Exercise 6-13A (Algo) Outsourcing decision affected by opportunity costs LO 6-3 Rooney Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,300 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs $ 5,100 6,700 3,400 8,700 27,500 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Rooney for $2.50 each. Required a. Calculate the total relevant cost. Should Rooney continue to make the containers? b. Rooney could lease the space it currently uses in the manufacturing process. If leasing would produce $12,300 per month, calculate the total avoidable costs. Should Rooney continue to make the containers? a. Total relevant cost a. Should Rooney continue to make the containers? b. Total avoidable cost Yes b. Should Rooney continue to make the containers? No

Exercise 6-13A (Algo) Outsourcing decision affected by opportunity costs LO 6-3 Rooney Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,300 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs $ 5,100 6,700 3,400 8,700 27,500 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Rooney for $2.50 each. Required a. Calculate the total relevant cost. Should Rooney continue to make the containers? b. Rooney could lease the space it currently uses in the manufacturing process. If leasing would produce $12,300 per month, calculate the total avoidable costs. Should Rooney continue to make the containers? a. Total relevant cost a. Should Rooney continue to make the containers? b. Total avoidable cost Yes b. Should Rooney continue to make the containers? No

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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Exercise 6-1 (Algo) Variable and Absorption Costing Unit Product Costs [LO6-1] Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $805. Selected data for the company's operations last year follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative 0 12,000 9,000 3,000 1. Absorption costing unit product cost 2. Variable costing unit product cost $ 200 $360 $ 55 $ 16 $ 840,000 $ 500,000 Required: 1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.) 2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.
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Exercise A-2 Absorption Costing Approach to Setting a Selling Price [LOA-2] Martin Company is considering the introduction of a new product. To determine a selling price, the company has gathered the following information: Number of units to be produced and sold each year 15,500 Unit product cost $ 50 Projected annual selling and administrative expenses $ 66,000 Estimated investment required by the company $ 450,000 Desired return on investment (ROI) 18 % The company uses the absorption costing approach to cost-plus pricing. Required: 1. Compute the markup required to achieve the desired ROI. ((Round your final answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) 2. Compute the selling price per unit. (Round your intermediate and final answers to 2 decimal places. )