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me3232-F10-hw5 - ME 3232 Homework#5 due 1 A small machine...

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ME 3232 Homework #5, due 10/20/10 1. A small machine shop with an electrical load of 28 kW purchases its electricity at the following rates: kWh/month @ $/kWh First 1500 Next 1250 Next 3000 All over 5750 0.025 0.015 0.009 0.008 The current monthly consumption of electric power averages 3200 kWh. A bid is to be made on some new business which would require an additional 3500 kWh per month. If the new business were to last 2 years, what would be the equivalent monthly power cost that should be allocated to the new business? Assume that the shop’s interest rate is 9%, compounded monthly. 2. Danford Company, a farm-equipment manufacturer, currently produces 20,000 units of gas filters for use in its lawnmower production annually. The following costs are reported based on the previous year’s production: Item Expense ($) Direct materials Direct labor Variable overhead (power and water) Fixed overhead (light and heat) Total cost $ 60,000 180,000 135,000 70,000 $445,000 It is anticipated that gas-filter production will last 5 years. If the company continues to produce the product in-house, the annual direct material costs will increase at the rate of 5%. (For example, the annual material costs during the first production year will be $63,000.) The direct labor will increase at the rate of 6% per year. The variable overhead costs would increase at the rate of 3%, but the fixed overhead would remain at the current level over the next 5 years. Tompkins Company has offered to sell Danford 20,000 units of gas filters for $25 per unit. If Danford accepts the offer, some of the manufacturing facilities currently used to manufacture used to manufacture the gas filter could be rented to a third party at annual at an annual rental of $35,000. Additionally, $3.5 per unit of the fixed overhead applied to gas-filter production would be eliminated.
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