Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel's kitchen and adjoining meeting room operate at 70 percent of capacity. Mel's purchases the cookies for $0.60 each but is considering making them instead. Mel's can bake each cookie for $0.20 for materials, $0.15 for direct labor, and $0.45 for overhead without increasing its capacity. The $0.45 for overhead includes an allocation of $0.30 per cookle for fixed overhead. However, total fixed overhead for the company would not increase if Mel's makes the cookies. Mel himself has come to you for advice. "It would cost me $0.80 to make the cookies, but only $0.60 to buy. Should I continue buying them?" Materials and labor are variable costs, but variable overhead would be only $0.15 per cookie. Two cookies are put into every lunch.
Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel's kitchen and adjoining meeting room operate at 70 percent of capacity. Mel's purchases the cookies for $0.60 each but is considering making them instead. Mel's can bake each cookie for $0.20 for materials, $0.15 for direct labor, and $0.45 for overhead without increasing its capacity. The $0.45 for overhead includes an allocation of $0.30 per cookle for fixed overhead. However, total fixed overhead for the company would not increase if Mel's makes the cookies. Mel himself has come to you for advice. "It would cost me $0.80 to make the cookies, but only $0.60 to buy. Should I continue buying them?" Materials and labor are variable costs, but variable overhead would be only $0.15 per cookie. Two cookies are put into every lunch.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
a. Prepare a schedule to show the differential costs per cookie.
b. Should mel continue to buy the cookies?
![(The following information applies to the questions displayed below.]
Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel's kitchen
and adjoining meeting room operate at 70 percent of capacity. Mel's purchases the cookies for $0.60 each but is
considering making them instead. Mel's can bake each cookie for $0.20 for materials, $0.15 for direct labor, and $0.45 for
overhead without increasing Its capacity. The $0.45 for overhead includes an allocation of $0.30 per cookle for fixed
overhead. However, total fixed overhead for the company would not increase if Mel's makes the cookies.
Mel himself has come to you for advice. "It would cost me $0.80 to make the cookies, but only $0.60 to buy. Should I
continue buying them?" Materials and labor are variable costs, but variable overhead would be only $0.15 per cookie. Two
cookies are put into every lunch.
Exercise 4-47 (Static) Make-or-Buy Decisions (LO 4-4)
Required:
a. Prepare a schedule to show the differential costs per cookie. (Enter your answers to 2 decimal places. Select option "higher" or
"lower", keeping Status Quo as the base. Select "none" if there is no effect.)
Status Quo
(Buy)
Alternative
Difference
(Make)
Cost to buy
Direct material
Direct labor
Variable overhead
Total costs](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F59e1e845-820e-4fe9-add9-1fc4529c88f2%2F35573d7e-7ce0-4c07-95e8-94f51160d76c%2Fda1sn5s_processed.jpeg&w=3840&q=75)
Transcribed Image Text:(The following information applies to the questions displayed below.]
Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel's kitchen
and adjoining meeting room operate at 70 percent of capacity. Mel's purchases the cookies for $0.60 each but is
considering making them instead. Mel's can bake each cookie for $0.20 for materials, $0.15 for direct labor, and $0.45 for
overhead without increasing Its capacity. The $0.45 for overhead includes an allocation of $0.30 per cookle for fixed
overhead. However, total fixed overhead for the company would not increase if Mel's makes the cookies.
Mel himself has come to you for advice. "It would cost me $0.80 to make the cookies, but only $0.60 to buy. Should I
continue buying them?" Materials and labor are variable costs, but variable overhead would be only $0.15 per cookie. Two
cookies are put into every lunch.
Exercise 4-47 (Static) Make-or-Buy Decisions (LO 4-4)
Required:
a. Prepare a schedule to show the differential costs per cookie. (Enter your answers to 2 decimal places. Select option "higher" or
"lower", keeping Status Quo as the base. Select "none" if there is no effect.)
Status Quo
(Buy)
Alternative
Difference
(Make)
Cost to buy
Direct material
Direct labor
Variable overhead
Total costs
Transcribed Image Text:Required:
a. Prepare a schedule to show the differential costs per cookie. (Enter your answers to 2 decimal places.
"lower", keeping Status Quo as the base. Select "none" If there Is no effect.)
Status Quo Alternative
Difference
(Buy)
(Make)
Cost to buy
Direct material
Direct labor
Variable overhead
Total costs
b. Should Mel continue to buy the cookies?
O Yes
No
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