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.