X Company currently buys 11,000 units of a component part each year from a supplier for $7.50 each but is considering making them instead. Variable costs of making would be $4.50 per unit; additional annual fixed costs would be $6,500. Equipment would have to be purchased for $30,000 and will last for 7 years, at which time it will have a disposal value of $6,000. Assuming a discount rate of 4%, what is the net present value of making the part instead of continuing to buy it?
Particulars | Amount | Present value factor | Present Value |
Net Present value making the part: | |||
Equipment | $30,000 | 1.000 | $30,000 |
Annual fixed costs | 6,500 | 5.836 | 37, 934 |
Less: Saving in variable cost [11000 x (7.50 - 4.50)] | 33,000 | 5.836 | 192,588 |
Less: Disposal value | 6000 | 0.760 | 4,560 |
Net Present value making the part instead of buying it | $129,214 |
X Company currently buys 11,000 units of a component part each year from a supplier for...
X Company currently buys 6,000 units of a part each year from a supplier for $8.30 per part, but it is considering making the part instead. In order to make the part, X Company will have to buy equipment that will cost $150,000. The equipment will last for 6 years, at which time it will have zero disposal value. X Company estimates that it will cost $20,250 a year to make all 6,000 units. What is the approximate rate of...
X Company currently buys 8,000 units of a part each year from a supplier for $7.70 per part, but it is considering making the part instead. In order to make the part, X Company will have to buy equipment that will cost $150,000. The equipment will last for 6 years, at which time it will have zero disposal value. X Company estimates that it will cost $30,130 a year to make all 8,000 units. What is the approximate rate of...
X Company currently buys a part from a supplier for $14.09 per unit but is considering making the part itself next year. This year, they purchased 3,400 units of this part.Estimated costs to make the part are: Per-Unit Total Direct materials $3.96 $13,464 Direct labor 3.80 12,920 Variable overhead 4.20 14,280 Fixed overhead 5.30 18,020 Total $17.26 $58,684 Of the estimated fixed overhead, $6,667 are common costs that would be allocated to the part; the rest would be additional fixed...
Gelb Company currently manufactures 53,000 units per year of a key component for its manufacturing process. Variable costs are $6.25 per unit, fixed costs related to making this component are $79,000 per year, and allocated fixed costs are $62,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.90 per unit. Calculate the total incremental cost of making 53,000 and buying 53,000...
Gelb Company currently manufactures 59,500 units per year of a key component for its manufacturing process. Variable costs are $4.05 per unit, fixed costs related to making this component are $65,000 per year, and allocated fixed costs are $63,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.70 per unit. Calculate the total incremental cost of making 59,500 units and buying...
Gelb Company currently manufactures 54,500 units per year of a key component for its manufacturing process. Variable costs are $5.15 per unit, fixed costs related to making this component are $89,000 per year, and allocated fixed costs are $63,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.50 per unit. Calculate the total incremental cost of making 54,500 and buying 54,500...
Gelb Company currently manufactures 47,000 units per year of a key component for its manufacturing process. Variable costs are $5.15 per unit, fixed costs related to making this component are $67,000 per year, and allocated fixed costs are $66,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.70 per unit. Calculate the total incremental cost of making 47,000 and buying 47,000...
Gelb Company currently manufactures 40,000 units per year of a key component for its manufacturing process. Variable costs are $6.25 per unit, fixed costs related to making this component are $77,000 per year, and allocated fixed costs are $65,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.50 per unit. Calculate the total incremental cost of making and buying 40,000 units....
Sad Gelb Company currently manufactures 58,000 units per year of a key component for its manufacturing process. Variable costs are $7.35 per unit, fixed costs related to making this component are $69.000 per year, and allocated fixed costs are $77,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.70 per unit. Calculate the total incremental cost of making 58,000 and buying...
Chap 23 Homework Gelb Company currently manufactures 48,000 units per year of a key component for its manufacturing process. Variable costs are $2.95 per unit, fixed costs related to making this component are $83,000 per year, and allocated fixed costs are $67,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.50 per unit 25 points Calculate the total incremental cost of...