S. H. Ltd., a cycle manufacturing company, has drawn up a programme for the manufacture of...
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S. H. Ltd., a cycle manufacturing company, has drawn up a programme for the manufacture of a new product for the purpose of fuller utilization of its capacity. The scheme envisages the manufacture of baby tricycle fitted with a bell. The company estimates the sales of tricycles at 10,000 during the first year and expects that from the second year onwards the sales estimates will stabilize at 20,000 tricycles. Since the company has no provision for the manufacture of the small bells specially required for the tricycles, the requirement of the bells is initially proposed to be met by way of purchase from the market at *8 each. However, if the company desires to manufacture the bell in its factory by installation of new equipment, it has two alternative proposals as under Initial Cost of Machine Life Fixed Overheads p.a. other than depreciation Variable expenses per unit Installation of Super X Machine *3.00 Lacs 10 Years *54000 4.00 Installation of Janta Machine 2.00 Lacs 10 Years 28000 Depreciation on machine should be charged on straight line basis. 5.00 Required: (a) For each of the two levels of output namely 10,000 and 20,000 bells state with suitable workings whether the company should purchase the bells from market or install new equipment for manufacture of bells. If your decision is in favour of the installation of new equipment, which of the two new machines should be installed? (b) What would be your decision in case the forecast of requirement from the second year onwards is estimated at 40,000 bells instead of 20,000 bells? (c) At what volume of bells will the installation of the two machines break even. S. H. Ltd., a cycle manufacturing company, has drawn up a programme for the manufacture of a new product for the purpose of fuller utilization of its capacity. The scheme envisages the manufacture of baby tricycle fitted with a bell. The company estimates the sales of tricycles at 10,000 during the first year and expects that from the second year onwards the sales estimates will stabilize at 20,000 tricycles. Since the company has no provision for the manufacture of the small bells specially required for the tricycles, the requirement of the bells is initially proposed to be met by way of purchase from the market at *8 each. However, if the company desires to manufacture the bell in its factory by installation of new equipment, it has two alternative proposals as under Initial Cost of Machine Life Fixed Overheads p.a. other than depreciation Variable expenses per unit Installation of Super X Machine *3.00 Lacs 10 Years *54000 4.00 Installation of Janta Machine 2.00 Lacs 10 Years 28000 Depreciation on machine should be charged on straight line basis. 5.00 Required: (a) For each of the two levels of output namely 10,000 and 20,000 bells state with suitable workings whether the company should purchase the bells from market or install new equipment for manufacture of bells. If your decision is in favour of the installation of new equipment, which of the two new machines should be installed? (b) What would be your decision in case the forecast of requirement from the second year onwards is estimated at 40,000 bells instead of 20,000 bells? (c) At what volume of bells will the installation of the two machines break even.
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Answera No Of Units Total Fixed Costs Total Variable Costs Fixed Costs Depreciation 10000 20000 ... View the full answer
Related Book For
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu
Posted Date:
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