Choose ONE case below to evaluate. Without using the textbook or referring to th
ID: 2429775 • Letter: C
Question
Choose ONE case below to evaluate. Without using the textbook or referring to the videos, decide what would be the best courase of action. Make sure you identify what case you are addressing and what is the basis of your decision.
Choose one case below to evaluate. Without using the textbook or referring to the videos, decide what would be the best course of action. Make sure you identify what case you are addressing and what is the basis of your decision. Point Value: 2 Participation Points for responding to this post (minimum of 50 words). 1 additional Participation Point for a thoughtful comment or question posted to a classmate's post. Case 1 LBCC Bike Shop needs to obtain a gear-cutting machine, which can be purchased for $75,000. LBCC Bike Shop estimates that repair, maintenance, insurance, and property tax expense will be $20,000 for the machine's five-year life. At the end of the machine's life, it will have no salvage value As an alternative, LBCC Bike Shop can lease the machine for five years for $18,000 per year. If the machine is leased, LBCC Bike Shop is required to pay only for routine maintenance on the machine, which is estimated to be $8,000 over the machine's life. All other costs will be paid by the lessor. Should LBCC Bike Shop purchase or lease the machine. Case 2 LBCC Bike Shop currently manufactures part A-14, one of the component parts used to assemble the company's main product. Specialty Parts has offered to make part A-14 for $12.50 per unit. LBCC Bike Shop per-unit cost to make part A-14 is $14.75, as follows: Direct materials $5.00 Direct labor 6.00 Variable factory overhead 1.75 Fixed factory overhead 2.00 None of LBCC Bike Shop's fixed overhead costs will be eliminated if the part is purchased. However, the plant space currently used to manufacture the part can be leased to another company for 30,000 per year. Assuming that LBCC Bike Shop needs 100,000 parts per year, should the company continue to make part A-14 or buy it? Case 3 LBCC Bike Shop sells oranges (from the trees in the parking lot) for $15.00 per case. The company has considered processing some of its oranges into orange juice. Each case of oranges will yield two dozen bottles of orange juice, which can be sold for $1.50 per bottle. The additional cost to process the oranges into orange juice is $0.75 per bottle. Determine whether LBCC Bike Shop should make the orange juice Case 4 LBCC Bike Shop uses oranges from the trees in the parking lot to produce orange juice. The cost to make each bottle is $2.05 and consists of the following: Direct materials Direct labor Variable factory overhead Fixed factory overhead $1.00 0.25 0.30 0.50 A grocery store chain wants to purchase a generic brand orange juice from LBCC Bike Shop and is willing to pay $1.50 per bottle. The generic orange juice will be made using a different recipe lowering the direct materials cost to $0.80 per bottle. LBCC Bike Shop can produce this special order using excess capacity; therefore, fixed costs will not increase. Determine whether LBCC Bike Shop should accept this special order.Explanation / Answer
Answers
>New machine can be purchased [Alternative 1], OR
>New machine can be leased [Alternative 2].
>Alternative 1
Total Cost in 5 years if New machine is PURCHASED
Cost of Purchase
$ 75,000.00
Repair, Maintenance cost in 5 years
$ 20,000.00
Total cost to be incurred in 5 years
$ 95,000.00
>Alternative 2
Total Cost in 5 years if New machine is LEASED
Annual Lease payments
$ 18,000.00
Total Lease payments for 5 years
$ 90,000.00 [18,000 x 5 years]
Maintenance cost in 5 years
$ 8,000.00
Total cost to be incurred in 5 years
$ 98,000.00
Total Cost in 5 years if New machine is PURCHASED
Cost of Purchase
$ 75,000.00
Repair, Maintenance cost in 5 years
$ 20,000.00
Total cost to be incurred in 5 years
$ 95,000.00