ctured all components for their trucks in-house Recently, they have found a vendor for the ci hout the years, they would be willing to sell them the chassis for $8,250 After gathering information from the acco ement has found the following with regard to the current cost levels when producing 3,000 trum 000,000 $15.000.000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Post Firetrucks is a large-scale manufacturer of fire trucks for local fire departments. Throughout the years, they have
consistently manufactured all components for their trucks in-house Recently, they have found a vendor for the chassis
of the firetruck that would be willing to sell them the chassis for $8,250. After gathering information from the accounting
department, management has found the following with regard to the current cost levels when producing 3,000 trucks
Direct Materials $9,000,000
Direct Labor
$15,000,000
4
Management has also identified that manufacturing overhead costs incurred over the same period for the production of
the chassis is represented by the following cost behavior equation: Y = $50X + $5,000,000
If the part were to be outsourced, 10% of total fixed manufacturing overhead would be eliminated, and the facilities
freed up could be rented out to generate $650,000 in rental income to offset any additional costs from outsourcing the
product
Assuming that 3,500 units will need to be produced next year, which of the following statements is incorrect?
OA. At a purchase price of $8,250, the cost to make is less than the cost to buy
B. At a purchase price of $8,378.57 (rounded), Post would be indifferent between making and outsourcing the
chassis
OC. The total cost to make the part in-house next year is $33,175,000
OD. In addition to the quantitative aspects of the analysis, Post should also consider the qualitative aspects in
order to make sure that outsourcing the chassis makes sense for the company's strategy.
OE. If Post decides to outsource the production of the chassis, operating income will increase by $450,000
Transcribed Image Text:Post Firetrucks is a large-scale manufacturer of fire trucks for local fire departments. Throughout the years, they have consistently manufactured all components for their trucks in-house Recently, they have found a vendor for the chassis of the firetruck that would be willing to sell them the chassis for $8,250. After gathering information from the accounting department, management has found the following with regard to the current cost levels when producing 3,000 trucks Direct Materials $9,000,000 Direct Labor $15,000,000 4 Management has also identified that manufacturing overhead costs incurred over the same period for the production of the chassis is represented by the following cost behavior equation: Y = $50X + $5,000,000 If the part were to be outsourced, 10% of total fixed manufacturing overhead would be eliminated, and the facilities freed up could be rented out to generate $650,000 in rental income to offset any additional costs from outsourcing the product Assuming that 3,500 units will need to be produced next year, which of the following statements is incorrect? OA. At a purchase price of $8,250, the cost to make is less than the cost to buy B. At a purchase price of $8,378.57 (rounded), Post would be indifferent between making and outsourcing the chassis OC. The total cost to make the part in-house next year is $33,175,000 OD. In addition to the quantitative aspects of the analysis, Post should also consider the qualitative aspects in order to make sure that outsourcing the chassis makes sense for the company's strategy. OE. If Post decides to outsource the production of the chassis, operating income will increase by $450,000
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