it can use the freed-up resources to increase production of another product, resulting in additional contribution margin of $2,500. Production next year is expected to be the same as this year.

1. The costs of making the part are less than the costs of buying the part by

2.X Company is uncertain what next year's required production will be. At what production level will X Company be indifferent between making and buying the part?

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X Company is considering buying a part next year that they currently produce. A company has offered to supply this part for $15.46 per unit. This year's total production costs for 95,000 units of this part were:

Ã‚Â

Materials | $608,000 |

Direct labor [all variable] | 380,000 |

Variable overhead | 342,000 |

Fixed overhead | 152,000 |

Unavoidable fixed overhead costs are $115,520. If X Company buys the part, there is no alternative use for the idle resources. Production next year is expected to increase to 99,750 units.

3. If X Company continues to make the part instead of buying it, it will saveÃ‚Â

4. Assume that X Company has an opportunity to negotiate the purchase price with the supplier. At what purchase price would X Company be indifferent between making and buying?Ã‚Â

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At the end of the year, a company offered to buy 4,450 units of a product from X Company for a special price of $13.69 each. The following per-unit information relates to the 64,200 units of the product that X Company made and sold to its regular customers:

Ã‚Â

Selling price | $15.00Ã‚Â Ã‚Â Ã‚Â |

Cost of goods sold | 8.72Ã‚Â Ã‚Â Ã‚Â |

Selling and administrative costs | Ã‚Â Ã‚Â 2.46Ã‚Â Ã‚Â Ã‚Â |

Fixed cost of goods sold for the year was $137,388, and fixed selling and administrative costs were $71,904.Ã‚Â

5. Profit on the special order isÃ‚Â

6. Now assume that 1) direct material costs for the special order will increase by $0.70 per unit, 2) special equipment for the special order will have to be rented for $3,500, and 3) sales commissions, regularly 4% of sales are included in variable selling and administrative costs, will not apply to the special order. These three changes will cause the special order profit to decrease byÃ‚Â

7. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, and regular sales will fall by 550 units. The effect of these lost sales would be to decrease firm profits byÃ‚Â

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8. The following information is for X Company's two products, A and B:

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Ã‚Â | Product A |
Product B |
||

Revenue | $92,000 | $88,000 | ||

Total contribution margin | $37,720 | $38,720 | ||

Total fixed costs | $26,780 | $54,170 | ||

Profit | $10,940 | $-15,450 |

$3,481 of Product A's fixed costs are avoidable; $10,292 of Product B's fixed costs are avoidable. X Company is considering dropping Product B. If it does, it can use the freed-up resources to increase sales of Product A by $34,400, but $2,000 of additional fixed costs will be incurred. If X Company drops Product B and increases Product A sales, firm profits will fall by

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9. X Company is considering producing and selling a new product with a useful life of six years. New equipment costing $1,200,000 will have to be purchased. At the end of six years, the equipment can be sold for $24,000. In each of the first three years, cash flows from this product will be $250,000; in each of the remaining years, cash flows will increase to $268,000. If the discount rate is 4%, the net present value for this new product is

10. X Company currently buys 8,000 units of a component part each year from a supplier for $8.70 each but is considering making the part instead. X Company estimates that it will cost a total of $41,910 to make the 8,000 units. Equipment will have to be purchased for $150,000 and will last for six years, at which time it will have zero disposal value. What is the approximate rate of return if X Company makes the part instead of buying it?

11. At the end of the year, X Company can accept a special order that will result in immediate profit of $49,000. However, if the order is accepted, regular prices will have to be reduced, and revenue will fall by $11,000 in each of the next four years. If the discount rate is 6%, the net present value of accepting the special order is

X Company bought a machine three years ago for $130,000 but is considering replacing it with a new, more efficient one. The new machine will cost $161,000. Both machines will last for four more years, and both will be worth zero at that time. The current machine can be sold immediately for $11,000. Operating costs with the current machine are $64,500; operating costs with the new machine are $26,500. Using a discount rate of 6%, the net present value of replacing the current machine isSubject | Business |

Due By (Pacific Time) | 11/15/2014 08:10 pm |

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