Question

(a) A company can manufacture a certain component from bar stock using an automatic lathe. The breakdown of costs is as follows: Cost of automatic lathe Tooling cost for component Setting up time Tool setter's rate Machine operator's rate Time to produce one component Cost of material per component Genera overheads (excluding $15.00 per hour $180,000.00 $1,800.00 10 hours $12.00 per hour $6.00 per hour 6 minutes $1.20 depreciation) Assume straight-line depreciation of the lathe over a period of 10 years, operating a 40 hour week for 50 weeks of the year. The anticipated life of the tooling is 1000 hours of production (i) If the company agrees to supply 8,500 components to a customer at a price of $4.95 per component, what profit, if any, will the company make on the job? (35 marks) (ii) What is the breakeven quantity for this job? (5 marks) (iii) Before production begins, the customer negotiates a revised contract. The new contract is for the supply of 12,500 components at a price per component of $4.60 What is the breakeven quantity for the new contract and what profit, if any, will the company make on the revised job? (25 marks) (b) A car rental agency has to acquire five new sedans for its fleet of cars available foir rental due to an increasing demand from customers. Two options are available, one is to purchase the cars outright and the other is to lease them If the leasing option is taken, an annual charge of $21 500 increasing by 10 percent each year and payable at the beginning of each year, applies for the duration of the lease which is for five years. Maintenance costs are to be born by the lessor but operating costs are the responsibility of the car rental agency and are assessed at $18 000 per annum, occurring at the beginning of each year. If the purchase option is chosen, the cars will initially cost $108 000 and at the end of five years are estimated to be worth $30 000 Maintenance costs are averaged out and are estimated at $1500 at the end of each year for five years. Bank interest is taken as 14 percent over the five years Which of the two options is the better and by how much, based on present value costs?

Answer 1

PAGE NO: DATE: Ansuer epne ciahon 180,000二 18000 to Total lathe houns 000 ho Tooling cost /Bovn ct) culaliao Pzd 0200 q-component 3600 120 Tooling _cost 率-2 Machine-oma 1200O epenicahion m machine TO-tal cost- 구3gZo 3320 2000 tours 73920 ouns o so 31416 selling phie

PAGE NO.: DATE: ] cost /Component 3416 OSO = 3.696 ニー. Selling-price Cost Cost