Make-or-Buy, Traditional and ABC Analysis Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,500 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sell the track assembly for $70 per unit. Brees is currently using a traditional, unit-based costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows: Direct materials $45.00 16.00 Direct labor Variable overhead 4.00 Fixed overhead 40.00 Prior to making a decision, the company's CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the study revealed the following: 3 setups-$1,150 each (The setups would be avoided, and total spending could be reduced by $1,150 per setup.) One half-time inspector is needed. The company already uses part-time inspectors hired through a temporary employment agency. The yearly cost of the part-time inspectors for the track assembly operation is $11,820 and could be totally avoided if the part were purchased. ssembly line also spends time on other products, Engineering work: 450 hours, $45/hour. (Although the work decreases by 450 hours, the engineer assigned to the trac and there would be no reduction in his salary.) 75 fewer material moves at $30 per move. Required: 1. Ignore the special study, and determine whether the track assembly should be produced internally or purchased from the supplier. Produced internally ✔ 2. Now, using the special study data, repeat the analysis. It is $ X less ✓expensive to buy outside. affect the decision?
Make-or-Buy, Traditional and ABC Analysis Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,500 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sell the track assembly for $70 per unit. Brees is currently using a traditional, unit-based costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows: Direct materials $45.00 16.00 Direct labor Variable overhead 4.00 Fixed overhead 40.00 Prior to making a decision, the company's CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the study revealed the following: 3 setups-$1,150 each (The setups would be avoided, and total spending could be reduced by $1,150 per setup.) One half-time inspector is needed. The company already uses part-time inspectors hired through a temporary employment agency. The yearly cost of the part-time inspectors for the track assembly operation is $11,820 and could be totally avoided if the part were purchased. ssembly line also spends time on other products, Engineering work: 450 hours, $45/hour. (Although the work decreases by 450 hours, the engineer assigned to the trac and there would be no reduction in his salary.) 75 fewer material moves at $30 per move. Required: 1. Ignore the special study, and determine whether the track assembly should be produced internally or purchased from the supplier. Produced internally ✔ 2. Now, using the special study data, repeat the analysis. It is $ X less ✓expensive to buy outside. affect the decision?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Make-or-Buy, Traditional and ABC Analysis
Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,500 units of a component used in its main product. The component is a
track assembly that is currently produced internally. The supplier has offered to sell the track assembly for $70 per unit. Brees is currently using a traditional, unit-based
costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows:
Direct materials
$45.00
16.00
Direct labor
Variable overhead
4.00
Fixed overhead
40.00
Prior to making a decision, the company's CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the
study revealed the following:
3 setups $1,150 each (The setups would be avoided, and total spending could be reduced by $1,150 per setup.)
One half-time inspector is needed. The company already uses part-time inspectors hired through a temporary employment agency. The yearly cost of the part-time
inspectors for the track assembly operation is $11,820 and could be totally avoided if the part were purchased.
track assembly line also spends time on other products,
Engineering work: 450 hours, $45/hour. (Although the work decreases by 450 hours, the engineer assigned to the
and there would be no reduction in his salary.)
75 fewer material moves at $30 per move.
Required:
1. Ignore the special study, and determine whether the track assembly should be produced internally or purchased from the supplier.
Produced internally
✔
2. Now, using the special study data, repeat the analysis.
It is $
X less
✓expensive to buy outside.
affect the decision?
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