маke r Buy Allen Corporation currently makes the nylon convertible top for its main product, a fiberglass boat designed especially for water skling. The costs of producing the 1,500 tops needed each year follow: Nylon fabric Aluminum tubing Frame fittings $270.000 96.000 24,000 Direct labor 162.000 Variable manufacturing overhead Fixed manufacturing overhead 30.000 152.000 Dustin Company, a specialty fabricator of synthetic materials, can make the needed tops of comparable quality for $400 each, FO.B. shipping point. Allen would furnish its own trademark insignia at a unit cost of $16. Transportation in would be $28 per Allen Corporation. Allen's chief accountant has prepared a cost analysis that shows that only 20% of fixed overhead could be avoided if the tops are purchased, The tops have been made in a remote section of Allen's factory building, using equipment for which no alternate apparent in the foreseeable future. a. Prepare a differential analysis showing whether or not you would recommend that the convertible tops be purchased from Dustin Company. If appropriate, use a negative sign with your answer to represent a net disadvantage answer. Do not use negative signs with any other answers Make or Buy Differential Analysis Cost to purchasetops Costs avoided by purchasingtops: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Net advantage (disadvantagejto purchase alternative b. Assuming that the production capacity released by purchasing the tops could be devoted to a subcontracting job for another company that netted a contribution margin of $41,600, what maximum purchase price could Allen Corporation pay for the tops Round answer to two decimal places, if applicable.
маke r Buy Allen Corporation currently makes the nylon convertible top for its main product, a fiberglass boat designed especially for water skling. The costs of producing the 1,500 tops needed each year follow: Nylon fabric Aluminum tubing Frame fittings $270.000 96.000 24,000 Direct labor 162.000 Variable manufacturing overhead Fixed manufacturing overhead 30.000 152.000 Dustin Company, a specialty fabricator of synthetic materials, can make the needed tops of comparable quality for $400 each, FO.B. shipping point. Allen would furnish its own trademark insignia at a unit cost of $16. Transportation in would be $28 per Allen Corporation. Allen's chief accountant has prepared a cost analysis that shows that only 20% of fixed overhead could be avoided if the tops are purchased, The tops have been made in a remote section of Allen's factory building, using equipment for which no alternate apparent in the foreseeable future. a. Prepare a differential analysis showing whether or not you would recommend that the convertible tops be purchased from Dustin Company. If appropriate, use a negative sign with your answer to represent a net disadvantage answer. Do not use negative signs with any other answers Make or Buy Differential Analysis Cost to purchasetops Costs avoided by purchasingtops: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Net advantage (disadvantagejto purchase alternative b. Assuming that the production capacity released by purchasing the tops could be devoted to a subcontracting job for another company that netted a contribution margin of $41,600, what maximum purchase price could Allen Corporation pay for the tops Round answer to two decimal places, if applicable.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
How should I prepare a differential analysis showing whether or not I would recommend that the convertible tops be purchased from Dustin Company?
Transcribed Image Text:Make or Buy
Allen Corporation currently makes the nylon convertible top for its main product, a fiberglass boat designed especially for water skiing. The costs of producing the 1,500 tops needed each year follow:
Nylon fabric
Aluminum tubing
$270,000
96,000
Frame fittings
24,000
Direct labor
162,000
Variable manufacturing overhead
30,000
Fixed manufacturing overhead
152,000
Dustin Company, a specialty fabricator of synthetic materials, can make the needed tops of comparable quality for $400 each, F.O.B. shipping point. Allen would furnish its own trademark insignia at a unit cost of $16. Transportation in would be $28 per unit, pa
Allen Corporation.
Allen's chief accountant has prepared a cost analysis that shows that only 20% of fixed overhead could be avoided if the tops are purchased. The tops have been made in a remote section of Allen's factory building, using equipment for which no alternate use is
apparent in the foreseeable future.
a. Prepare a differential analysis showing whether or not you would recommend that the convertible tops be purchased from Dustin Company.
If
appropriate, use a negative sign with your answer to represent a net disadvantage answer. Do not use negative signs with any other answers.
Make or Buy Differential Analysis
Cost to purchasetops:
0.
Costs avoided by purchasingtops:
Direct materials
Direct labor
0.
Variable manufacturing overhead
Fixed manufacturing overhead
Net advantage (disadvantage)to purchase alternative
b. Assuming that the production capacity released by purchasing the tops could be devoted to a subcontracting job for another company that netted a contribution margin of $41,600, what maximum purchase price could Allen Corporation pay for the tops?
Round answer to two decimal places, if applicable.
$ 0
%24
%24
Expert Solution
Step 1
Fixed cost covers 20% in total
Hence
152000 × 20%
= 30400
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