Han Products manufactures 40,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unifor part S-6 is:Direct materialsDirect laborVariable manufacturing overhead$ 3.3012.002.70Fixed manufacturing overheadTotal cost per part6.00$ 24.00An outside supplier has offered to sell 40,000 units of part S-6 each year to Han Products for $22 per part. If Han Products acceptsthis offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $90,000.However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continueeven if part S-6 were purchased from the outside supplier.Required:What is the financial advantage (disadvantage) of accepting the outside supplier's offer?Answer is complete but not entirely correct.Financial advantage$8,000 ×

The differential analysis is performed to compare the different alternatives available with the…

Answered: Products manufactures 40,000 units of…

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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Crane Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 56% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $4 and $5, respectively. Normal production is 31,100 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.30 per unit. If Crane Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $47,500 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Inco Make Buy Increase (De Direct 2$ 124400 i $ $ materials Direct labor 155500 i Variable overhead 87080…
Tom's Toolery is operating at 70% of its productive capacity. It is currently paying $23 per unit for a part used in its manufacturing operation. Tom's estimates it could make the part internally for a total cost of $26 per unit, consisting of $19 of unit-level production costs and $7 of facility-level costs that are currently attributed to other products. Tom's usually purchases 51,000 units of the part each year. These units could be manufactured using Tom's excess capacity. What is the effect on cost if the company decides to start making the part? Multiple Choice $204,000 cost decrease $102,000 cost increase $204,000 cost increase $1,020,000 cost increase
Supler Corporation produces a part used in the manufacture of one of its products. The unit product cost is $21, computed as follows: Direct materials $ 8 Direct labor 7 Variable manufacturing overhead 1 Fixed manufacturing overhead 5 Unit product cost $ 21 An outside supplier has offered to provide the annual requirement of 5,500 of the parts for only $13 each. The company estimates that 60% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the costs saved by purchasing the units of purchasing the parts from the outside supplier would be: Multiple Choice $1 per unit on average ($8) per unit on average $6 per unit on average ($1) per unit on average
Steve company produces 30000 units of parts each year for use on its production line. The cost per units of the part S6: Direct material $3.60 Direct labor $10.00 Variable manufacturing overhead $2.40 Fixed manufacturing overhead $9.00 Total cost per part$25.00 An outside supplier has offered to sell 30000 units of the part each year at a product company at $21.00 per part. If the products company accepts this offer, the facilities now being used to manufacturer the parts could be rented by another company at the annual rent of $80,000.00. However, the products have determined that two-thirds of the fixed manufacturing overhead being applied to the part would continue even if the part S6 was purchased by an outside supplier. What is the advantage or disadvantage of accepting the outside supplier's offer? and how much ?
Every year Blue Industries manufactures 7,300 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total (a) $3.00 Total relevant cost to make $ 11.00 Net relevant cost to buy $ 8.00 Cullumber, Inc., has offered to sell 7,300 units f part 231 to Blue for $33 per unit. If Blue accepts Cullumber's offer, its freed-up facilities could be used to earn $10,700 in contribution margin by manufacturing part 240. In addition, Blue would eliminate 50% of the fixed overhead applied to part 231. 10.00 $32.00 Calculate total relevant cost to make and net cost to buy.
Sheridan Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 66% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $4 and $5, respectively. Normal production is 34,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.05 per unit. If Sheridan Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,700 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Direct materials. Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total…
GEM Limited has a single product Flicks. The company normally produces and sells 80,000units of Flicks each year at a price of $240 per unit. The company’s unit costs at this level ofactivity are as follow:Direct material $57.00Direct labor 60.00Variable manufacturing overhead 16.80Fixed manufacturing overhead 30.00Variable selling and administrative costs 10.20Fixed selling and administrative costs 27.00 Total unit cost $201.00GEM has sufficient capacity to produce 100 000 units of Flicks a year without any increase infixed manufacturing overhead.Required:(a) GEM has an opportunity to sell 10 000 units to an overseas customer. Import duties andother special costs associated with this order would total $42 000. The only selling coststhat would be associated with the order would be a shipping cost of $9.00 per unit.What would be the minimum acceptable unit price for GEM to consider this order?(hint: GEM would not accept the order if it would reduce the…
Ivanhoe Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 61% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $4 and $5, respectively. Normal production is 32,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $12.90 per unit. If Ivanhoe accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $46,500 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses e.g. (45)) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost (c) (b)…
Royal Company manufactures 10,000 units of Part R-3 each year. At this level of activity, the cost per unit for Part-R-3 follows: Direct materials Direct labour $14.40 21.00 Variable manufacturing overhead Fixed manufacturing overhead 9.60 25.00 $70.00 Total cost per part An outside supplier has offered to sell 10,000 units of Part R-3 each year to Royal Company for $54 per part. If Royal Company accepts this offer, the facilities now being used to manufacture Part R-3 could be rented to another company at an annual rental of $150,000. However, Royal Company has determined that $15 of the fixed manufacturing overhead being applied to Part R-3 would continue even if the part was purchased from the outside supplier. Required: Compute the net dollar advantage or disadvantage of accepting the outside supplier's offer.

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