your company presently uses a crew of its own employees for all major maintenance. On average, 50
Question:
your company presently uses a crew of its own employees for all major maintenance. On average, 50 major repairs are performed each year at 30 lost production hours per repair. keeping the crew cost $1,600,000 per year plus any lost production costs. Lost production costs are estimated at $4,000 per hour. Your company is considering replacing its in house maintenance work with an outside company (Ajax) working under an annual maintenance contract. This proposal will pay Ajax $4, 400,000 per year but your company will still have to pay for all lost production time. Ajax claims that the time per repair will decrease because of the contractors' substantial maintenance experience. Assuming the number of major repairs and the cost of lost production time remain the same, how much time per repair is the maximum allowable for Ajax to be the preferred alternative?
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young