!Required informationSelf-Study Problem 11-2 (Algo) The Make-vs.-Buy Decision[The following information applies to the questions displayed below.]Highvalu Incorporated manufactures a moderately priced set of lawn furniture (a table and fourchairs) that it sells for $320. The company currently manufactures and sells 7,900 sets per year. Themanufacturing costs include $104 for direct materials and $64 for direct labor per set. The overheadcharge per set is $54, which consists entirely of fixed costs.Assume that Highvalu currently purchases the chair cushions for its lawn set from an outside vendorfor $21 per set. HighValu's chief operations officer wants an analysis of the comparative costs ofmanufacturing these cushions to determine whether bringing the manufacturing in-house wouldsave the company money. Additional information shows that if HighValu were to manufacture thecushions, the direct materials cost would be $8 and the direct labor cost would be $6 per set. Inaddition, to produce the cushions, HighValu would have to purchase cutting and sewing equipment,which would add $29,000 to annual fixed costs.Part 1 (Algo)Required:1. What is the total relevant cost per year to purchase the chair cushions from the outside supplier?2. What is the total relevant cost per year to produce the chair cushions internally?3. What is the estimated net annual effect on operating income of producing the cushions internally rather thanpurchasing the cushions from an external supplier?1.Total relevant cost per year2. Total relevant cost per year3. The estimated net annual effect on operating income

Relevant cost is a management accounting term that describes avoidable costs incurred when making…

Answered: Assume that HighValu currently…

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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