Suppose Daimler Chrysler is considering which of two emission testing devices to buy

B10. (Replacement cycles) Suppose Daimler Chrysler is considering which of two emission testing devices to buy. Machine A costs $100,000, has a five-year useful life, and has operating expenses of $40,000 per year. Machine B costs $36,000, has a six-year useful life, and has operating expenses of $62,000 per year. Both machines will have zero salvage value, revenues of $85,000 per year, and straight-line depreciation to a zero book value, and both will be replaced at the end of their lives. Daimler Chrysler’s tax rate is 35%.

a. Assume a 12% cost of capital for each machine. Which one should Daimler Chrysler buy?
b. Suppose instead that machine A requires a higher cost of capital, 15%, because it’s a riskier process. Machine B’s cost of capital is still 12%. Which machine should Daimler Chrysler buy?

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The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier

ACC 560 Week 5 Assignment

P7-2A The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called WISCO, is a component of the company's finished product.

The following information was collected from the accounting records and production data for the year ending December 31, 2008.
1. 7,000 units of WISCO were produced in the Machining Department.
2. Variable manufacturing costs applicable to the production of each WISCO unit were: direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40.
3. Fixed manufacturing costs applicable to the production of WISCO were:
Cost Item Direct Allocated
Depreciation $2,100 $ 900
Property taxes 500 200
Insurance 900 600
$3,500 $1,700

All variable manufacturing and direct fixed costs will be eliminated if WISCO is purchased. Allocated costs will have to be absorbed by other production departments.

4. The lowest quotation for 7,000 WISCO units from a supplier is $70,000.
5. If WISCO units are purchased, freight and inspection costs would be $0.40 per unit, and receiving costs totaling $1,250 per year would be incurred by the Machining Department.

Hint: Make incremental analysis related to make or buy, consider opportunity cost, and identify nonfinancial factors.

Instructions
(a) Prepare an incremental analysis for WISCO. Your analysis should have columns for (1) Make WISCO, (2) Buy WISCO, and (3) Net Income Increase/(Decrease).
(b) Based on your analysis, what decision should management make?
(c) Would the decision be different if Borealis Company has the opportunity to produce $5,000 of net income with the facilities currently being used to manufacture WISCO? Show computations.
(d) What nonfinancial factors should management consider in making its decision?

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In 2003, Karen Pearson and Steve and Tara Carlson agreed to buy a 2004 Dynasty recreational vehicle (RV)

11-4A. Shipment and Destination Contracts. In 2003, Karen Pearson and Steve and Tara Carlson agreed to buy a 2004 Dynasty recreational vehicle (RV) from DeMartini’s RV Sales in Grass Valley, California. On September 29, Pearson, the Carlsons, and DeMartini’s signed a contract providing that “seller agrees to deliver the vehicle to you on the date this contract is signed.” The buyers made a payment of $145,000 on the total price of $356,416 the next day, when they also signed a form acknowledging that the RV had been inspected and accepted. They agreed to return later to have the RV transported out of state for delivery (to avoid paying state sales tax on the purchase). On October 7, Steve Carlson returned to DeMartini’s to ride with the seller’s driver to Nevada to consummate the out-of –state delivery. When the RV developed problems, Pearson and the Carlsons filed a suit in a federal district court against the RV’s manufacturer, Monaco Coach Corp., alleging in part, breach of warranty under the state law. The applicable statute is expressly limited to goods sold in California. Monaco argued that this RV had been sold in Nevada. How does the Uniform Commercial Code (UCC) define a sale? What does the UCC provide with respect to the passage of title? How do these provisions apply here? Discuss. [ Carlson v. Monaco Coach Corp., 486 F. Supp. 2d 1127 (E.D. Cal. 2007)]


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Steinar loaned a friend $9,500 to buy some stock 3 years ago

Steinar loaned a friend $9,500 to buy some stock 3 years ago. In the current year the debt became worthless.
a. How much is Steinar's deduction for the bad debt for this year? (Assume he has no other capital gains or losses.)
b. What can Steinar do with the deduction not used this year?


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(Make or Buy) Cincinnati Flow Technology (CFT) has purchased 10,000 pumps annually from Kobec, Inc

PROBLEM 14–48 Make or Buy

Cincinnati Flow Technology (CFT) has purchased 10,000 pumps annually from Kobec, Inc. Because the price keeps increasing and reached $102.00 per unit last year, CFT’s management has asked for an estimate of the cost of manufacturing the pump in CFT’s facilities. CFT makes stampings and castings and has little experience with products requiring assembly.
The engineering, manufacturing, and accounting departments have prepared a report for management which includes the following estimate for an assembly run of 10,000 pumps. Additional production employees would be hired to manufacture the pumps but no additional equipment, space, or supervision would be needed.
The report states that total costs for 10,000 units are estimated at $1,435,500 or $143.55 per unit. The current purchase price is $102.00 per unit, so the report recommends continued purchase of the product.
Components (outside purchases) ......... $ 180,000
Assembly labor* ........................................ 450,000
Manufacturing overhead† ........................ 675,000
General and administrative overhead‡ .. 130,500
Total costs ............................................... $1,435,500
* Assembly labor consists of hourly production workers.
†Manufacturing overhead is applied to products on a direct-labor-dollar basis. Variable-overhead costs vary closely with direct-labor dollars.
Fixed overhead ....................................................................................... 50% of direct-labor dollars
Variable overhead ................................................................................... 100% of direct-labor dollars
Manufacturing-overhead rate .................................................................. 150% of direct-labor dollars
‡General and administrative overhead is applied at 10 percent of the total cost of material (or components), assembly labor, and manufacturing
overhead.

Required:
Were the analysis prepared by Cincinnati Flow Technology’s engineering, manufacturing, and accounting departments and their recommendation to continue purchasing the pumps correct? Explain your answer and include any supporting calculations you consider necessary.

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