Mohave Corp. is considering outsourcing production of ht eumbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 9600 units per year for 7.00 each. Mohave has the following information about the cost of producing tote bags: Directs materials 3.00 Direct Labor 2.00 Variable manufacturing overhead 1.00 Fixed manufacturing overhead 2.50 Total cost per unit 8.50 Mohave has deteremined that all variable costs could be eliminated by outsourcing the tote bads, while 75 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specifif use in mind for the space currently dedicated to producing the tote bags. 1.) Compute the difference in cost between making and buying the umbrella tote bag. 2.) Based strictly on the incremental analysis should mohave buy the tote bags or contiunue to make them? 3-a.) Suppose that the space mohave currently uses to make the bags could be utilized by a new product line that would generate 6,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag. 3-b) Does this change your recommendation to Mohave?
Mohave Corp. is considering outsourcing production of ht eumbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 9600 units per year for 7.00 each. Mohave has the following information about the cost of producing tote bags:
Directs materials 3.00
Direct Labor 2.00
Variable manufacturing
Fixed manufacturing overhead 2.50
Total cost per unit 8.50
Mohave has deteremined that all variable costs could be eliminated by outsourcing the tote bads, while 75 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specifif use in mind for the space currently dedicated to producing the tote bags.
1.) Compute the difference in cost between making and buying the umbrella tote bag.
2.) Based strictly on the incremental analysis should mohave buy the tote bags or contiunue to make them?
3-a.) Suppose that the space mohave currently uses to make the bags could be utilized by a new product line that would generate 6,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag.
3-b) Does this change your recommendation to Mohave?
Step by step
Solved in 2 steps with 1 images
