Ajax Corporation has entered into a contract to build a new tooling machine for Beta Machinery, Inc.

1. Ajax Corporation has entered into a contract to build a new tooling machine for Beta Machinery, Inc.The project started several months back, and the most recent (June) Monthly Cost Summary is shownbelow. Some of the table entries are missing, but the following additional information has been providedthrough other channels:o You can assume that the 100% overhead rate is fixed over the period of performanceo The snapshot in the report below has been taken as of month-end, June 30o The 80/20 sharing ratio indicates that the customer (Beta) will pay 80% of any costs abovethe target and up to the ceiling cost. Likewise, 80% of any cost savings below the target willgo back to Beta.o The new PV has been revised from the original released PV and now serves as the currentplan of record.o The ceiling price is based on cost (i.e., before adding in profit)Based on the New Revised PV, how much profit can Ajax expect to make on this project?a. 120,000b. 324,000c. 420,000d. 300,0002. (** refers to previous question **) Looking only at direct costs, comparing current month data tocumulative data shows thata. The CV is getting worse: –10.3% cumulative to –13.8% current-monthb. The CV is getting better: +$10,800 cumulative to +$53,100 current-monthc. The SV is getting worse: +$6,300 cumulative to –$23,300 current-monthd. The SV is getting better: –5.28% cumulative to 8.54% current-month3. (** refers to previous question **) How much profit/loss would Ajax experience if the final burdenedcost for the program turned out to be $3,150,000?a. $50,000 lossb. $170,000 profitc. $150,000 lossd. $50,000 profitPage 2 of 3Contract: Beta Machinery Target Price: Target Fee: 12%Reporting Period: June 1 - June 30 Sharing Ratio: 80/20Contract Period: Feb. 1 - Oct. 31 Negotiated Cost: Ceiling: $3,000,000 (on cost), $3,200,000 (on price)Contract Type: FPIFOriginal NewContracted Released RevisedActivity PV EV AC SV CV PV EV AC SV CV PV PV PV Var.Pgm Mgt 19,300 19,300 19,300 0 0 108,000 108,000 108,000 0 0 200,000 200,000 200,000 0System A 23,000 16,600 24,200 (6,400) (7,600) 158,000 181,700 234,700 23,700 (53,000) 250,000 200,000 225,000 (25,000)System B 14,000 15,200 16,800 1,200 (1,600) 96,000 94,200 93,000 (1,800) 1,200 200,000 200,000 200,000 0System C 0 0 0 0 0 0 0 0 0 0 300,000 275,000 275,000 0Mfg Support 11,600 10,400 12,000 (1,200) (1,600) 73,000 74,300 75,600 1,300 (1,300) 200,000 190,000 190,000 0Quality Cntl 5,900 6,000 6,000 100 0 5,900 6,000 6,000 100 0 100,000 100,000 100,000 0Total Direct: 73,800 67,500 78,300 1,250,000 1,165,000 1,190,000OH 100% 73,800 67,500 78,300 1,250,000 1,165,000 1,190,000Total: 147,600 135,000 156,600 2,500,000 2,330,000 2,380,000Current Month, $ Cumulative to Date, $At Completion, $Monthly Cost Summary$2,500,000$2,800,000(budgeted target value for all work authorizedunder contract)(negotiated target value of contract)Page 3 of 34. Your company, Veloxy Engineering, has received a one-time contract to design and build 10,000 units ofa new product. During the proposal process, management felt that the new product could be designed andmanufactured at a low cost. One of the ingredients necessary to build the product was a small componentthat could be purchased for $60/unit in the open market, including a bulk-purchase quantity discount.Accordingly, management budgeted $650,000 for the purchasing and handling of 10,000 componentsplus scrap.During the project design stage, your engineering team informs you that the final design will require ahigher-grade component that sells for $72/unit (with quantity discount). The new price is substantiallyhigher that you had budgeted for, which will create a cost overrun.You meet with your manufacturing team to see if they can manufacture the component at a cheaper costthan purchasing it from outside. Your manufacturing team informs you that they can produce a maximumof 10,000 units, just enough to fulfill the contract. The setup cost would be $100,000 and the rawmaterial unit cost would be $40/unit. All defective parts must be removed and repaired at a cost of$120/unit. Since Veloxy has never manufactured this product before, manufacturing expects thefollowing defect rates and probabilities:Percent Defective: 0% 10% 20% 30% 40%Probability of Occurrence: 0.1 0.2 0.3 0.25 0.15Each of the following would represent a valid reason for Veloxy senior management to decide to make ratherthan buy the components excepta. They believe that the engineering estimates of the defect rates are overly pessimisticb. This is a one-time decision, and expected value analysis makes more sense for decisions that arelikely to occur many times over again in the futurec. They would prefer to enhance the technical competencies of their own firm rather than anotherfirmd. The expected cost of the decision to make the components is lower than the expected cost of thedecision to buy5. (** refers to previous question **) Your manufacturing team informs you that they have found a way toincrease the size of the manufacturing run from 10,000 to 18,000 units in increments of 2,000 units.However, if any run greater than the original 10,000 is chosen, the setup cost would now be $120,000(i.e., for a run of 12K, 14K, 16K or 18K). On the other hand, we still only need to deliver 10,000 units, sothe additional units would remove the need to repair some of the defective items, perhaps leading to somesaving of repair costs. The raw material cost would remain at $40/unit.Based solely on economic considerations, Veloxy shoulda. Make 12,000 unitsb. Buy 10,000 unitsc. Buy 12,000 unitsd. Make 10,000 units6. (** refers to previous question **) Which of the following is true with regard to the Veloxy decision?a. The higher the setup cost, the greater the likelihood of more defectsb. The higher the probability of more defects, the more attractive the make option becomesc. The higher the setup cost, the more attractive the buy option becomesd. The lower the raw material cost, the more attractive the buy option becomesEnd of Homework 5

1. Ajax Corporation has entered into a contract to build a new tooling machine for BetaMachinery, Inc. The project started several months back, and the most recent (June)Monthly Cost Summary is...