A local dental laboratory has offered to supply Apollonia all the crowns itneeds. Its price is $265 for all-porcelain crowns and $145 for porcelain-fused-to-metal crowns; however, the offer is conditional on supplying both types ofcrowns-it will not supply just one type for the price indicated. If the offer isaccepted, the equipment used by Apollonia's laboratory would be scrapped (itis old and has no market value), and the lab facility would be closed. Apolloniauses 2,500 all-porcelain crowns and 1,000 porcelain-fused-to-metal crownsper year.Required:1. Should Apollonia continue to make its own crowns, or should they bepurchased from the external supplier? What is the dollar effect of purchasing?2. What qualitative factors should Apollonia consider in making this decision?3. Suppose that the lab facility is owned rather than rented and that the $22,000is depreciation rather than rent. What effect does this have on the analysis inRequirement 1?4. Refer to the original data. Assume that the volume of crowns is 5,000 allporcelain and 2,000 porcelain fused to metal. Should Apollonia make or buythe crowns? Explain the outcome. Objective 2 - Define the concept of relevant costs and revenues.4 - Apply thetactical decision-making concepts in a variety of business situations.Apollonia Dental Services is part of an HMO that operates in a largemetropolitan area. Currently, Apollonia has its own dental laboratory toproduce two varieties of porcelain crowns-all porcelain and porcelain fusedto metal. The unit costs to produce the crowns are as follows:cengage.com/static/nb/uvevolindex.html?elSBN=97813059707248id=187456249&nbld=524649&snapshotid=524649&dockAppUid=1. 7/13Print PreviewPorcelain FusedAll Porcelainto MetalDirect materialsS190$ 80Direct labor5020Variable overhead255Fixed overhead6040TotalS325$145Fixed overhead is detailed as follows:Salary (supervisor)DepreciationRent (lab facility)$30,0008,00022,000Overhead is applied on the basis of direct labor hours. The rates above werecomputed using 8,000 direct labor hours. No significant non-unit-leveloverhead costs are incurred.

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A local dental laboratory has offered to supply Apollonia all the crowns it needs. Its price is $265 for all-porcelain crowns and $145 for porcelain-fused- to-metal crowns; however, the offer is conditional on supplying both types of crowns-it will not supply just one type for the price indicated. If the offer is accepted, the equipment used by Apollonia's laboratory would be scrapped (it is old and has no market value), and the lab facility would be closed. Apollonia uses 2,500 all-porcelain crowns and 1,000 porcelain-fused-to-metal crowns per year. Required: 1. Should Apollonia continue to make its own crowns, or should they be purchased from the external supplier? What is the dollar effect of purchasing? 2. What qualitative factors should Apollonia consider in making this decision? 3. Suppose that the lab facility is owned rather than rented and that the $22,000 is depreciation rather than rent. What effect does this have on the analysis in Requirement 1?

A local dental laboratory has offered to supply Apollonia all the crowns it needs. Its price is $265 for all-porcelain crowns and $145 for porcelain-fused- to-metal crowns; however, the offer is conditional on supplying both types of crowns-it will not supply just one type for the price indicated. If the offer is accepted, the equipment used by Apollonia's laboratory would be scrapped (it is old and has no market value), and the lab facility would be closed. Apollonia uses 2,500 all-porcelain crowns and 1,000 porcelain-fused-to-metal crowns per year. Required: 1. Should Apollonia continue to make its own crowns, or should they be purchased from the external supplier? What is the dollar effect of purchasing? 2. What qualitative factors should Apollonia consider in making this decision? 3. Suppose that the lab facility is owned rather than rented and that the $22,000 is depreciation rather than rent. What effect does this have on the analysis in Requirement 1?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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