Structuring a Make-or-Buy ProblemFresh 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 topurchase them from an outside supplier for $12 each. Cost information on internal production includes the following:Total CostUnit CostDirect materials$25,000$5.00Direct labor15,0003.00Variable manufacturing overhead7,5001.50Variable marketing overhead11,0002.20Fixed plant overhead30,0006.00Total$88,500$17.70Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. Ifrequired, round your answers to the nearest whole number.Required:1. What are the alternatives for Fresh Foods?Make the ingredient in house or buy it externally.2. List the relevant cost(s) of internal production and of external purchase.All of the above v3. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)Make4. 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? (Usetotal cost when giying your answer.) Fixed plant overhead30,0006.00Total$88,500$17.70Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. Ifrequired, round your answers to the nearest whole number.Required:1. What are the alternatives for Fresh Foods?Make the ingredient in house or buy it externally.2. List the relevant cost(s) of internal production and of external purchase.All of the above v3. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)Make v4. 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? (Usetotal cost when giving your answer.)BuyFeedbackV Check My Work1. and 2. The ingredient can be produced internally or purchased externally.3. Relevant costs are future costs and differ across alternatives. Determine relevant costs for both alternatives. Set up four columns. First column lists all costs.Second and third columns are for alternatives, make or buy and list all amounts. Fourth column is the differential cost to make.

Variable cost means the cost which varies with the level of output whereas fixed cost means the cost…

Structuring à Máké-ór-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 Fixed plant overhead 30,000 6.00 Total $88,500 $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? Make the ingredient in house or buy it externally. 2. List the relevant cost(s) of internal production and of external purchase. All of the above 3. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.) Make v

Structuring à Máké-ór-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 Fixed plant overhead 30,000 6.00 Total $88,500 $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? Make the ingredient in house or buy it externally. 2. List the relevant cost(s) of internal production and of external purchase. All of the above 3. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.) Make v

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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roduct Cost Method of Product Costing MyPhone, Inc., uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 5,160 units of cell phones are as follows: Variable costs: Fixed costs: Direct materials $90 per unit Factory overhead $199,200 Direct labor 31 Selling and admin. exp. 70,300 Factory overhead 23 Selling and admin. exp. 22 Total variable cost per unit $166 per unit MyPhone desires a profit equal to a 13% rate of return on invested assets of $600,800. a. Determine the amount of desired profit from the production and sale of 5,160 units of cell phones.$fill in the blank 1 b. Determine the product cost per unit for the production of 5,160 of cell phones. If required, round your answer to nearest dollar.$fill in the blank 2 per unit c. Determine the product cost markup percentage (rounded to two decimal places) for cell phones.fill in the blank 3 % d.…
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Activity-Based Supplier Costing Bowman Company manufactures cooling systems. Bowman produces all the parts necessary for its product except for one electronic component, which is purchased from two local suppliers: Manzer Inc. and Buckner Company. Both suppliers are reliable and seldom deliver late; however, Manzer sells the component for $89 per unit, while Buckner sells the same component for $86. Bowman purchases 80% of its components from Buckner because of its lower price. The total annual demand is 4,000,000 components. To help assess the cost effect of the two components, the following data were collected for supplier-related activities and suppliers: I. Activity Data Inspecting components (sampling only) Reworking products (due to failed component) Warranty work (due to failed component) II. Supplier Data Unit purchase price Units purchased Sampling hours Rework hours Warranty hours Activity Cost $815,000 6,770,000 10,170,000 Buckner Manzer Inc. Company $89 $86 800,000…
Outsourcing (Make-or-Buy) Decision Mountain Air Limited manufactures a line of room air purifiers. Management is currently evaluating the possible production of an air purifier for automobiles. Based on an annual volume of 10,000 units, the predicted cost per unit of an auto air purifier follows. Direct materials $9.00 Direct labor 1.40 Factory overhead 10.00 Total $ 20.40 These cost predictions include $80,000 in fixed factory overhead averaged over 10,000 units. The completed air purifier units include a battery-operated electric motor, which Mountain Air assembles with parts purchased from an outside vendar for $2.00 per motor. Mini Motor Company has offered to supply an assembled battery operated motor at a cost of $5.50 per unit, with a minimum annual order of 5,000 units. If Mountain Air accepts this offer, it will be able to reduce the variable labor and variable overhead casts of the auto air purifier by 50 percent. (a) Determine whether Mountain Air should continue to make the…
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Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 22,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.26. The unit cost is: Direct materials $0.77 Direct labor 0.29 Variable overhead 0.09 Fixed overhead 2.10 Total unit cost $3.25 Required: 1. What are the alternatives for Basu Company? 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. List the relevant cost(s) of external purchase. 3. Which alternative is more cost effective and by how much? ____ by 4. What if $19,240 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much? ____ by
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