Make-or-Buy, Traditional Analysis, Qualitative Considerations Apollonia Dental Services is part of an HMO that operates in a large metropolitan area. Currently, Apollonia has its own dental laboratory to produce two varieties of porcelain crowns-all porcelain and porcelain fused to metal. The unit costs to produce the crowns are as follows: Porcelain Fused All Porcelain to Metal Direct materials $190 $80 Direct labor 50 20 Variable overhead 25 5 Fixed overhead 60 40 $325 $145 Total Fixed overhead is detailed as follows: Salary (supervisor) $30,000 Depreciation 8,000 Rent (lab facility) 22,000 Overhead is applied on the basis of direct labor hours. The rates above were computed using 8,000 direct labor hours. No significant non-unit-level overhead costs are incurred. A local dental laboratory has offered to supply Apollonia all the crowns it needs. Its price is $265 for all-porcelain crowns and $145 for porcelain-fused-to-metal crowns; however, the offer is conditional on supplying both types of crowns-it will not supply just one type for the price indicated. If the offer is accepted, the equipment used by Apollonia's laboratory would be scrapped (it is old and has no market value), and the lab facility would be closed. Apollonia uses 2,500 all-porcelain crowns and 1,000 porcelain-fused-to-metal crowns per year. Required: 1. Should Apollonia continue to make its own crowns, or should they be purchased from the external supplier? What is the dollar effect of purchasing? Net savings: S 2. Which of the listed items is not a qualitative factor that Apollonia should consider in making this decision? 3. Suppose that the lab facility is owned rather than rented and that the $22,000 is depreciation rather than rent. What effect does this have on the analysis in Requirement 1? the cost of making the crowns to s It 4. Refer to the original data. Assume that the volume of crowns is 5,000 all porcelain and 2,000 porcelain fused to metal. Should Apollonia make or buy the crowns?
Make-or-Buy, Traditional Analysis, Qualitative Considerations Apollonia Dental Services is part of an HMO that operates in a large metropolitan area. Currently, Apollonia has its own dental laboratory to produce two varieties of porcelain crowns-all porcelain and porcelain fused to metal. The unit costs to produce the crowns are as follows: Porcelain Fused All Porcelain to Metal Direct materials $190 $80 Direct labor 50 20 Variable overhead 25 5 Fixed overhead 60 40 $325 $145 Total Fixed overhead is detailed as follows: Salary (supervisor) $30,000 Depreciation 8,000 Rent (lab facility) 22,000 Overhead is applied on the basis of direct labor hours. The rates above were computed using 8,000 direct labor hours. No significant non-unit-level overhead costs are incurred. A local dental laboratory has offered to supply Apollonia all the crowns it needs. Its price is $265 for all-porcelain crowns and $145 for porcelain-fused-to-metal crowns; however, the offer is conditional on supplying both types of crowns-it will not supply just one type for the price indicated. If the offer is accepted, the equipment used by Apollonia's laboratory would be scrapped (it is old and has no market value), and the lab facility would be closed. Apollonia uses 2,500 all-porcelain crowns and 1,000 porcelain-fused-to-metal crowns per year. Required: 1. Should Apollonia continue to make its own crowns, or should they be purchased from the external supplier? What is the dollar effect of purchasing? Net savings: S 2. Which of the listed items is not a qualitative factor that Apollonia should consider in making this decision? 3. Suppose that the lab facility is owned rather than rented and that the $22,000 is depreciation rather than rent. What effect does this have on the analysis in Requirement 1? the cost of making the crowns to s It 4. Refer to the original data. Assume that the volume of crowns is 5,000 all porcelain and 2,000 porcelain fused to metal. Should Apollonia make or buy the crowns?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Make-or-Buy, Traditional Analysis, Qualitative Considerations
Apollonia Dental Services is part of an HMO that operates in a large metropolitan area. Currently, Apollonia has its own dental laboratory to produce two varieties of porcelain crowns-all porcelain and porcelain fused to metal. The unit costs to produce the crowns are as follows:
Porcelain Fused
All Porcelain
to Metal
Direct materials
$190
$80
Direct labor
50
20
Variable overhead
25
5
Fixed overhead
60
40
$325
$145
Total
Fixed overhead is detailed as follows:
Salary (supervisor)
$30,000
Depreciation
8,000
Rent (lab facility)
22,000
Overhead is applied on the basis of direct labor hours. The rates above were computed using 8,000 direct labor hours. No significant non-unit-level overhead costs are incurred.
A local dental laboratory has offered to supply Apollonia all the crowns it needs. Its price is $265 for all-porcelain crowns and $145 for porcelain-fused-to-metal crowns; however, the offer is conditional on supplying both types of crowns-it will not supply just one type for the price
indicated. If the offer is accepted, the equipment used by Apollonia's laboratory would be scrapped (it is old and has no market value), and the lab facility would be closed. Apollonia uses 2,500 all-porcelain crowns and 1,000 porcelain-fused-to-metal crowns per year.
Required:
1. Should Apollonia continue to make its own crowns, or should they be purchased from the external supplier?
What is the dollar effect of purchasing?
Net savings: S
2. Which of the listed items is not a qualitative factor that Apollonia should consider in making this decision?
3. Suppose that the lab facility is owned rather than rented and that the $22,000 is depreciation rather than rent. What effect does this have on the analysis in Requirement 1?
the cost of making the crowns to s
It
4. Refer to the original data. Assume that the volume of crowns is 5,000 all porcelain and 2,000 porcelain fused to metal. Should Apollonia make or buy the crowns?
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