Boston Exemcutive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs:   Cost per Unit Variable costs:   Direct material $950     Direct labor 660     Variable overhead 300     Total variable costs $1,910     Fixed costs:   Depreciation of equipment $490     Depreciation of building 190     Supervisors salaries 300     Total fixed costs $980     Total cost $2,890     The company received an offer from Elite Mini-Bars to produce the insets for $2,110 per unit and supply 1,000 mini-bars for the coming year’s estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the company’s total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased. The specialized equipment cannot be used and has no market value. However, the space occupied by the mini-bar production can be used by a different production group that will lease it for $55,000 per year. A. Calculate the differential cost of mini-bar insert. If an amount box does not require an entry, leave it blank.   Cost of Making  1,000 Bar Inserts Cost of Buying 1,000 Bar Inserts Differential Cost  (Savings) Variable Costs       Direct material $fill in the blank 1       $fill in the blank 2       $fill in the blank 3       Direct labor fill in the blank 4       fill in the blank 5       fill in the blank 6       Variable overhead fill in the blank 7       fill in the blank 8       fill in the blank 9         $fill in the blank 10       $fill in the blank 11       $fill in the blank 12       Fixed Costs       Equipment depreciation $fill in the blank 13       $fill in the blank 14       $fill in the blank 15       Building depreciation fill in the blank 16       fill in the blank 17       fill in the blank 18       Supervisor salaries fill in the blank 19       fill in the blank 20       fill in the blank 21         $fill in the blank 22       $fill in the blank 23       $fill in the blank 24       Other Cost Savings       Leased space $fill in the blank 25       $fill in the blank 26       $fill in the blank 27       Cost of buying bar inserts fill in the blank 28       fill in the blank 29       fill in the blank 30         $fill in the blank 31       $fill in the blank 32       $fill in the blank 33       Total cost $fill in the blank 34       $fill in the blank 35       $fill in the blank 36       B. Should the company make or buy the mini-bar insert?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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    Boston Exemcutive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs:

      Cost per Unit
    Variable costs:  
    Direct material $950    
    Direct labor 660    
    Variable overhead 300    
    Total variable costs $1,910    
    Fixed costs:  
    Depreciation of equipment $490    
    Depreciation of building 190    
    Supervisors salaries 300    
    Total fixed costs $980    
    Total cost $2,890    

    The company received an offer from Elite Mini-Bars to produce the insets for $2,110 per unit and supply 1,000 mini-bars for the coming year’s estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the company’s total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased.

    The specialized equipment cannot be used and has no market value. However, the space occupied by the mini-bar production can be used by a different production group that will lease it for $55,000 per year.

    A. Calculate the differential cost of mini-bar insert. If an amount box does not require an entry, leave it blank.

     

    Cost of Making 
    1,000 Bar Inserts

    Cost of Buying
    1,000 Bar Inserts

    Differential Cost 
    (Savings)

    Variable Costs      
    Direct material $fill in the blank 1       $fill in the blank 2       $fill in the blank 3      
    Direct labor fill in the blank 4       fill in the blank 5       fill in the blank 6      
    Variable overhead fill in the blank 7       fill in the blank 8       fill in the blank 9      
      $fill in the blank 10       $fill in the blank 11       $fill in the blank 12      
    Fixed Costs      
    Equipment depreciation $fill in the blank 13       $fill in the blank 14       $fill in the blank 15      
    Building depreciation fill in the blank 16       fill in the blank 17       fill in the blank 18      
    Supervisor salaries fill in the blank 19       fill in the blank 20       fill in the blank 21      
      $fill in the blank 22       $fill in the blank 23       $fill in the blank 24      
    Other Cost Savings      
    Leased space $fill in the blank 25       $fill in the blank 26       $fill in the blank 27      
    Cost of buying bar inserts fill in the blank 28       fill in the blank 29       fill in the blank 30      
      $fill in the blank 31       $fill in the blank 32       $fill in the blank 33      
    Total cost $fill in the blank 34       $fill in the blank 35       $fill in the blank 36      

    B. Should the company make or buy the mini-bar insert?

     
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