Maurice Tutor

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Teaching Since: May 2017
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  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 07 Aug 2017 My Price 4.00

HiTek Industries

(Capacity Utilization) HiTek Industries spends $20,000 per year on Component A. NewIdea Co. has a product that can be used instead of Component A, and it would cost HiTek $30,000 per year, compared to HiTek’s current costs for Component A of $20,000 per year. NewIdea believes that it can justify the additional price through productivity improvements.

NewIdea’s sales representative visits HiTek and is able to determine that HiTek has a maximum capacity of 25,000 units per year. The sales price is $100 per unit and the contribution margin is 30%. HiTek has currently been experiencing a 7.5% scrap rate and a 7.5% downtime rate. NewIdea’s product is expected to reduce scrap to 5% and downtime to 5%.

a. Produce a financial justification that will support NewIdea’s proposal, assuming that NewIdea’s products will reduce the downtime and waste to the target levels.

b. If you received such a proposal from NewIdea, what would you want to be sure of before accepting it?

Answers

(5)
Status NEW Posted 07 Aug 2017 12:08 AM My Price 4.00

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