**Decision-Making in Outsourcing Production: A Case Study**Notson, Inc. produces several models of clocks. An outside supplier has offered to produce the commercial clocks for Notson for $420 each. Notson needs 1,200 clocks annually. The following unit costs have been provided for its commercial clocks:| **Cost Component** | **Cost per Unit** ||---------------------------|-------------------|| Direct materials | $100 || Direct labor | $140 || Variable overhead | $80 || Fixed overhead (40% avoidable) | $150 |**Scenario Analysis**- **Incremental Effect on Net Income**: Notson needs to evaluate the impact on net income if they choose to outsource the production of the 1,200 clocks annually. - **Make-or-Buy Decision Inquiry**: Should Notson continue to manufacture the clocks internally or purchase them from the external supplier?This exercise aims to provide insight into the financial implications of outsourcing and aid in strategic decision-making.

Make or buy is the managerial accounting decisions as per which the entity determines the cost of making and cost of buying and then decide if it should make the units in-house or should buy from any outside supplier.Formulas: The net incremental cost is $40,000. The company should make the clocks as the cost of buying is more than cost of making.

Business

Accounting

Notson, Inc. produces several models of clocks. An outside supplier has offered to produce the commercial clocks for Notson for $420 each. Notson needs 1,200 clocks annually. Notson has provided the following unit costs for its commercial clocks: Direct materials Direct labor Variable overhead Fixed overhead (40% avoidable) $100 140 80 150 What is the incremental effect on net income if Notson choses to outsource the production of the 1,000 clocks annually? Should Notson make or buy the clocks?

Notson, Inc. produces several models of clocks. An outside supplier has offered to produce the commercial clocks for Notson for $420 each. Notson needs 1,200 clocks annually. Notson has provided the following unit costs for its commercial clocks: Direct materials Direct labor Variable overhead Fixed overhead (40% avoidable) $100 140 80 150 What is the incremental effect on net income if Notson choses to outsource the production of the 1,000 clocks annually? Should Notson make or buy the clocks?

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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