Posted: July 14th, 2016
Mason Company currently produces a component that it uses in making some of its products. Mason has
Calculated the following costs for making the part:
Allocated facility-level costs 10
Total cost $60
Mason is considering outsourcing the component. A supplier has offered to sell the component to Mason for $54 each. Hart needs 10,000 units each year.
Required: Should Mason outsource the component? Support your answer with appropriate computations.
Rodriguez Company is considering purchasing new equipment. The manager has gathered the following
Original cost $25,000
Accumulated depreciation 20,000
Annual operating costs 5,500
Current market value 750
Salvage value at the end of five years 0
Annual operating costs 500
Salvage value at end of five years 0
1) Identify the sunk costs associated with this decision.
2) Compute the increase or decrease in total income over the five-year period if the company chooses to buy the new equipment.
3) What is your recommendation for this decision?
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