Question
In: Accounting
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under...
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under consideration are shown below.
| Option 1 | Option 2 | |||
| Direct material cost per unit | $ | 57.6 | $ | 38.4 |
| Direct labour cost per unit | $ | 46 | $ | 39 |
| Variable overhead per unit | $ | 11.6 | $ | 31.4 |
| Fixed manufacturing costs | $ | 2,060,000 | $ | 3,852,000 |
The selling price of the company’s product is $192 per unit with variable selling costs of 10% of sales. Fixed selling and administrative costs are $3,360,000 per year.
There would be no change to the selling price, variable selling costs, or fixed selling and administrative costs as the result of the manufacturing equipment upgrade.
Required:
1. At what annual number of unit sales would Patterson Products Inc. be indifferent between the two upgrade options?
2. If demand falls short of the indifference point calculated in part (1), which option would be preferred?
-
Option 1
-
Option 2
3. Calculate the break-even point in unit sales under each upgrade option. (Round your final answers to the nearest whole number.)
Solutions
ekkarill92 answered 2 hours agoRelated Solutions
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under...
Patterson Products Inc. is considering an upgrade to its
manufacturing equipment. The two upgrade options under
consideration are shown below.
Option 1
Option 2
Direct material cost per unit
$
50.4
$
33.6
Direct labour cost per unit
$
42
$
35
Variable overhead per unit
$
8.4
$
26.6
Fixed manufacturing costs
$
2,040,000
$
3,552,000
The selling price of the company’s product is $168 per unit with
variable selling costs of 10% of sales. Fixed selling and
administrative...
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under...
Patterson Products Inc. is considering an upgrade to its
manufacturing equipment. The two upgrade options under
consideration are shown below. Option 1 Option 2 Direct material
cost per unit $ 72.0 $ 48.0 Direct labour cost per unit $ 54 $ 47
Variable overhead per unit $ 18.0 $ 41.0 Fixed manufacturing costs
$ 2,100,000 $ 4,500,000 The selling price of the company’s product
is $240 per unit with variable selling costs of 10% of sales. Fixed
selling and administrative...
At what annual number of unit sales would Patterson Products Inc. be indifferent between the two upgrade options?
Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under consideration are shown below.
Option 1
Option 2
Direct materials cost per unit
$18
$15
Direct labour cost per unit
$34
$27
Variable overhead per unit
$26
$32
Fixed manufacturing costs
$2,000,000
$3,000,000
The selling price of the company's product is $120 per unit with variable selling costs of 5% of sales. Fixed selling and administrative costs are $3,300,000 per year....
Patterson Corp. is considering the purchase of a new piece of equipment, which would have an...
Patterson Corp. is considering the purchase of a new piece of
equipment, which would have an initial cost of $528,000, a 7-year
life, and $150,000 salvage value. The increase in net income each
year of the equipment's life would be as follows:
Year 1
$
105,000
Year 2
$
97,000
Year 3
$
95,000
Year 4
$
84,000
Year 5
$
81,000
Year 6
$
76,000
Year 7
$
70,000
What is the payback period?
Multiple Choice
5.92 years
6.13...
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Materials in Year 1 are estimated to be $15,000 but
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Maintenance costs are expected to be $2,700 per year
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Case Study: A manufacturing company is evaluating two options for new equipment to introduce a new...
Case
Study:
A manufacturing
company is evaluating two options for new equipment to introduce a
new product to its suite of goods. The details for each option are
provided below:
Option
1
$65,000 for equipment with useful life of 7 years and no
salvage value.
Maintenance costs are expected to be $2,700 per year and
increase by 3% in Year 6 and remain at that rate.
Materials in Year 1 are estimated to be $15,000 but remain
constant at $10,000...
A company is considering the purchase of a major piece of equipment for its manufacturing plant....
A company is considering the purchase of a major piece of
equipment for its manufacturing plant. The project would cost $22m
in initial investment and would result in cost savings, before tax,
of $3.25m per year for five years. The equipment could be sold for
$4.5m at the end of the five years. The equipment would also result
in an increase in NWC of $500,000, which will be recovered at the
end of the project. The company’s CCA rate is...
A company is considering the purchase of a major piece of equipment for its manufacturing plant....
A company is considering the purchase of a major piece of
equipment for its manufacturing plant. The project would cost $22m
in initial investment and would result in cost savings, before tax,
of $3.25m per year for five years.
The equipment could be sold for $4.5m at the end of the five
years. The equipment would also result in an increase in NWC of
$500,000, which will be recovered at the end of the project.
The company’s CCA rate is...
JB Hi-Fi management is considering the two following options of buying a new equipment for a...
JB Hi-Fi management is considering the two following options of
buying a new equipment for a new investment project with the same
initial cost. Year:- 0 , 1, 2, 3, 4 Project A :-, -$78500, $43000,
$29000, $23000, $21000, Project B:-, -$78500, $21000, $28000 ,
$34000, $41000 A) which project the company should choose based on
NPV Criterion if the required rate of return is 11%. B) Which
project the company should choose based on P1 criterion if the
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