contacted Coram and proposed that they produce the headphone travel cases. Based on management experience, Coram's cost per travel case is as follows (based on annual production of 40,000 units). Direct materials $ 10.00 Direct labor 21.20 Variable overhead 6.40 Fixed overhead 4.70 $ 42.30 Total UTC boo ffored to Jl +h CO to Coram for $30 nach F in t moun

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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Select "none" if there is no effect.)
HTG's offer
Materials
Labor
Variable overhead
Fixed overhead applied
Total costs
$
Status Quo
Alternative
$ 1,599,000 $
410,000
869,200
262,400
192,700
1,734,300 $
0
0
0
114,800
1,713,800 $
< Required A
Difference
1,599,000 higher
410,000 lower
869,200 lower
262,400 lower
77,900 lower
20,500 lower
Required B >
Transcribed Image Text:Select "none" if there is no effect.) HTG's offer Materials Labor Variable overhead Fixed overhead applied Total costs $ Status Quo Alternative $ 1,599,000 $ 410,000 869,200 262,400 192,700 1,734,300 $ 0 0 0 114,800 1,713,800 $ < Required A Difference 1,599,000 higher 410,000 lower 869,200 lower 262,400 lower 77,900 lower 20,500 lower Required B >
contacted Coram and proposed that they produce the headphone travel cases. Based on
management experience, Coram's cost per travel case is as follows (based on annual
production of 40,000 units).
Direct materials $10.00
Direct labor
21.20
Variable overhead 6.40
Fixed overhead
4.70
Total
$ 42.30
HTG has offered to sell the case to Coram for $39 each. The total order would amount to
40,000 travel cases per year. Coram's management decides that they will make the switch to
HTG cases if Coram can save at least $12,000 per year. Accepting the offer would eliminate
annual fixed overhead of $76,000.
Required:
a. Prepare a schedule that shows the total differential costs.
b. Should Coram continue to make the travel cases or buy them from HTG?
Transcribed Image Text:contacted Coram and proposed that they produce the headphone travel cases. Based on management experience, Coram's cost per travel case is as follows (based on annual production of 40,000 units). Direct materials $10.00 Direct labor 21.20 Variable overhead 6.40 Fixed overhead 4.70 Total $ 42.30 HTG has offered to sell the case to Coram for $39 each. The total order would amount to 40,000 travel cases per year. Coram's management decides that they will make the switch to HTG cases if Coram can save at least $12,000 per year. Accepting the offer would eliminate annual fixed overhead of $76,000. Required: a. Prepare a schedule that shows the total differential costs. b. Should Coram continue to make the travel cases or buy them from HTG?
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