Make or Buy Decision: Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $211 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 19,000 monitors: Total cost of producing 19,000 monitors Unit cost Direct materials $ 2,204,000 $ 116 Direct labor 1,330,000 70 Variable factory overhead 665,000 35 Fixed manufacturing overhead 570,000 30 Fixed non-manufacturing overhead 722,000 38 $ 5,491,000 $ 289 You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $55,400, but non-manufacturing costs would remain the same if monitors are bought. Fill in the differential analysis. Make or Buy Decisions Differential Analysis Report Purchase price of 19,000 monitors $fill in the blank d4216cfe5068ff0_3 Differential cost to make: Direct materials $fill in the blank d4216cfe5068ff0_4 Direct labor fill in the blank d4216cfe5068ff0_5 Overhead fill in the blank d4216cfe5068ff0_6 fill in the blank d4216cfe5068ff0_7 Differential income (loss) from making monitors $fill in the blank d4216cfe5068ff0_8

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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Make or Buy Decision:

Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $211 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 19,000 monitors:

	Total cost of producing 19,000 monitors	Unit cost
Direct materials	$	2,204,000	$	116
Direct labor		1,330,000		70
Variable factory overhead		665,000		35
Fixed manufacturing overhead		570,000		30
Fixed non-manufacturing overhead		722,000		38
	$	5,491,000	$	289

You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $55,400, but non-manufacturing costs would remain the same if monitors are bought.

Fill in the differential analysis.

Make or Buy Decisions Differential Analysis Report
Purchase price of 19,000 monitors		$fill in the blank d4216cfe5068ff0_3
Differential cost to make:
Direct materials	$fill in the blank d4216cfe5068ff0_4
Direct labor	fill in the blank d4216cfe5068ff0_5
Overhead	fill in the blank d4216cfe5068ff0_6	fill in the blank d4216cfe5068ff0_7
Differential income (loss) from making monitors		$fill in the blank d4216cfe5068ff0_8

Make or Buy Decision:
Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $211 per unit. One of the company's cost-accounting interns prepared
the following schedule of Zee-Drive's cost to produce 19,000 monitors:
Total cost of
producing
19,000 monitors
Unit cost
Direct materials
$ 2,204,000
$116
Direct labor
1,330,000
70
Variable factory overhead
665,000
35
Fixed manufacturing overhead
570,000
30
Fixed non-manufacturing overhead
722,000
38
$ 5,491,000
$ 289
You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect
because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on
hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by
$55,400, but non-manufacturing costs would remain the same if monitors are bought.
Fill in the differential analysis.
Make or Buy Decisions
Differential Analysis Report
Purchase price of 19,000 monitors
Differential cost to make:
Direct materials
Direct labor
Overhead
Differential income (loss) from making monitors

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