87.A company is planning to introduce a new portable computer to its existing product line. Management must decide whether to make the computer case or buy it from an outside supplier. The lowest outside price is $90. If the case is produced internally, the company will have to purchase new equipment that will yield annual depreciation of $130,000. The company will also need to rent a new production facility at $200,000 a year. At 20,000 cases per year, a preliminary analysis of production costs shows the following:
Per Case
Direct materials$40.00
Direct labor32.00
Variable overhead10.00
Equipment depreciation6.50
Building rental10.00
Allocated fixed overhead 7.50
Total cost$106.00
Required:
(1) Determine whether the company should make the cases or buy them from the outside supplier.
(2) What other factors, besides cost, should the company consider?
88.A company must decide between scrapping or rebuilding units that do not pass inspection. The company has 15,000 such units that cost $6 per unit to manufacture. The units were built to satisfy a special order, which must still be satisfied if the defective units are scrapped. The units can be sold as scrap for $2.50 each or they can be reworked for $4.50 each and sold for the full price of $9.00 each. If the units are sold as scrap, the company will have to build 15,000 replacement units and sell them at the full price.
Required:
(1) What is the net return from selling the units as scrap?
(2) What is the net return from reworking and selling the units?
(3) Should the company sell the units as scrap or rework them?
89.A company inadvertently produced 3,000 defective products. The product cost $15 each to be manufactured and normally sells for $35 each. A salvage company will purchase the defective units as they are for $13 each. The production manager reports that the defects can be corrected for $5 per unit, enabling the company to sell them at a discounted price of $22.00. The repair operations would not affect other production operations. Prepare an analysis that shows which action should be taken.
90.Mays Company can sell all of product A that it produces but only 160,000 units of Z and it has limited production capacity. It can produce 6 units of A per hour or 10 units of Z per hour, and it has 30,000 production hours available. Contribution margin per unit is $12 for A and $10 for Z. What is the most profitable sales mix for this company?