John\'s 8-year-old Chevrolet Trail Blazer requires repairs estimated at $7,000 t
ID: 2597816 • Letter: J
Question
John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $7,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a -year-old used Jeep Grand Cherokee instead for $7,000 cash Sherry estimated the following costs for the two cars Trail Blazer 30,000 $7,000 0d Chetcke $7,000 Acquisition cost Repairs Annual operating costs (Gas, maintenance, insurance) $2,580 $1,700 What should John do? What are his savings in the first year? 0 A Buy the Grand Cherokee: $880 O B. Fix the Trail Blazer, $1.247 ° C. Fix the Trail Blazer, $4,380 D. Buy the Grand Cherokee: $8,700Explanation / Answer
Solution -1
Total repair and annual operating cost of Trail Blazer = $7,000 + $2,580 = $9.580
Total acquistion and annual operating cost of Grand Cherokee = $7,000 + $1,700 = $8,700
Net saving if john buy old used jeep "Grand Cherokee" = $9,580 - $8,700 = $880
hence option A is correct - Buy the Grand Cherokee with saving of $880.
Solution 2:
If we manufacture part ACT31107 then incurred cost = $103,000
If we buy part ACT31107 then we can avoid variable cost of manufacturing and we have to incur only fixed cost = 18000*94% = $16,920
Purchase cost of ACT31107 for 1000 parts = 1000*94.75 = $94,750
Net cost/saving in buying ACT31107 = $94,750 + $16,920 - $103,000 = ($8,670)
Hence if ginsburg company purchases 1000 ACT31107 parts then its monthly operating income will be decreased by $8,670
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