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?

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

Problem 1Q

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Question Content Area

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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