Current Costs Expected Costs in 2018 in 2017 Variable manufacturing costs Direct material cost per CMCB Direct manufacturing labor cost per CMCB Variable manufacturing cost per batch for setups, materials handling, and quality control Fixed manufacturing cost 180 170 50 45 1,600 1,500 Fixed manufacturing overhead costs that can be avoided if CMCBS are not made 320,000 320,000 Fixed manufacturing overhead costs of plant depreciation, insurance, and administration that cannot be avoided even if CMCBS are not made 800,000 800,000 Svenson manufactured 8,000 CMCBS in 2017 in 40 batches of 200 each. In 2018, Svenson anticipates needing 10,000 CMCBS. The CMCBS would be produced in 80 batches of 125 each. The Minton Corporation has approached Svenson about supplying CMCBS to Svenson in 2018 at $300 per CMCB on whatever delivery schedule Svenson wants. Required 1. Calculate the total expected manufacturing cost per unit of making CMCBS in 2018. 2. Suppose the capacity currently used to make CMCBS will become idle if Svenson purchases CMCBS from Minton. On the basis of financial considerations alone, should Svenson make CMCBS or buy them from Minton? Show your calculations. 3. Now suppose that if Svenson purchases CMCBS from Minton, its best alternative use of the capacity currently used for CMCBS is to make and sell special circuit boards (CB3S) to the Essex Corporation. Svenson estimates the following incremental revenues and costs from CB3S: Total expected incremental future revenues Total expected incremental future costs $2,000,000 S2,150,000 On the basis of financial considerations alone, should Svenson make CMCBS or buy them from Minton? Show your calculations.
Current Costs Expected Costs in 2018 in 2017 Variable manufacturing costs Direct material cost per CMCB Direct manufacturing labor cost per CMCB Variable manufacturing cost per batch for setups, materials handling, and quality control Fixed manufacturing cost 180 170 50 45 1,600 1,500 Fixed manufacturing overhead costs that can be avoided if CMCBS are not made 320,000 320,000 Fixed manufacturing overhead costs of plant depreciation, insurance, and administration that cannot be avoided even if CMCBS are not made 800,000 800,000 Svenson manufactured 8,000 CMCBS in 2017 in 40 batches of 200 each. In 2018, Svenson anticipates needing 10,000 CMCBS. The CMCBS would be produced in 80 batches of 125 each. The Minton Corporation has approached Svenson about supplying CMCBS to Svenson in 2018 at $300 per CMCB on whatever delivery schedule Svenson wants. Required 1. Calculate the total expected manufacturing cost per unit of making CMCBS in 2018. 2. Suppose the capacity currently used to make CMCBS will become idle if Svenson purchases CMCBS from Minton. On the basis of financial considerations alone, should Svenson make CMCBS or buy them from Minton? Show your calculations. 3. Now suppose that if Svenson purchases CMCBS from Minton, its best alternative use of the capacity currently used for CMCBS is to make and sell special circuit boards (CB3S) to the Essex Corporation. Svenson estimates the following incremental revenues and costs from CB3S: Total expected incremental future revenues Total expected incremental future costs $2,000,000 S2,150,000 On the basis of financial considerations alone, should Svenson make CMCBS or buy them from Minton? Show your calculations.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Make versus buy, activity-based costing. The Svenson Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2017 and the expected costs in 2018:
Transcribed Image Text:Current Costs
Expected
Costs in 2018
in 2017
Variable manufacturing costs
Direct material cost per CMCB
Direct manufacturing labor cost per CMCB
Variable manufacturing cost per batch for setups, materials
handling, and quality control
Fixed manufacturing cost
180
170
50
45
1,600
1,500
Fixed manufacturing overhead costs that can be avoided if CMCBS
are not made
320,000
320,000
Fixed manufacturing overhead costs of plant depreciation,
insurance, and administration that cannot be avoided even if
CMCBS are not made
800,000
800,000
Svenson manufactured 8,000 CMCBS in 2017 in 40 batches of 200 each. In 2018, Svenson anticipates needing
10,000 CMCBS. The CMCBS would be produced in 80 batches of 125 each.
The Minton Corporation has approached Svenson about supplying CMCBS to Svenson in 2018 at $300
per CMCB on whatever delivery schedule Svenson wants.
Required
1. Calculate the total expected manufacturing cost per unit of making CMCBS in 2018.
2. Suppose the capacity currently used to make CMCBS will become idle if Svenson purchases CMCBS
from Minton. On the basis of financial considerations alone, should Svenson make CMCBS or buy them
from Minton? Show your calculations.
Transcribed Image Text:3. Now suppose that if Svenson purchases CMCBS from Minton, its best alternative use of the capacity
currently used for CMCBS is to make and sell special circuit boards (CB3S) to the Essex Corporation.
Svenson estimates the following incremental revenues and costs from CB3S:
Total expected incremental future revenues
Total expected incremental future costs
$2,000,000
S2,150,000
On the basis of financial considerations alone, should Svenson make CMCBS or buy them from Minton?
Show your calculations.
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