Lewis Auto Company manufactures a part for use in its production of automobiles. When 10,000 itemsare produced, the costs per unit are: Direct materials $12 Direct manufacturing overhead $60 Variablemanufacturing overhead $24 Fixed manufacturing overhead $32 Total $128 Monty Company hasoffered to sell Lewis Auto Company 10, 000 units of the part for $120 per unit. The plant facilities couldbe used to manufacture another part at a savings of $180,000 if Lewis auto accepts the supplier'soffer. In addition, $20 per unit of fixed manufacturing overhead on the original part would beeliminated. Required: a. What is the relevant per unit cost for the original part? b. Which alternative isbest for Lewis auto Company? By how much?

Relevant cost are avoidable cost and are affected by specific business decisions. In make or buy…

Answered: Lewis Auto Company manufactures a part…

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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Markland Manufacturing manufactures desk lamps intends to increase capacity by obtaining new equipment. Two vendors have presented proposals. The purchase cost for proposal A is $30,000, and for proposal B, $80,000. Each proposal will produce lamps of the same quality. Proposal A is expected to produce lamps at $15.00/lamp, while proposal B is significantly more efficient and will produce them at $10.00/lamp. The revenue generated by the sale of each lamp is $20.00/unit. A. What is the point of indifference?B. The manufacturer expects to sell 12,000 lamps and has informed the vendors that it has chosen proposal B. The vendor of proposal A has offered to re-negotiate the purchase price of its proposal in order to win the contract. What purchase price will cause the manufacturerto reconsider its decision?
Bramble Company manufactures widgets. Blossom Company has approached Bramble with a proposal to sell the company widgets at a price of $60500 for 100,000 units. Bramble is currently making these components in its own factory. The following costs are associated with this part of the process when 100,000 units are produced: Direct material $22700 Direct labour 23000 Manufacturing overhead 29000 Total $74700 The manufacturing overhead consists of $12300 of costs that will be eliminated if the components are no longer produced by Bramble. From Bramble’s point of view, how much is the incremental cost or savings if the widgets are bought instead of made? $14200 incremental savings $2500 incremental savings $2500 incremental cost $14200 incremental cost
HASF Furniture Inc. manufactures a moderate-price set of lawn furniture (a table and four chairs) that it sells for $500. It currently manufactures and sells 10,000 sets per year. The manufacturing costs 325 (include $185 for materials and $45 for labor per set). The overhead entirely of fixed costs. Modern furniture’s is considering a special purchase offer from a large retail firm, which has offered to buy 300 sets per year for three years at a price of $250 per set. Modern furniture has the available plant capacity to produce the order and expects no other orders or profitable alternative uses of the plant capacity. Required: Revenue increase after accepting the order Cost increase after accepting the order At what amount of profit increaes after accepting the speical order
Damon Industries manufactures 16,000 components per year. The manufacturing costs of the components were determined as follows: Direct materials $ 134,000 Direct labor 21,500 Variable manufacturing overhead 61,000 Fixed manufacturing overhead 81,000 An outside supplier has offered to sell the component for $15. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $11,700. If Damon purchases the component from the supplier instead of manufacturing it, the effect on operating profits would be a:
Day Star collected the following information: Cost to buy one unit Production costs per unit: Direct materials Direct labour Variable overhead Total fixed overhead Day Star can sell 25,000 units per year, at $80 each. The company also has an offer from a subsidiary to rent its plant facilities for $2,000,000. The fixed overhead will be incurred in each alternative, but there will be a savings of $150,000 in the fixed costs under the renting alternative. A) buy Based on the above information only, should Day Star make or buy the product or rent its facilities out? B) make $22 $16 $2 $360,000 C) either make or buy - indifferent $48 D) rent the facilities to the subsidiary E) either make or rent - indifferent
Mighty Safe Fire Alarm is currently buying 57,000 motherboards from MotherBoard, Inc., at a price of $63 per board. Mighty Safe is considering making its own boards. The costs to make the board are as follows: direct materials, $33 per unit; direct labor, $12 per unit; and variable factory overhead, $15 per unit. Fixed costs for the plant would increase by $90,000. Which option should be selected and why? Oa. a. buy, $90,000 increase in profits Ob. make, $80,940 increase in profits c. make, $171,000 increase in profits Od. buy, $80,940 increase in profits
Roadside Inc. manufactures the Megalite, and is reviewing the product's cost structure. Accounting records show these costs:factory space: $250,000 per yearinsurance: $47,000 per yearsupervisor salaries: $125,000 per yearmaterials: $5.00 per lampdirect labor: $2.69 per lamprecycling charge: $0.37 per lampRoadside Inc sells the Megalite to wholesalers for $13.69 each. Calculate Roadside's contribution margin as percent of selling price on the Megalite. (Rounding: tenth of a percent. Report 25.3%, for example, as "25.3".)
Tamarisk Manufacturing incurs unit costs of $7.20 ($5.20 variable and $2.00 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 17,200 of the parts for $5.70 per unit. If it accepts the offer, Tamarisk will save all variable costs and $1.00 of fixed costs. Prepare an analysis showing the total cost savings, if any, that Tamarisk will realize by buying the part. (Round per unit answers to 2 decimal places, eg. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number, e.g.-15,000 or parenthesis, e.g. (15,000).)
In its production process, Purple Tree Inc uses a specialized part in the manufacturing of their fancy widget. The costs to make a part are: direct material, $15; direct labor, $27; variable overhead, $15; and applied fixed overhead, $32. Purple Tree has received a quote of $60 from a potential supplier for this part. If Purple Tree buys the part, 75 percent of the applied fixed overhead would continue. They need 12,000 units of the specialized part. Purple Tree Company would be better off by Group of answer choices $60,000 to buy the part. $348,000 to buy the part. $30,000 to manufacture the part. $216,000 to manufacture the part.
Lakeside Inc. produces a product that currently sells for $72.00 per unit. Current production costs per unit include direct materials, $19; direct labor, $21; variable overhead, $9.50; and fixed overhead, $9.50. Product engineering has determined that certain production changes could refine the product quality and functionality. These new production changes would increase material and labor costs by 20% per unit. Lakeside has received an offer from a nonprofit organization to buy 8,900 units at $50.20 per unit. Lakeside currently has unused production capacity. Required: a. Calculate the effect on Lakeside's operating income of accepting the order from the nonprofit organization. Increase in operating income b. Should Lakeside accept this special sales order? O Yes O No
Session Company uses 5,000 units of Part Y each year as a component in the assembly of one of its products. The company is presently producing Part Y internally at a total cost of $72,000 as follows: Direct materials $18,000 Direct labor $20,000 Variable MOH $10,000 Fixed MOH $24,000 Total costs $72,000 An outside supplier has offered to provide Part Y at a price of $12 per unit. If Session Company stops producing the part internally, one-third of the fixed manufacturing overhead would be eliminated. Accepting the outside supplier's offer leads to an annual advantage/disadvantage of: Advantage of $4,000 Disadvantage of $4,000 Disadvantage of $12,000 Advantage of $12,000
Voltaic Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 36,000 parts is $ 100,000, which includes fixed costs of $ 40,000 and variable costs of $ 60,000. The company can buy the part from an outside supplier for $2 per unit and avoid 20% of the fixed costs. Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $ 15,000. If Voltaic outsources, what will be the effect on operating income?A. decrease of $11,000B. increase of $ 11,000C. increase of $ 15,000D . decrease of $ 8,000

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