Coram Audio makes wireless headphones. Each pair of headphones comes with a travel case. Since its founding, Coram has manufactured its own travel cases. Recently, Holmur Travel Gear (HTG), a local outfitter that manufactures and sells backpacks, tent cases, and so on, 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 43,200 units). Direct materials Direct labor Variable overhead Fixed overhead Total $ 10.00 21.20 6.40 4.70 $ 42.30 HTG has offered to sell the case to Coram for $39 each. The total order would amount to 43,200 travel cases per year. Coram's management decides that they will make the switch to HTG cases if Coram can save at least $13,600 per year. Accepting the offer would eliminate annual fixed overhead of $82,080. 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? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a schedule that shows the total differential costs. (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.) Status Quo HTG's offer Materials Labor Variable overhead Fixed overhead applied Total costs Alternative < Required A Difference Required B >
Coram Audio makes wireless headphones. Each pair of headphones comes with a travel case. Since its founding, Coram has manufactured its own travel cases. Recently, Holmur Travel Gear (HTG), a local outfitter that manufactures and sells backpacks, tent cases, and so on, 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 43,200 units). Direct materials Direct labor Variable overhead Fixed overhead Total $ 10.00 21.20 6.40 4.70 $ 42.30 HTG has offered to sell the case to Coram for $39 each. The total order would amount to 43,200 travel cases per year. Coram's management decides that they will make the switch to HTG cases if Coram can save at least $13,600 per year. Accepting the offer would eliminate annual fixed overhead of $82,080. 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? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a schedule that shows the total differential costs. (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.) Status Quo HTG's offer Materials Labor Variable overhead Fixed overhead applied Total costs Alternative < Required A Difference Required B >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Coram Audio makes wireless headphones. Each pair of headphones comes with a travel case. Since its founding, Coram has
manufactured its own travel cases. Recently, Holmur Travel Gear (HTG), a local outfitter that manufactures and sells backpacks, tent
cases, and so on, 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 43,200 units).
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total
HTG has offered to sell the case to Coram for $39 each. The total order would amount to 43,200 travel cases per year. Coram's
management decides that they will make the switch to HTG cases if Coram can save at least $13,600 per year. Accepting the offer
would eliminate annual fixed overhead of $82,080.
$ 10.00
21.20
6.40
4.70
$ 42.30
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?
Complete this question by entering your answers in the tabs below.
Required A Required B
Prepare a schedule that shows the total differential costs. (Select option "higher" or "lower", keeping Status Quo as the base.
Select "none" if there is no effect.)
Status Quo Alternative
HTG's offer
Materials
Labor
Variable overhead
Fixed overhead applied
Total costs
Required A
Difference
Required B
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