# Special order: high-low cost estimation saferide, inc. produces air

Special Order: High-Low Cost Estimation
SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at \$7.00 each. Budgeted costs for 180,000 and 240,000 units are as follows:

180,000 Units 240,000 Units
Manufacturing costs
Direct materials \$450,000 \$600,000
Direct labor 315,000 420,000
Factory overhead 1,215,000 1,260,000
Total 1,980,000 2,280,000
Selling and administrative 765,000 780,000
Total \$2,745,000 \$3,060,000
Costs per unit
Manufacturing \$11.00 \$9.50
Selling and administrative 4.25 3.25
Total \$15.25 \$12.75

Sales to North American manufacturers are priced at \$25 per unit, but the sales manager believes the company should aggressively seek the German business even if it results in a loss of \$5.75 per unit. She believes obtaining this order would open up several new markets for the company’s product. The general manager commented that the company cannot tighten its belt to absorb the \$345,000 loss (\$5.75 × 60,000) it would incur if the order is accepted.

(a) Calculate the net benefit (cost) of accepting the order from the German business.

(b) Calculate the net benefit (cost) of accepting the order from the German business, assuming the company is operating at full capacity.

Outsourcing (Make-or-Buy) Decision
Assume a division of Hewlett-Packard currently makes 16,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of \$27 per board, consisting of variable costs per unit of \$22 and fixed costs per unit of \$5. Further assume Sanmina-SCI offers to sell Hewlett-Packard the 16,000 circuit boards for \$27 each. If Hewlett-Packard accepts this offer, the facilities currently used to make the boards could be rented to one of Hewlett-Packard’s suppliers for \$25,000 per year. In addition, \$3 per unit of the fixed overhead applied to the circuit boards would be totally eliminated.

Calculate the net benefit (cost) to HP of outsourcing the component from Samina-SCI. Use a negative sign with your answer, if appropriate.

Make or Buy
Rashad Rahavy, M.D., is a general practitioner whose offices are located in the South Falls Professional Building. In the past, Dr. Rahavy has operated his practice with a nurse, a receptionist/secretary, and a part-time bookkeeper. Dr. Rahavy, like many small-town physicians, has billed his patients and their insurance companies from his own office. The part-time bookkeeper, who works 10 hours per week, is employed exclusively for this purpose.

North Falls Physician’s Service Center has offered to take over all of Dr. Rahavy’s billings and collections for an annual fee of \$7,000. If Dr. Rahavy accepts this offer, he will no longer need the bookkeeper. The bookkeeper’s wages and fringe benefits amount to \$11 per hour, and the bookkeeper works 50 weeks per year. With all the billings and collections done elsewhere, Dr. Rahavy will have two additional hours available per week to see patients. He sees an average of four patients per hour at an average fee of \$30 per visit. Dr. Rahavy’s practice is expanding, and new patients often have to wait several weeks for an appointment. He has resisted expanding his office hours or working more than 50 weeks per year. Finally, if Dr. Rahavy signs on with the center, he will no longer need to rent a records storage facility for \$100 per month.

(a) Calculate the net benefit (cost) of outsourcing the bookkeeping.

Outsourcing (Make-or-Buy) Decision
Mountain Air Limited manufactures a line of room air purifiers. Management is currently evaluating the possible production of an air purifier for automobiles. Based on an annual volume of 10,000 units, the predicted cost per unit of an auto air purifier follows.

 Direct materials \$8.00 Direct labor 1.50 Factory overhead 5.00 Total \$14.50

These cost predictions include \$40,000 in facility-level fixed factory overhead averaged over 10,000 units.

One of the component parts of the auto air purifier is a battery-operated electric motor. Although the company does not currently manufacture these motors, the preceding cost predictions are based on the assumption that it will assemble such a motor. Mini Motor Company has offered to supply an assembled battery-operated motor at a cost of \$4.50 per unit, with a minimum annual order of 5,000 units. If Mountain Air accepts this offer, it will be able to reduce the variable labor and variable overhead costs of the auto air purifier by 50 percent. The electric motor’s components will cost \$3.00 if Mountain Air assembles the motors.

(a) Calculate the net benefit (cost) of outsourcing the electric motors from Mini Motor Company.

(b) Calculate the net benefit (cost) of outsourcing the electric motors from Mini Motor Company, assuming the motor-assembly space could be rented to another company for \$22,000 per year.

Sell or Process Further
Port Allen Chemical Company processes raw material D into joint products E and F. Raw material D costs \$6 per liter. It costs \$100 to convert 100 liters of D into 60 liters of E and 40 liters of F. Product F can be sold immediately for \$6 per liter or processed further into Product G at an additional cost of \$5 per liter. Product G can then be sold for \$16 per liter.

Determine whether Product F should be sold or processed further into Product G. Calculate the net benefit (cost) of further processing. The answer needs to be per liter.

Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
• 24/7 support
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
• Expert Proofreading
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

# Our guarantees

We value our customers and so we ensure that what we do is 100% original..
With us you are guaranteed of quality work done by our qualified experts.Your information and everything that you do with us is kept completely confidential.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

The Product ordered is guaranteed to be original. Orders are checked by the most advanced anti-plagiarism software in the market to assure that the Product is 100% original. The Company has a zero tolerance policy for plagiarism.

### Free-revision policy

The Free Revision policy is a courtesy service that the Company provides to help ensure Customer’s total satisfaction with the completed Order. To receive free revision the Company requires that the Customer provide the request within fourteen (14) days from the first completion date and within a period of thirty (30) days for dissertations.

### Privacy policy

The Company is committed to protect the privacy of the Customer and it will never resell or share any of Customer’s personal information, including credit card data, with any third party. All the online transactions are processed through the secure and reliable online payment systems.

### Fair-cooperation guarantee

By placing an order with us, you agree to the service we provide. We will endear to do all that it takes to deliver a comprehensive paper as per your requirements. We also count on your cooperation to ensure that we deliver on this mandate.

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Academic level
Number of pages
Urgency