E7-7 (Algo) Analyzing Make-or-Buy Decision [LO 7-2, 7-4] MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Company (MLC) to produce 10,000 units of the module per year for $16.00 each. The following information pertains to MSI's production of the control modules: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $ 9 3 3 7 $ 22 MSI has determined it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Required: 1. Compute the difference in cost between making and buying the control module. 2. Should MSI buy the modules from MLC or continue to make them? 3-a. Suppose the MSI space currently used for the modules could be utilized by a new product line that would generate $36,000 in annual profit. Recompute the difference in cost between making and buying under this scenario. 3-b. Does this change your recommendation to MSI? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3A Required 3B Compute the difference in cost between making and buying the control module. Difference in Cost
E7-7 (Algo) Analyzing Make-or-Buy Decision [LO 7-2, 7-4] MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Company (MLC) to produce 10,000 units of the module per year for $16.00 each. The following information pertains to MSI's production of the control modules: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $ 9 3 3 7 $ 22 MSI has determined it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Required: 1. Compute the difference in cost between making and buying the control module. 2. Should MSI buy the modules from MLC or continue to make them? 3-a. Suppose the MSI space currently used for the modules could be utilized by a new product line that would generate $36,000 in annual profit. Recompute the difference in cost between making and buying under this scenario. 3-b. Does this change your recommendation to MSI? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3A Required 3B Compute the difference in cost between making and buying the control module. Difference in Cost
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![E7-7 (Algo) Analyzing Make-or-Buy Decision [LO 7-2, 7-4]
MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has
received a bid from Monte Legend Company (MLC) to produce 10,000 units of the module per year for $16.00 each. The following
information pertains to MSI's production of the control modules:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost per unit
$ 9
3
3
7
$ 22
MSI has determined it could eliminate all variable costs if the control modules were produced externally, but none of the fixed
overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module
production.
Required:
1. Compute the difference in cost between making and buying the control module.
2. Should MSI buy the modules from MLC or continue to make them?
3-a. Suppose the MSI space currently used for the modules could be utilized by a new product line that would generate $36,000 in
annual profit. Recompute the difference in cost between making and buying under this scenario.
3-b. Does this change your recommendation to MSI?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3A Required 3B
Compute the difference in cost between making and buying the control module.
Difference in Cost
<Required 1
Required 2 >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F97cd50d4-4641-4a23-8c42-f7fedc1c935f%2Fdb7757d3-5008-49ce-8f26-77eebb8102c7%2Fzq9irwm_processed.png&w=3840&q=75)
Transcribed Image Text:E7-7 (Algo) Analyzing Make-or-Buy Decision [LO 7-2, 7-4]
MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has
received a bid from Monte Legend Company (MLC) to produce 10,000 units of the module per year for $16.00 each. The following
information pertains to MSI's production of the control modules:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost per unit
$ 9
3
3
7
$ 22
MSI has determined it could eliminate all variable costs if the control modules were produced externally, but none of the fixed
overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module
production.
Required:
1. Compute the difference in cost between making and buying the control module.
2. Should MSI buy the modules from MLC or continue to make them?
3-a. Suppose the MSI space currently used for the modules could be utilized by a new product line that would generate $36,000 in
annual profit. Recompute the difference in cost between making and buying under this scenario.
3-b. Does this change your recommendation to MSI?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3A Required 3B
Compute the difference in cost between making and buying the control module.
Difference in Cost
<Required 1
Required 2 >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education