Sandra Has Had a Very Busy Year as the Production

Essay

Sandra has had a very busy year as the production manager for the Patio Chair Department for Younique Patio Designs, Inc. In addition to expanding into new markets, Sandra has been working with the design team to bring her dream of adding a wicker patio chair to their current list of offerings. The design team has provided a list of requirements that must be met in order to be able to produce the chairs, including a machine that will enable assembly workers to cut and weave the wicker material. After speaking with several vendors, Sandra was given the following quotes:
Machine A: $50,500 (10-year useful life)
Machine B: $44,600 (9-year useful life)
Machine C: $43,420 (8-year useful life)
Younique would use straight-line depreciation for their calculations. She used this information and her own data to assemble the following predictions:
Sandra has the option to purchase the wicker material from an external vendor for $2.16 per sheet with a 5% surcharge to deliver the sheets. Each chair will need 1 sheet of wicker to be completed. Younique wants to purchase 16,783 sheets of wicker to meet their production projections. They could also get the supply from Younique's internal Materials Department. Their Materials Department has provided the following information about their production:
The Materials Department has a production capacity of 110,000 units so they currently have idle capacity. Use all of this information to answer the following questions. (Do not round your calculations.)
a. What are the Profit Margins and Investment Turnovers for Machines A, B, and C?
b. What are the Economic Values Added (EVAs) for Machines A, B, and C? What is the percentage difference between the Machine with the highest EVA and the lowest EVA?
c. What are the Returns on Investment (ROIs) and Residual Incomes (RIs) for Machines A, B, and C?
d. What is the minimum acceptable transfer price for using the internal Materials Department for purchasing the wicker sheets? What is the overall price quoted by this department to the Patio Chair Division?
e. Which machine will be the best choice for the Patio Chair Department? Which supplier would provide the best option for them to pursue? Please explain all answers.