Sherman Manufacturing Company currently manufactures a component used in one of its products. The annual production costs for 11,300 components are as follows: Material cost Labor cost Overhead Batch-level set-up costs for year $7 per unit $3 per unit $1 per unit $ 5,700 Product-level manager's salary Allocated facility-level costs $ 17,700 $11,700 An outside company has offered to supply 11,300 units of the component for $14.40 each. If the company outsources the component, it will be able to rent out the idle factory space for $2,000 per month but will not terminate the product manager.
Sherman Manufacturing Company currently manufactures a component used in one of its products. The annual production costs for 11,300 components are as follows: Material cost Labor cost Overhead Batch-level set-up costs for year $7 per unit $3 per unit $1 per unit $ 5,700 Product-level manager's salary Allocated facility-level costs $ 17,700 $11,700 An outside company has offered to supply 11,300 units of the component for $14.40 each. If the company outsources the component, it will be able to rent out the idle factory space for $2,000 per month but will not terminate the product manager.
Cornerstones of Cost Management (Cornerstones Series)
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Chapter13: The Balanced Scorecard: Strategic-based Control
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Problem 8E: Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its...
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![Sherman Manufacturing Company currently manufactures a component used in one of its products. The annual production costs for
11,300 components are as follows:
Material cost
Labor cost
Overhead
Batch-level set-up costs for year
Product-level manager's salary
Allocated facility-level costs
$ 7 per unit
$ 3 per unit
$ 1 per unit
$ 5,700
$ 17,700
$ 11,700
An outside company has offered to supply 11,300 units of the component for $14.40 each. If the company outsources the component, it
will be able to rent out the idle factory space for $2,000 per month but will not terminate the product manager.
Required:
a. Which items are not relevant to this outsourcing decision?
b. Identify any opportunity costs associated with this decision.
c. Prepare a quantitative analysis that indicates whether the component should be outsourced.
Complete this question by entering your answers in the tabs below.
Required A
Required B Required C
Prepare a quantitative analysis that indicates whether the component should be outsourced.
Relevant cost to produce
Relevant cost to buy
Should Sherman outsource the component?
< Required B
Required C>](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd41d9164-bcbb-4797-a16d-c4d8dd3aeac7%2Feca6809b-830f-4055-a506-5e0e6bc2e7ea%2Fjkrfb7u_processed.png&w=3840&q=75)
Transcribed Image Text:Sherman Manufacturing Company currently manufactures a component used in one of its products. The annual production costs for
11,300 components are as follows:
Material cost
Labor cost
Overhead
Batch-level set-up costs for year
Product-level manager's salary
Allocated facility-level costs
$ 7 per unit
$ 3 per unit
$ 1 per unit
$ 5,700
$ 17,700
$ 11,700
An outside company has offered to supply 11,300 units of the component for $14.40 each. If the company outsources the component, it
will be able to rent out the idle factory space for $2,000 per month but will not terminate the product manager.
Required:
a. Which items are not relevant to this outsourcing decision?
b. Identify any opportunity costs associated with this decision.
c. Prepare a quantitative analysis that indicates whether the component should be outsourced.
Complete this question by entering your answers in the tabs below.
Required A
Required B Required C
Prepare a quantitative analysis that indicates whether the component should be outsourced.
Relevant cost to produce
Relevant cost to buy
Should Sherman outsource the component?
< Required B
Required C>
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VIEWStep 2: (a) Determine the items are not relevant to this outsourcing decision:
VIEWStep 3: (b) Determine the opportunity costs associated with this decision:
VIEWStep 4: (c) Prepare a quantitative analysis that indicates whether the component should be outsourced:
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