2024 – 1 Make or Buy Terry Inc manufactures machine parts for aircraft engines CEO Bucky

1) Make or Buy

Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Walters is considering an offer from a subcontractor to provide 2,000 units of product OP89 for $120,000. If Terry does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs:

Cost per unit

Direct Materials ……………….$28

Direct labor………………………18

Variable overhead……………..16

Allocated fixed overhead………..4

Required: Should Terry, Inc. accept the offer from the subcontractor? Why or why not? Include a consideration of financial and nonfinancial factors.

 

2) Disposal of Assets: A company has an inventory of 2,000 different parts for a line of cars that has been discontinued. The net book value (NBV) of this inventory is $50,000. The parts can be either remachined at a total additional cost of $25,000 and then sold for $30,000 or sold as-is for $2,500.

Required: What should it do? Include a consideration of both financial and nonfinancial factors.

 

3) Replacement of an Asset: An uninsured boat costing $90,000 was wrecked the first day it was used. It can be either sold as-is for $9,000 cash and replaced with a similar boat costing $92,000 or rebuilt for $75,000 and be brand new as far as operating characteristics and looks are concerned.

Required: What should be done? Include a consideration of both financial and nonfinancial factors.