Question

1) Make or Buy

Terry Inc. manufactures machine parts for aircraft engines. CEOBucky Walters is considering an offer from a subcontractor toprovide 2,000 units of product OP89 for $120,000. If Terry does notpurchase these parts from the subcontractor, it must continue toproduce 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 offerfrom the subcontractor? Why or why not? Include a consideration offinancial and nonfinancial factors.

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

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

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

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