K2B Co. is considering the purchase of equipment that would allow the company to
ID: 2385511 • Letter: K
Question
K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $400,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 160,000 units of the equipment’s product each year. The expected annual income related to this equipment follows.
Accounting rate of return
Santos Company currently manufactures one of its crucial parts at a cost of $3.80 per unit. This cost is based on a normal production rate of 50,000 units per year. Variable costs are $2.00 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $40,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $3.20 per unit guaranteed for a three-year period.
Should the company continue to manufacture the part, or should it buy the part from the outside supplier?
K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $400,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 160,000 units of the equipment’s product each year. The expected annual income related to this equipment follows.
Explanation / Answer
Businesses can be operated through a variety of entities or through no entity at all. An individual who operates a business as a sole proprietorship without forming an entity will be directly taxable on the business income and gain, and, subject to certain limitations, be able to offset income and gain with the loss and deduction from the business. The individual reports the sole proprietorship
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.