1. Lease the needed space and equipment at a cost of $29,430 per quarter for the space and $10,900 per quarter for a supervisor. There are no other fixed expenses2. Drop the thickness gauge. The equipment could be adapted with virtually no cost and the existing space utilized to produce the subassembly. The direct fixedexpenses, including supervision, would be $41,420, $8,720 of which is depreciation on equipment. If the thickness gauge is dropped, sales of the density gauge winot be affected.Required:1. Should Morrll Company make or buy the subassembly?Make the subassemblyIf it makes the subassembly, which alternative should be chosen?Drop the thickness gaugeEnter the relevant costs of each alternative.Lease and MakeBuyDrop Thickness Gauge and MakeTotal relevant costs55,59054,50047,960 x2. Suppose that dropping the thickness gauge will decrease sales of the density gauge by 10 percent. What decision should now be made?Keep the thickness gauge and buy the subassembly3. Assume that dropping the thickness gauge decreases sales of the density gauge by 10 percent and that 3,052 subassemblies are required per quarter. As before,assume that there are no ending inventories of subassemblies and that all units produced are sold. Assume also that the per-unit sales price and variable costs are thesame as in RequirementInclude the leasing alternative in your considerion. Now, what is the correct decision?Lease the space and make the subassembly Make-or-Buy, Traditional AnalysisMorrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows.DensityThicknessGaugeGaugeTotalSales$ 163,500$ 87,200$ 250,700Less variable expenses87,20050,140137,340Contribution margin$ 76,300$ 37,060$ 113,360Less direct fixed expenses*21,80041,42063,220Segment margin$ 54,500$ (4,360)$ 50,140Less common fixed expenses32,700Operating income$ 17,440* Includes depreciation.The density gauge uses a subassembly that is purchased from an external supplier for $25 per unit. Each quarter, 2,180 subassemblies are purchased. All units producedare sold, and there are no ending inventories of subassemblies. Morrill is considering making the subassembly rather than buying it. Unit-level variable manufacturingcosts are as follows:Direct materials$2Direct labor3Variable overhead

What is meant by Make or Buy Decision making? It is the process of deciding whether to inhouse…

Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. Density Thickness Gauge Gauge Total Sales $ 163,500 $ 87,200 $ 250,700 Less variable expenses 87,200 50,140 137,340 Contribution margin $ 76,300 $ 37,060 $ 113,360 Less direct fixed expenses* 21,800 41,420 63,220 Segment margin $ 54,500 $ (4,360) $ 50,140 Less common fixed expenses 32,700 Operating income $ 17,440 * Includes depreciation. The density gauge uses a subassembly that is purchased from an external supplier for $25 per unit. Each quarter, 2,180 subassemblies are purchased. All units produc are sold, and there are no ending inventories of subassemblies. Morrill is considering making the subassembly rather than buying it. Unit-level variable manufacturing costs are as follows: Direct materials $2 Direct labor

Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. Density Thickness Gauge Gauge Total Sales $ 163,500 $ 87,200 $ 250,700 Less variable expenses 87,200 50,140 137,340 Contribution margin $ 76,300 $ 37,060 $ 113,360 Less direct fixed expenses* 21,800 41,420 63,220 Segment margin $ 54,500 $ (4,360) $ 50,140 Less common fixed expenses 32,700 Operating income $ 17,440 * Includes depreciation. The density gauge uses a subassembly that is purchased from an external supplier for $25 per unit. Each quarter, 2,180 subassemblies are purchased. All units produc are sold, and there are no ending inventories of subassemblies. Morrill is considering making the subassembly rather than buying it. Unit-level variable manufacturing costs are as follows: Direct materials $2 Direct labor

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Garcia Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. DensityGauge ThicknessGauge Total Sales $ 150,000 $ 80,000 $ 230,000 Less variable expenses 80,000 46,000 126,000 Contribution margin $ 70,000 $ 34,000 $ 104,000 Less direct fixed expenses* 20,000 38,000 58,000 Segment margin $ 50,000 $ (4,000) $ 46,000 Less common fixed expenses 30,000 Operating income $ 16,000 * Includes depreciation. The density gauge uses a subassembly that is purchased from an external supplier for $25 per unit. Each quarter, 2,000 subassemblies are purchased. All units produced are sold, and there are no ending inventories of subassemblies. Garcia is considering making the subassembly rather than buying it. Unit-level variable manufacturing costs are as follows: Direct materials $2 Direct labor 3…
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