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Thepotemich [5.8K]
3 years ago
10

A manufacturer is contemplating a switch from buying to producing a certain item. Setup cost would be the same as ordering cost.

The production rate would be about double the usage rate. Compared to the EOQ, the maximum inventory would be approximately:
a. 30 percent higher.
b. 70 percent higher.
c. 30 percent lower.
d. 70 percent lower.
Business
1 answer:
Luden [163]3 years ago
5 0

Answer:

c. 30 percent lower.

Explanation:

Since the manufacturer is contemplating a switch from buying to producing a certain item while setup cost would be the same as ordering cost, the production rate would be about double the usage rate.

Compared to the Economic Order Quantity (EOQ), the maximum inventory would be approximately 30 percent lower under Economic Production Quantity (EPQ), and higher under EOQ.

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A new manufacturing machine is expected to cost $278,000, have an eight-year life, and a $30,000 salvage value. The machine will
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Answer:

C) 4.2 years

Explanation:

The computation of the payback period is as follows;

As we know that

Payback Period = Initial cost ÷ Annual net cash flow

Here

Initial cost = $278000

Annual net cash flow = Incremental after tax + Depreciation per year

where,  

Depreciation per year = (Original cost - Salvage value) ÷ Estimated Life

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= $31,000

Annual net cash flow is

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So,

Payback Period is

= $278000 ÷ $66000

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Related concepts to understand the problem.

Competitive advantage. A competitive advantage is an improvement over competitors gained by contribuiting consumers greater value.

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