Outsourcing Dough, Re, Mi Inc. sells many different types of cookie dough. The company is deciding whether to continue making its own dough or to outsource. If the company outsources, they will eliminate all of the variable overhead and 25% of the fixed manufacturing overhead, but will incur shipping costs. Use the information below to determine whether Dough, Re, Mi Inc. should outsource or not. Data Units Per unit Relevant? Sales price per unit 5,300 $ 106.00 No Direct materials per unit 23.00 ? Direct labor per unit 18.00 ? Variable manufacturing overhead per unit 14.00 Yes Fixed manufacturing overhead (MOH) : per month 27.00 Avoidable fixed MOH per month ? No Unavoidable fixed MOH per month ? No Sales commissions per unit 3.00 No Advertising costs per month 1.80 No Purchase price of outsourced product per unit 59.00 Yes Shipping costs of outsourced product per unit 1.00 Yes Costs per unit Incremental analysis Manufactures Outsource Variable costs Enter "=0" in the cell for any cost not relevant to the decision. Direct materials ? ? Direct labor ? ? Variable manufacturing overhead ? ? Purchase price ? ? Shipping costs ? ? Sales commissions ? ? Total variable costs ? ? Fixed costs Fixed manufacturing overhead ? ? Advertising ? ? Total fixed costs ? ? Incremental cost ? ? Should Dough, Re, Mi Inc. manufacture or outsource its dough? ? If Dough, Re, Mi manufactures its own dough, what would its Operating Income be? ? If Dough, Re, Mi outsources its dough, what would its Operating Income be?

Outsourcing Dough, Re, Mi Inc. sells many different types of cookie dough. The company is deciding whether to continue making its own dough or to outsource. If the company outsources, they will eliminate all of the variable overhead and 25% of the fixed manufacturing overhead, but will incur shipping costs. Use the information below to determine whether Dough, Re, Mi Inc. should outsource or not. Data Units Per unit Relevant? Sales price per unit 5,300 $ 106.00 No Direct materials per unit 23.00 ? Direct labor per unit 18.00 ? Variable manufacturing overhead per unit 14.00 Yes Fixed manufacturing overhead (MOH) : per month 27.00 Avoidable fixed MOH per month ? No Unavoidable fixed MOH per month ? No Sales commissions per unit 3.00 No Advertising costs per month 1.80 No Purchase price of outsourced product per unit 59.00 Yes Shipping costs of outsourced product per unit 1.00 Yes Costs per unit Incremental analysis Manufactures Outsource Variable costs Enter "=0" in the cell for any cost not relevant to the decision. Direct materials ? ? Direct labor ? ? Variable manufacturing overhead ? ? Purchase price ? ? Shipping costs ? ? Sales commissions ? ? Total variable costs ? ? Fixed costs Fixed manufacturing overhead ? ? Advertising ? ? Total fixed costs ? ? Incremental cost ? ? Should Dough, Re, Mi Inc. manufacture or outsource its dough? ? If Dough, Re, Mi manufactures its own dough, what would its Operating Income be? ? If Dough, Re, Mi outsources its dough, what would its Operating Income be?

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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Related questions

Question

100%

Outsourcing

Dough, Re, Mi Inc. sells many different types of cookie dough. The company is deciding whether to continue making its own dough or to outsource. If the company outsources, they will eliminate all of the variable overhead and 25% of the fixed manufacturing overhead, but will incur shipping costs. Use the information below to determine whether Dough, Re, Mi Inc. should outsource or not.

Data

Units

Per unit

Relevant?

Sales price

per unit

5,300

$ 106.00

Direct materials

per unit

23.00

Direct labor

per unit

18.00

Variable manufacturing overhead

per unit

14.00

Yes

Fixed manufacturing overhead (MOH) :

per month

27.00

Avoidable fixed MOH

per month

Unavoidable fixed MOH

per month

Sales commissions

per unit

3.00

Advertising costs

per month

1.80

Purchase price of outsourced product

per unit

59.00

Yes

Shipping costs of outsourced product

per unit

1.00

Yes

Costs per unit

Incremental analysis

Manufactures

Outsource

Variable costs

Enter "=0" in the cell for any cost not relevant to the decision.

Direct materials

Direct labor

Variable manufacturing overhead

Purchase price

Shipping costs

Sales commissions

Total variable costs

Fixed costs

Fixed manufacturing overhead

Advertising

Total fixed costs

Incremental cost

Should Dough, Re, Mi Inc. manufacture or outsource its dough?

If Dough, Re, Mi manufactures its own dough, what would its Operating Income be?

If Dough, Re, Mi outsources its dough, what would its Operating Income be?

Special Order

Pete's Pizza makes the best pizzas in town. Based on Pete's current volume, the price and cost breakdown is outlined below. The local high school has asked Pete to be their sole pizza provider for a large event and has offered to order 400 pizzas at a special price.

Per unit

Relevant?

Normal sales price

$ 12.00

Special price

9.40

Direct materials

3.00

Direct labor

2.00

Variable overhead

0.50

Fixed overhead

4.00

Should Pete accept the order in either of the following scenarios?

A. Pete has capacity to produce these pizzas with no additional investments.

B. Pete would need to rent a piece of equipment to accommodate the order. The rent would cost Pete:

$ 1,590

Scenario

Enter "=0" in the cell for any cost not relevant to the decision.

Number of pizzas ordered

Sales revenue

Variable costs

Direct materials

Direct labor

Variable overhead

Fixed overhead

Total costs

Expected change in operating income

Should Pete accept the order?

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