70.2K

Verified Solution

Link Copied!

Project 4-Business Decisions Currently, he is only making Joe Smith has owned and operated Smith's Tool and Die for 40 years. one part, RL-5 which is a small electricial relay. He has a 2-year contract to provide 30,000 parts per month to Ford Motor. Unfortunately, Joe got quite sick and his son, Mike, has had to in and run the business. Mike is disappointed when he finds the following monthly information about the RL-5 part 30,000 units 660,000 $ 14.00 420,000 60,000 150,000 60,000 (30,000) Per unit Sales Price: Variable manufacturing costs Variable selling costs Fixed manufacturing overhead Fixed administrative/selling costs Operating income 22.00 2.00 Smith's Tool and Die has the capacity to produce 100,000 units of the RL-5 part per month. Mike comes to you to see what can be done about the current losses Smith's Tool and Die is experiencing. You and Mike determine that there are three alternatives to consider Mike mentions that his friend's dad, Sam, also owns a tool and shop and also supplies the RL-5 part to other automotive businesses. Since Sam's business is doing very well and can't k up with current production, Sam offers to $15.00 per unit. 1. eep purchase 50,000 units of RL-5 from Mike for Mike is also thinking about shutting down the business. Since he needs to the honor his contract with Ford, he has looked the 30,000 parts per month for a price of $20 per unit. Outsourcing the part will reduce 2. into outsourcing the part to Fred's Tool and Die. Fred offers to make manufacturing overhead by $80,000 and fixed administrative and selling costs by $30,000. Mike can pay Ford a non-performance fee and sell the a 10% of the sales revenue for one year Mike has received a $1,200,000 for the assets. Tony build condos on Assume that Smith's tax rate on the gain is 35% 3. assets of the business. The fee is olans to sell what he can, demolish the building and n offer from Tony who will pay the land. The current net book value of the assets is $200,000 Required: 1. How much profitloss will Mike realize if he accepts Sam's special order for 50,000 units? Show all computations: Incremental revenue: Incremental costs (list each cost individually) 2. List 3 qualitative issues that you think Mike should consider before accepting the special order A. B. C. How much profit/loss will Mike realize if he decides to outsource the part to Fred's Tool and Die? Show all computations 3. Make Costs/revenues (list individually) inhouse Outsource Difference consider before outsourcing the part: 4. List 3 qualitative issues that you think Mike should c A. B. C. oss will Mike realize if he sells the assets of the business to Tony? 5. How much profit/loss Show all computations think Mike should consider before selling off the business: should 6. List 3 qualitative issues that you A. B. C. of the three alternatives do you recommend Mike chose? Why? Use at least 2 f sentences that make sense. Project 4 is worth 40 points as follows Questions Points 2 Excel is used for all computations No spellling errors Numbers are formatted consistently Page breaks make sense File is saved at top of page 2 Total

Answer & Explanation Solved by verified expert

See Answer