6-47. 1. In order to make this assessment, Dana needs to calculate which method is cheaper. The accounting for producing the parts itself has been noted as $1,100,000, which equates to $22 per unit. The cost of the units from the other company is $20, but fixed costs will still be incurred. The fixed costs are $300,000 less the $150,000 that will be saved, so $150,000. For 50,000 units, this is $3 per unit. Thus, the total cost per unit will be $20 + $3 = $23. This is higher than it would cost Dana to produce the units itself -- in other words the savings from purchasing are not good enough to justify making the switch. Dana should produce the units itself.
2. a) if there is an additional input of $75,000, this equates to $1.50 per unit. The new calculation would be $20 + $3 -$1.50 = $21.50. Dana should now accept the offer to buy the units at $20.
b) the $100,000 contribution would be $2 per unit, so the new calculations are $20 + $3 - $2 = $21.00. Again, Dana should now accept the offer to buy the units at $20.
6-59. 1. Ignoring taxes means ignoring the impact of depreciation, which otherwise is not a cash...
The comparison therefore is as follows:
Cost Comparison
Old
New
Purchase
0
-12,000
Salvage
Annual Operating
-33000
-18000
-33000
-27000
Thus, the new machine will cost less to operate over the course of the next three years than the old machine will, even after the purchase cost has been factored in. The salvage value for selling the old machine is counted in the new machine's chart because if the new one is bought the old one would be sold.
2. The main irrelevant cost is the remaining depreciation on the old machine. This would be counted under the totals for the new machine as it would need to be written off. Thus:
Cost Comparison
Old
New
Purchase
-12,000
Depreciation
-9,000
Salvage
Annual Operating
-33000
-18000
-33000
-36000
Under this scenario, the new machine would be considered to…
