Calculate the incremental savings (or loss) per pound if the company outsources the product. If the company will lose money per pound by outsourcing, enter your answer with a negative sign" (not parentheses).

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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**Outsourcing Decision Analysis**

Daily Kneads, Inc. is considering outsourcing one of its many products rather than making it internally. The supplier will charge $20,000 for 20,000 pounds of the product. The costs per pound to make this product include:

| **Item**                   | **Cost per Pound** |
|----------------------------|--------------------|
| Direct Labor               | $0.30              |
| Direct Materials           | $0.40              |
| Allocated Corporate Overhead | $0.80              |

**Task:**
Calculate the incremental savings (or loss) per pound if the company outsources the product. If the company will lose money per pound by outsourcing, enter your answer with a negative sign "=" (not parentheses).

**Instructions:**
Click "Save and Submit" to save and submit. Click "Save All Answers" to save all answers.

-------------------------------------

In this scenario, you are given the cost components of producing the product internally and the overall cost of outsourcing. To find the incremental savings or loss:

1. **Calculate the total per pound cost of making the product in-house:**
   - Direct Labor: $0.30
   - Direct Materials: $0.40
   - Allocated Corporate Overhead: $0.80
   - **Total Internal Cost per Pound** = $0.30 + $0.40 + $0.80 = $1.50

2. **Calculate the outsourcing cost per pound:**
   - Total supplier charge: $20,000
   - Quantity: 20,000 pounds
   - **Outsourcing Cost per Pound** = $20,000 / 20,000 pounds = $1.00

3. **Determine the incremental savings (or loss):**
   - **Incremental Savings per Pound** = Internal Cost per Pound - Outsourcing Cost per Pound
   - **Incremental Savings per Pound** = $1.50 - $1.00 = $0.50

Since the company saves $0.50 per pound by outsourcing, the incremental savings per pound is $0.50.

**Note: If the calculation had resulted in a negative number, indicating a loss, you would enter your answer with a negative sign.**

Ensure your calculations are accurate and submit your results by clicking on "Save and Submit".
Transcribed Image Text:**Outsourcing Decision Analysis** Daily Kneads, Inc. is considering outsourcing one of its many products rather than making it internally. The supplier will charge $20,000 for 20,000 pounds of the product. The costs per pound to make this product include: | **Item** | **Cost per Pound** | |----------------------------|--------------------| | Direct Labor | $0.30 | | Direct Materials | $0.40 | | Allocated Corporate Overhead | $0.80 | **Task:** Calculate the incremental savings (or loss) per pound if the company outsources the product. If the company will lose money per pound by outsourcing, enter your answer with a negative sign "=" (not parentheses). **Instructions:** Click "Save and Submit" to save and submit. Click "Save All Answers" to save all answers. ------------------------------------- In this scenario, you are given the cost components of producing the product internally and the overall cost of outsourcing. To find the incremental savings or loss: 1. **Calculate the total per pound cost of making the product in-house:** - Direct Labor: $0.30 - Direct Materials: $0.40 - Allocated Corporate Overhead: $0.80 - **Total Internal Cost per Pound** = $0.30 + $0.40 + $0.80 = $1.50 2. **Calculate the outsourcing cost per pound:** - Total supplier charge: $20,000 - Quantity: 20,000 pounds - **Outsourcing Cost per Pound** = $20,000 / 20,000 pounds = $1.00 3. **Determine the incremental savings (or loss):** - **Incremental Savings per Pound** = Internal Cost per Pound - Outsourcing Cost per Pound - **Incremental Savings per Pound** = $1.50 - $1.00 = $0.50 Since the company saves $0.50 per pound by outsourcing, the incremental savings per pound is $0.50. **Note: If the calculation had resulted in a negative number, indicating a loss, you would enter your answer with a negative sign.** Ensure your calculations are accurate and submit your results by clicking on "Save and Submit".
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