Therefore, Buying New Equipment with fixed cost of $200,000 variable cost of $500 for every 1,000 sneaker is more cost-effective for the organization. B. The future periods of sales are displayed for periods 10-21 along with forecasted sales for each period. Within the Least-Squares
Once again if the president’s bonus is based off of net income, this situation is the most favorable for a high paying bonus and encourages stockpiling inventory to inflate net income. b. If the sales outlook for the coming three years were to increase to 30,000,000, the newly implemented system would prove valuable to B.E. Company. If production is kept the same, the company is predicted to sell every unit produced which would avoid a stockpile of inventory and also safeguarding an extra 5,000,000 units in ending inventory in case sales go above 30,000,000.
Shuzworld needs to make a decision on which choice would be more economical: Refurbishing or reconditioning the equipment that is already being used, possibly buying new equipment, or possibly outsourcing the products to China. The cost of reconditioning is fixed at $50,000. On top of that there is a variable cost that is $1000 per every 1,000 shoes that are being produced. If brand new equipment is bought the fixed cost sits at $200,000 with an added variable cost which is $500 for each 1,000 units. If the choice of outsourcing is chosen then there are not any fixed costs.
Rochelle decided to compare two plants for 50 days, Memphis plant-which will have the vector drive and Birmingham plant-which will use the existing system and prepare a report. The financial analysts believe that the purchase can be justified if the equipment leads to the average increase in production of atleast 10,000 bricks per day. Since we have to check whether the difference between the mean value of the bricks per day at Memphis plant and Birmingham plant is greater than 10000(for purchase to be justified), we will use hypothesis testing for means and compare the sampling distribution of the mean value of bricks produced in a day. This method is the typical method to solve these kind of problems. Data available is Plant Total Bricks produced in 50 days S (standard deviation) x̄ (mean) Memphis 7484500 3402.46 149690 Birmingham 6902350 3364.68 138047 Hypothesis test In a hypothesis test we assume Ho to be true and try to find evidence that shows otherwise.
In order to recondition the existing equipment at the Shanghai facility, the company will incur a fixed cost of $50,000 and a variable cost of $1,000 for the production of 1,000 sneakers. If the company decides to buy new equipment for the Shanghai facility, it will cost Shuzworld $200,000 in fixed cost and $500 in variable costs for every 1,000 shoes produced. If Shuzworld choses to outsource production, the company will have zero fixed costs and a variable cost of $3,000 for every 1,000 shoes produced (MindEdge, 2014).
* Of the $18400 Rhodes made in mortgage payments last year, $8000 was interest. The income statement lists 2008 interest paid as $32000, which means that there are other debts that required payments of $24000. If possible, accelerating payback on these loans can be very beneficial in the long run. * At industry average levels, wages of a similar business would be approximately $79000, or $11000 lower. * Wages, advertising and rent total %23.1 of sales in the average business, leaving %1.9 of sales for property taxes, interest, utilities, depreciation and other expenses.
| Shuzworld: Task 3 | | JGT2 Decision Analysis | | Shuzworld: Task 3 | | JGT2 Decision Analysis | Jamila Mitchell | Western Governors University Jamila Mitchell | Western Governors University Shuzworld: Task 3 JGT2 Decision Analysis A. Manufacturing Recommendation Shuzworld has received approval to begin production of the Samba Sneakers, which will be targeted for teens and pre-teens. Management needs to determine the best manufacturing option to proceed with and has the option to recondition existing equipment, purchase new equipment, or outsource to a vendor in China. The following outlines the information received for the fixed and variable cost for every 1,000 sneakers of each option: Option | Fixed Cost | Variable Cost | Recondition | $50,000 | $1,000 | Purchase | $200,000 | $500 | Outsource | $0 | $3,000 | The most cost-efficient option based on this would be to purchase new equipment for the Shanghai plant rather than recondition the equipment or outsource production to a vendor. While both the reconditioning and outsourcing options require lower volumes of sneakers to breakeven, the graph on Appendix A shows that the purchase option has the lowest overall costs for manufacturing more than 300 sneakers.
If the company has low skilled employees than they will not be making the most out of their assets because there will be more wastage in production, this can result in an increase in the amount being able to provide to the public. If production levels fall then the company will make less money because they will not be able to see as much to the public as they could if they did have highly skilled workers. Therefore it is important to review the workforce plan constantly to understand when more highly skilled workers will be needed. External The fact that the current market has a global shortage of mining professionals does cause a problem to the company’s long term projects. This is because the company will need highly skilled workers to maximise production without a large range to choose from.
This high ROFE exceeds the hurdle rate that the company establishes to accept a project. As a result, from an incremental valuation, the company should accept this project. However, this method has deficiency, because according to Mr. Peters, the assumption for capital spending of this project ($20 million) is inappropriate, since the Chiffon project will use Jell-O buildings and facilities extensively. Then, the allocation of agglomerator and building should be also included in Chiffon project. Therefore, the company should not use the incremental method to value the Chiffon project since Mr. Peters argues that it has the wrong assumption.
Capital Budget Recommendation Guillermo Furniture, based in Sonora, Mexico, specializes in handcrafted quality products. In the late 1990s Guillermo’s profits started to shrink because of increased competition and rising costs. Guillermo does not consider merging with a larger competitor a viable option, as this would take away time spent with his family. Confronted with business options that affect the future of the company, Guillermo Furniture must choose between upgrading to a high-tech computer controlled laser lathe and becoming more of a distribution network than a manufacturing company for a competitor (University of Phoenix, 2013). Capital budget techniques assists in recommending a course of action for Guillermo Furniture based on the presented data.