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Q. 8  Which following costs need to be considered for both make or buy options? O. Fixed overhead O. Variable overhead O. Rental revenue

Q. 8  Which following costs need to be considered for both make or buy options? O. Fixed overhead O. Variable overhead O. Rental revenue

FINANCIAL ACCOUNTING
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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Q. 8  Which following costs need to be considered for both make or buy options?

O. Fixed overhead

O. Variable overhead

O. Rental revenue

 

Q. 9 What is the per unit cost to purchase from the vendor? Round to the nearest penny.

Q. 10 Based on your analysis, the CreativeStationary Co. should make the product in-house or buy them from the vender?

O. Make

O. Buy Do

 

(Q8,9,10 plz)

CreativeStationary Co., a stationary company, currently produces 15,000 units of fountain pen per year. It is anticipated that their fountain pen production will last for the next three years. • CreativeStationary Co. can continue to make the fountain pen on their own. The annual costs are shown in the table below. Item Expense Direct materials $20,000 Direct labor $100,000 Variables overhead (power) $150,000 Fixed overhead (light and heat) $90,00 If Creative Stationary Co. plans to produce the product in-house, annual direct material costs and the fixed overhead will remain at its current level over the next three years. However, the direct labor will increase by $5,000 per year, and variable overhead costs will increase at the rate of 2%. • Instead of making the pen by themselves, a vendor has offered to sell CreativeStationary Co. units of fountain pens for $25 per unit. If CreativeStationary Co. choose to purchase from vendor, some of the manufacturing facilities currently used to manufacture the fountain pen could be rented to a third party for $25,500 per year. The MARR is 4%.
Transcribed Image Text:CreativeStationary Co., a stationary company, currently produces 15,000 units of fountain pen per year. It is anticipated that their fountain pen production will last for the next three years. • CreativeStationary Co. can continue to make the fountain pen on their own. The annual costs are shown in the table below. Item Expense Direct materials $20,000 Direct labor $100,000 Variables overhead (power) $150,000 Fixed overhead (light and heat) $90,00 If Creative Stationary Co. plans to produce the product in-house, annual direct material costs and the fixed overhead will remain at its current level over the next three years. However, the direct labor will increase by $5,000 per year, and variable overhead costs will increase at the rate of 2%. • Instead of making the pen by themselves, a vendor has offered to sell CreativeStationary Co. units of fountain pens for $25 per unit. If CreativeStationary Co. choose to purchase from vendor, some of the manufacturing facilities currently used to manufacture the fountain pen could be rented to a third party for $25,500 per year. The MARR is 4%.
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