Mitus Company needs 20,000 special buckles for a backpack that it designs and manufactures. If the company buys the buckles from a buckle company, it will have idle capacity in its plant that cannot otherwise be used. The company factory space is sufficient to make the buckle if that is the logical choice. Indirect fixed manufacturing overhead is 80% of fixed overhead and will be incurred whether the buckles are purchased or manufactured by the company. The relevant costs of making and buying the buckles are as follows: Cost to make the buckles: Direct materials $ 3 Direct labor 4 Variable manufacturing overhead 2 Fixed manufacturing overhead (direct and indirect) 5 $14 Cost to buy from a buckle company $11 Make Purchase Variable Costs Direct Fixed Costs Purchase Price Total Costs Savings per unit Units Total Savings 20000

Mitus Company needs 20,000 special buckles for a backpack that it designs and manufactures. If the company buys the buckles from a buckle company, it will have idle capacity in its plant that cannot otherwise be used. The company factory space is sufficient to make the buckle if that is the logical choice. Indirect fixed manufacturing overhead is 80% of fixed overhead and will be incurred whether the buckles are purchased or manufactured by the company. The relevant costs of making and buying the buckles are as follows: Cost to make the buckles: Direct materials $ 3 Direct labor 4 Variable manufacturing overhead 2 Fixed manufacturing overhead (direct and indirect) 5 $14 Cost to buy from a buckle company $11 Make Purchase Variable Costs Direct Fixed Costs Purchase Price Total Costs Savings per unit Units Total Savings 20000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Wings Incorporated manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 2,400 units of product PQ107 for Valters for a price of $150,000. If Wings does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: Direct materials Direct labor Variable overhead Cost per Unit $31 19 8 In addition to the above costs, if Wings produces part PQ107, it would have a retooling and design cost of $9,800. The relevant costs of producing 2,400 units of product PQ107 internally are:
Adams Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows. Unit-level materials $ 5,400 Unit-level labor 6,400 Unit-level overhead 3,900 Product-level costs* 10,500 Allocated facility-level costs 28,200 *One-third of these costs can be avoided by purchasing the containers.Russo Container Company has offered to sell comparable containers to Adams for $2.80 each.Required Calculate the total relevant cost. Should Adams continue to make the containers? Adams could lease the space it currently uses in the manufacturing process. If leasing would produce $12,500 per month, calculate the total avoidable costs. Should Adams continue to make the containers?
JTA Corp must decide whether to make or buy some of its components for the appliances it produces. The cost of producing 166,000 electrical cords for its appliances are as follows Direct materials 90,000 Direct Labor 32,000 Variable overhead 19,100 Fixed overhead 24,900 Instead of making the electrical cords at an average cost per unit of 10, the Company has an opportunity to buy the cords at 0 90 per unit. If the Company purchases the cords, all vanable costs are eliminated. What is the total relevant cost per unit in deciding either to buy or produce the component?
