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Accounting
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Nov 24, 2024
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a. Differential Analysis:
Alternative 1
( making
internally)
Alternative 2
(Buying from
outside)
Differential
Account
Alternative
1
Variable costs
Costs to buy from
outside
$0
800,000
800,000
Lower
Direct Materials
200,000
-
200,000
Higher
Direct labor
100,000
-
100,000
Higher
Manufacturing
overhead
300,000
-
300,000
Higher
Fixed costs
Factory building and
equipment Lease
70,000
-
70,000
Factory insurance
50,000
-
50,000
Production
supervisor’s salary
100,000
100,000
Total production costs
820,000
900,000
80,000
Lower
Based on the differential analysis provided, Alternative 1 (making internally)
appears to be the best option. The variable costs associated with making
internally are $0, while the costs to buy from outside are $800,000, making
the differential account $800,000 lower for Alternative 1.
Additionally, while Alternative 1 has higher direct materials, direct labor, and
manufacturing overhead costs, the total production costs for Alternative 1
are $80,000 lower than Alternative 2.
Therefore, considering both the variable and fixed costs, Alternative 1 is the
best option.
References
Heisinger, K., & Hoyle, J. B. (2012). Managerial Accounting. Creative Commons
by-nc-sa
3.0.
https://open.umn.edu/opentextbooks/textbooks/managerial-accounting
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Consider the following information relating to the cost of a product supplied internally by a selling division to a buying division:
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Different costs are presented below Direct materials $ 5.00 per unit Indirect materials $ 2.00 per unit Direct labor $ 10.00 per hour Indirect labor $ 3.00 per hour Other variable indirect costs $ 6.00 per hour Other fixed indirect costs $ 10.00 per unit Commissions to sellers $ 4.00 per unit Variable administrative costs $ 6.00 per unit Fixed Administrative Costs $ 10.00 per unit
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Question 1
Lagle Corporation has provided the following information:
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Period
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Fixed manufacturing overhead
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$12.65
O$10.85
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