Alpha currently makes a subassembly for its mainproduct. The costs per unit are as follows:Direct materials $ 45.00Direct labor35.00Variable overheadFixed overhead 30.00Total $143.0033.00Vendor has contacted Alpha with an offer to sell5,000 of the subassemblies for $135.00 each.Alpha will eliminate $85,000 of fixed overhead if itaccepts the proposal.25) Which option, make or buy, gives Alpha thehigher operating income? By how much?

Relevant costs are the cost that can be affected by the decision. When a company decides to buy or…

Answered: Alpha currently makes a subassembly for…

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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Waterway Industries, Inc. can produce 100 units of a component part with the following costs: Direct Materials Direct Labor Variable Overhead Fixed Overhead $22000 6000 14000 15500 If Waterway Industries, Inc. can purchase the component part externally for $49000 and only $4000 of the fixed costs can be avoided. what is the correct make-or-buy decision? O Make and save $3000 O Buy and save $4500 O Make and save $4500 O Buy and save $7000
Frannie Fans currently manufactures ceiling fans that include remotes to operate them. The current cost to manufacture 10,280 remotes is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total Cost $ 66,820 $56,540 $ 30,840 $ 51,400 $ 205,600 Frannie is approached by Lincoln Company, which offers to make the remotes for $18 per unit. Required: 1. Compute the difference in cost per unit between making and buying the remotes if none of the fixed costs can be avoided. What is the change in net income, if Frannie Fans buys the remotes? 2. Compute the difference in cost per unit between making and buying the remotes if $20,560 of the fixed costs can be avoided. What is the change in net income, if Frannie Fans buys the remotes? 3. What is the change in net income if fixed cost of $20,560 can be avoided and Frannie could rent out the factory space no longer in use for $20,560? Complete this question by entering your answers in the tabs below. Required 1 Required 2…
A customer has requested a special order of ABC Co's primary product and has offered to pay $30 per unit. While the product would be modified slightly for the special order, the product's normal information is provided below Sales price per unit Direct materials per unit Direct labor per unit $25.50 Total Fixed Costs $6.20 $2 Variable manufacturing overhead per unit $ 4.40 $1,150,000 The customer would like modifications made to each product that would increase the variable costs by $2.20 per unit and that would require an investment of $24,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. How large would the special order have to be in units in order for ABC Co to break even on the special order?
None
Tchaikovsky Manufacturing Company can make 100 units of a necessary component part with the following costs. Direct Materials Direct Labor $80,000 13,000 Variable Manufacturing Overhead 40,000 Fixed Manufacturing Overhead 27,000 If Tchaikovsky Manufacturing Company can purchase the component externally for $145,000 and only $4,000 of the fixed costs can be avoided, what is the correct "make or buy" decision? a. Make and save $20,000. b. Buy and save $20,000. c. Buy and save $8,000. d. Make and save $8,000.
Mohave Corporation is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,100 units per year for $8.50 each. Mohave the following information about the cost of producing tote bags: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $ 4.00 2.00 1.00 2.00 $9.00 Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 60 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags. Required: 1. Compute the difference in cost between making and buying the umbrella tote bag. 2. Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them? 3-a. Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that…
Frannie Fans currently manufactures ceiling fans that include remotes to operate them. The current cost to manufacture 10,020 remotes is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total Frannie is approached by Lincoln Company, which offers to make the remotes for $18 per unit. Required: Cost 10 $ 65,130 $ 55,110 $ 30,060 $ 50,100 $ 200,400 1. Compute the difference in cost per unit between making and buying the remotes if none of the fixed costs can be avoided. What is the change in net income, if Frannie Fans buys the remotes? 2. Compute the difference in cost per unit between making and buying the remotes if $20,040 of the fixed costs can be avoided. What is the change in net income, if Frannie Fans buys the remotes? 3. What is the change in net income if fixed cost of $20,040 can be avoided and Frannie could rent out the factory space no longer in use for $20,040? Complete this question by entering your answers in the tabs below. Required 1 Required…
Crane Company has decided to introduce a new product. The new product can be manufactured by either a capital-intensive method or a labor-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows. Direct materials Direct labor Variable overhead Fixed manufacturing costs (a) Capital-Intensive $6.00 per unit $7.00 per unit $4.00 per unit $3,200,000 Crane' market research department has recommended an introductory unit sales price of $40.00. The selling expenses are estimated to be $622,000 annually plus $2.00 for each unit sold, regardless of manufacturing method. 1. Capital-intensive manufacturing method. 2. Labor-intensive manufacturing method. Break-even point in units Labor-Intensive $7.00 per unit $10.00 per unit $5.50 per unit Calculate the estimated break-even point in annual unit sales of the new product if Crane Company uses the: $2,028,500 Capital-Intensive Labor-Intensive
The Calvary Company manufactures Part No. XXX for use in its production cycle. The cost per unit for 20,000 units of part No. XXX are as follows: Direct materials P 6 Direct labor 30 Variable overhead 12 Fixed overhead applied 16 P64 The Cross Company has offered to sell 20,000 units of part No. XXX to Calvary for P60 per unit. Calvary will make the decision to buy the part from Cross if there is a savings of P25,000 for Calvary. If Calvary accepts Cross’s offer, P9 per unit of the fixed overhead applied would be totally eliminated. Furthermore, Calvary has determined that the released facilities could be used to save relevant costs in the manufacture of part No. YYY. In order to have a savings of P25,000, the amount of the relevant costs that would be saved by using the released facilities in the manufacture…
Wings Incorporated manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 2,400 units of product PQ107 for Valters for a price of $150,000. If Wings does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: Direct materials Direct labor Variable overhead Cost per Unit $31 19 8 In addition to the above costs, if Wings produces part PQ107, it would have a retooling and design cost of $9,800. The relevant costs of producing 2,400 units of product PQ107 internally are:
Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers $ 75 Variable cost per unit $ 50 Total fixed costs $ 400,000 Capacity in (units) 25,000 Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A? Multiple Choice $75. $66. $50. $16.

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