Beto Company pays $6.50 per unit to buy a part for one of the products it manufactures. With excess capacity, the company is considering making the part. Making the part would cost $7.20 per unit for direct materials and $1.00 per unit for direct labor. The company normally applies overhead at the predetermined rate of 200% of direct labor cost. Incremental overhead to make the part would be 80% of direct labor cost. (a) Prepare a make or buy analysis of costs for this part. (Enter your answers rounded to 2 decimal places.) (b) Should Beto make or buy the part? (a) Make or Buy Analysis Direct materials Direct labor Overhead Cost to buy Cost per unit Cost difference (b) Company should Make Buy
Riders, Ltd. is a manufacturer that produces motorized scooters. Currently, it is producing the motor used to power the scooter, but is considering buying the motor from an outside supplier. The manufacturing costs for Riders to make 20,000 motors are as follows: Cost per motor Direct material $28.50 Direct labor $13.25 Overhead $18.00 An outside supplier offers to supply Riders with all the motors it needs at $55.00 per unit. If Riders buys the motors from the supplier, it will still incur 80% of its overhead costs. Based on the above information, the financial advantage (disadvantage) of buying the 20,000 motors from the outside supplier is: a. ($265,000) b. None of the other answers are correct c. $95,000 d. ($193,000) e. $23,000
Alpesh
Bramble Company manufactures widgets. Blossom Company has approached Bramble with a proposal to sell the company widgets at a price of $60500 for 100,000 units. Bramble is currently making these components in its own factory. The following costs are associated with this part of the process when 100,000 units are produced: Direct material $22700 Direct labour 23000 Manufacturing overhead 29000 Total $74700 The manufacturing overhead consists of $12300 of costs that will be eliminated if the components are no longer produced by Bramble. From Bramble’s point of view, how much is the incremental cost or savings if the widgets are bought instead of made? $14200 incremental savings $2500 incremental savings $2500 incremental cost $14200 incremental cost
Bridgeport Racers makes bicycles. It has always purchased its bicycle tires from the Cullumber Tires at $26 each but is currently considering making the tires in its own factory. The estimated costs per unit of making the tires are as follows: Direct materials $9 Direct labor $5 Variable manufacturing overhead $8 The company’s fixed expenses would increase by $73,000 per year if managers decided to make the tire.(a1) Calculate total relevant cost to make or buy if the company needs 11,300 tires a year. Make Buy Total relevant cost $enter a dollar amount $enter a dollar amount (a2) Ignoring qualitative factors, if the company needs 11,300 tires a year, should it continue to purchase them from Balyo or begin to produce them internally? The company select an option should not continueshould continue to purchase the tires.
Jordan Corporation, which makes and sells 80,600 radios annually, currently purchases the radio speakers it uses for $25 each. Each radio uses one speaker. The company has idle capacity and is considering the possibility of making the speakers that it needs. Jordan estimates that the cost of materials and labor needed to make speakers would be a total of $23 for each speaker. In addition, supervisory salaries, rent, and other manufacturing costs would be $181,000. Allocated facility-level costs would be $97,800. Required a. Determine the change in net income Jordan would experience if it decides to make the speakers. Net income will be lower by
A machine part is manufactured at a unit cost of 40¢ for material and 15¢ for direct labor. An investment of $500,000 in tooling is required. The order calls for 3 million pieces. Halfway through the order, managers learn that a new method of manufacture can be put into effect that will reduce the unit costs to 34¢ for material and 10¢ for direct labor—but it will require $100,000 for additional tooling. This tooling will not be useful for future orders. Other costs are allocated at 2.5 times the direct labor cost. What, if anything, should be done?
Deli's Fudge Factory currently makes fudge for retail and mail order customers. It also offers a variety of roasted nuts. Fudge sales have increased over the past year, so Deli is considering outsourcing the roasted nuts and using the roasting space to make additional fudge. A reliable supplier has quoted a price of £0.85 per pound for the roasted nuts. The following amounts reflect the in-house manufacturing costs per pound for the roasted nuts: Direct materials Direct labour Unit-related support costs Batch-related support costs Product-sustaining support costs Facility-sustaining support costs Total cost per pound £0.50 0.06 0.10 0.04 0.05 0.15 £0.90 Required: Should Deli's Fudge Factory outsource the roasted nuts? Why or why not? Discuss all items that should be considered. a.
Beto Company pays $3.50 per unit to buy a part for one of the products it manufactures. With excess capacity, the company is considering making the part. Making the part would cost $2.70 per unit for direct materials and $1.00 per unit for direct labor. The company normally applies overhead at the predetermined rate of 200% of direct labor cost. Incremental overhead to make the part would be 80% of direct labor cost. (a) Prepare a make or buy analysis of costs for this part. (Enter your answers rounded to 2 decimal places.) (b) Should Beto make or buy the part? (a) Make or Buy Analysis Make Buy Direct materials Direct labor Overhead Cost to buy Cost per unit Cost difference |(b) Company should: