Boyer Inc. is considering the introduction of a new product. This product can be produced in one
Question:
Boyer Inc. is considering the introduction of a new product. This product can be produced in one of several ways:
Using the present assembly line at a variable cost of $30 per unit Using the current assembly line after it has been overhauled (at an initial cost of $12,000) with a variable cost of $27 per unit On a new assembly line (initial cost $58,500) designed especially for the new product with a variable per unit cost of $21
Boyer is worried however, about the impact of competition. If no competition occurs, they expect to sell 14,550 units the first year. With competition, the number of units sold is expected to drop to 11,250. At the moment their best estimate is that there is a 57% chance of competition. They decided to make their decision based on the first years sales. Based on evaluating cost, determine the following:
a. What is the EMV for using the present line?
b. What is the EMV for overhauling the present line?
c. What is the EMV for installing a new assembly line?
d. Based on evaluating overall cost, which decision should Boyer Inc. make?
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu