Structuring a Make-or-Buy Problem Fresh Foods, a large restaurant chain, needs to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost information on internal production includes the following: Total Cost Unit Cost Direct materials $25,000 $5.00 Direct labor 15,000 3.00 Variable manufacturing overhead 7,500 1.50 Variable marketing overhead 11,000 2.20 30,000 $88,500 6.00 Fixed plant overhead Total $17.70 Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. If required, round your answers to the nearest whole number. Required: 1. What are the alternatives for Fresh Foods? 2. List the relevant cost(s) of internal production and of external purchase. 3. Which alternatie is more cost effective and by how much? (Use total cost when giving your answer.) 4. Now assume that 20% of the fixed overhead can be avoided if the ingredient is purchased externally. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)

Structuring a Make-or-Buy Problem Fresh Foods, a large restaurant chain, needs to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost information on internal production includes the following: Total Cost Unit Cost Direct materials $25,000 $5.00 Direct labor 15,000 3.00 Variable manufacturing overhead 7,500 1.50 Variable marketing overhead 11,000 2.20 30,000 $88,500 6.00 Fixed plant overhead Total $17.70 Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. If required, round your answers to the nearest whole number. Required: 1. What are the alternatives for Fresh Foods? 2. List the relevant cost(s) of internal production and of external purchase. 3. Which alternatie is more cost effective and by how much? (Use total cost when giving your answer.) 4. Now assume that 20% of the fixed overhead can be avoided if the ingredient is purchased externally. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

What are the problems caused by lack of integration? Expalin.
please solve those problems
Your solution is wrong see the answers at bottom of the question
How do I solve this
What is the CAPM? What does it tell you?
hrl.3 answer must be in proper format or i will give down vote
Hh1.
Define writing an option
Still need answers and details for B and C?
It says they answers are wrong from your example.