Homework Help is Here – Start Your Trial Now!
Business
Accounting
Archés Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered to supply one component, DA, at a price of $52 each. Arches uses 13,000 units of component DA each year. The cost per unit of this component is as follows: Direct materials $25.00 Direct labor 6.25 Variable overhead Fixed overhead Total 15.75 7.00 $54.00 Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produced. Required: 1. Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or decrease (as compared to making the component in-house)? Increase Which alternative is better? Purchase the component from Canyonlands 2. Conceptual Connection: Briefly explain how increasing or decreasing the 80% figure affects Arches's final decision to make or purchase the component. As the percentage of avoidable fixed cost increases (above 80% ), total relevant costs of making the

Archés Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered to supply one component, DA, at a price of $52 each. Arches uses 13,000 units of component DA each year. The cost per unit of this component is as follows: Direct materials $25.00 Direct labor 6.25 Variable overhead Fixed overhead Total 15.75 7.00 $54.00 Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produced. Required: 1. Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or decrease (as compared to making the component in-house)? Increase Which alternative is better? Purchase the component from Canyonlands 2. Conceptual Connection: Briefly explain how increasing or decreasing the 80% figure affects Arches's final decision to make or purchase the component. As the percentage of avoidable fixed cost increases (above 80% ), total relevant costs of making the

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
Please don't give image based answer..thanku
Archés Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered to supply one component, DA, at a price of $52 each. Arches uses 13,000 units of component DA each year. The cost per unit of this component is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total $25.00 6.25 15.75 7.00 $54.00 Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produced. Required: 1. Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or decrease (as compared to making the component in-house)? Increase Which alternative is better? Purchase the component from Canyonlands 2. Conceptual Connection: Briefly explain how increasing or decreasing the 80% figure affects Arches's final decision to make or purchase the component. As the percentage of avoidable fixed cost increases (above 80% ), total relevant costs of making the component increase, causing the
Transcribed Image Text:Archés Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered to supply one component, DA, at a price of $52 each. Arches uses 13,000 units of component DA each year. The cost per unit of this component is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total $25.00 6.25 15.75 7.00 $54.00 Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produced. Required: 1. Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or decrease (as compared to making the component in-house)? Increase Which alternative is better? Purchase the component from Canyonlands 2. Conceptual Connection: Briefly explain how increasing or decreasing the 80% figure affects Arches's final decision to make or purchase the component. As the percentage of avoidable fixed cost increases (above 80% ), total relevant costs of making the component increase, causing the
Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produced. Required: 1. Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or decrease (as compared to making the component in-house)? Increase Which alternative is better? Purchase the component from Canyonlands 2. Conceptual Connection: Briefly explain how increasing or decreasing the 80% figure affects Arches's final decision to make or purchase the component. < "purchase" decision to be more As the percentage of avoidable fixed cost increases (above 80%), total relevant costs of making the component increase, causing the ✓ financially appealing (compared to the "make" option) than it was when the percentage was 80%. In other words, as the percentage increases, difference between the "purchase" and "make" options increases resulting in the "purchase" decision being even more equally ✔attractive. Alternatively, as the percentage of avoidable fixed costs decreases, the "make" option eventually is ✔costly and as equally appealing financially as the "purchase" option. Finally, as the percentage of avoidable fixed ✔ option becomes the more. cost decreases low enough and the total relevant costs of making the component decrease, the "make" financially appealing option : 3. Conceptual Connection: By what dollar amount would the per-unit relevant fixed cost have to decrease before Arches would be indifferent (.e., incur the same cost) between "making" versus "purchasing the component?
Transcribed Image Text:Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produced. Required: 1. Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or decrease (as compared to making the component in-house)? Increase Which alternative is better? Purchase the component from Canyonlands 2. Conceptual Connection: Briefly explain how increasing or decreasing the 80% figure affects Arches's final decision to make or purchase the component. < "purchase" decision to be more As the percentage of avoidable fixed cost increases (above 80%), total relevant costs of making the component increase, causing the ✓ financially appealing (compared to the "make" option) than it was when the percentage was 80%. In other words, as the percentage increases, difference between the "purchase" and "make" options increases resulting in the "purchase" decision being even more equally ✔attractive. Alternatively, as the percentage of avoidable fixed costs decreases, the "make" option eventually is ✔costly and as equally appealing financially as the "purchase" option. Finally, as the percentage of avoidable fixed ✔ option becomes the more. cost decreases low enough and the total relevant costs of making the component decrease, the "make" financially appealing option : 3. Conceptual Connection: By what dollar amount would the per-unit relevant fixed cost have to decrease before Arches would be indifferent (.e., incur the same cost) between "making" versus "purchasing the component?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS