Differential Analysis, Product Pricing, and Activity-Based Costing LO 1 c – Make or Buy Decisions and Replace Equipment Decisions @ 2012, Cengage Learning
LO 1 Make or Buy è Companies often manufacture products made up of components that are assembled into a final product. Should they make or buy the parts?
LO 1 Make or Buy è If the make price of $280 is simply compared with the buy price of $240, the decision is to buy the instrument panel shown on the next slide. However, there are more factors to consider. Exhibit 7 on Slide 5 considers relevant costs in making this decision.
LO 1 Make or Buy An automobile manufacturer has been purchasing instrument panels for $240 a unit. The factory currently operates at 80% of capacity. The cost per unit of manufacturing a panel internally is estimated as follows: Direct materials Direct labor Variable factory overhead Fixed factory overhead Total estimated cost per unit $ 80 80 52 68 $280
LO 1 Make or Buy
LO 1 Replace Equipment On November 28, 2012, a business is considering replacing the following machine: Old Machine: Book value $100, 000 Estimated annual variable manufacturing costs 225, 000 Estimated selling price 25, 000 Estimated remaining useful life 5 years (continued)
LO 1 Replace Equipment The business is considering replacing the old machine with a new one, as shown below: Book value Cost of new machine Estimated annual variable manufacturing costs Estimated selling price Estimated residual value Estimated remaining useful life Old $100, 000 New $250, 000 225, 000 5 years 150, 000 0 5 years (continued)
LO 1 Replace Equipment replace old machine
LO 1 Replace Equipment è The revenue that is forgone from an alternative use of an asset, such as cash, is called an opportunity cost. è Although the opportunity cost is not recorded in the accounting records, it is useful in analyzing alternative courses of action.
LO 1 Replace Equipment è Assume that the cash outlay of $250, 000 for the new equipment, less the $25, 000 proceeds from the sale of the present equipment, could be invested to yield a 10% return. Thus, the annual opportunity cost related to the purchase is $22, 500 (10% * $225, 000).
Скачать презентацию Differential Analysis Product Pricing and Activity-Based Costing LO
7f9d5b23f0703aba608e3b18b7354a0a.ppt