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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Assume a company makes only three products, A, B, and C: Product A Product B Product C 700 Estimated customer demand in units Selling price per unit Variable cost per unit Machine-hours per unit 600 $ 65 $ 26 800 $ 80 $ 35 2.5 $ 45 $ 20 1.25 3.0 The company has only 3,250 machine-hours available. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource? Multiple Choice $63,000 $65.000 $58.000
Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $55 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 42% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $27 Direct labor 16 Factory overhead (42% of direct labor) 6.72 Total cost per unit $49.72 If Somerset Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 12% of the direct labor costs. a. Prepare a differential analysis dated April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Differential Analysis Make…
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Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $24 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $8.00 Direct labor 12.00 Factory overhead (40% of direct labor) 4.80 Total cost per unit $24.80 If Somerset Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 25% of the direct labor costs.
Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 39% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $29 Direct labor 18 Factory overhead (39% of direct labor) 7.02 Total cost per unit $54.02 If Somerset Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 12% of the direct labor costs. a. Prepare a differential analysis dated April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Differential Analysis Make Carrying Case (Alt. 1) or Buy…
Practice problem Lumber and Cabinetry. The Lumber Division is responsible for harvesting and preparing lumber for use; the Cabinetry Division produces custom-ordered cabinetry. The lumber produced by the Lumber Division has a variable cost of $3.00 per linear foot and full cost of $4.00. Comparable quality wood sells on the open market for $9.00 per linear foot.1. Assume you are the manager of the Cabinetry Division. Determine the maximum amount you would pay for lumber.2. Assume you are the manager of the Lumber Division. Determine the minimum amount you would charge for the lumber if you have excess capacity. Repeat assuming you have no excess capacity.
Division A makes a part with the following characteristics: Production capacity in units 15,000 units Selling price to outside customers $30 Variable cost per unit $20 Total fixed costs $60,000 Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers. What would be the minimum acceptable price that Division A would accept to transfer 5,000 units of the part to Division B? $30 $20 $10 None of the above 2. Jack Sparrow, Inc. produces and sells 20,000 units of Product X each month. The selling price of Product X is $30 per unit, and variable expenses are $21 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $50,000 of the $250,000 in fixed expenses charged…
Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market: Selling price per unit (on the outside market). Variable cost per unit $ 60 $ 44 Fixed costs per unit (based on capacity) Capacity in units $ 4 20,000 Division B could use Division A's product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes. If the company's divisional managers are evaluated based their division's profits and Division A is currently selling 18,000 units on the outside market, what is Division A's lowest acceptable transfer price if it were to sell 4,000 units to Division B?
Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $62 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 43% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $30 Direct labor 22 Factory overhead (43% of direct labor) 9.46 Total cost per unit $61.46 If Fremont Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 12% of the direct labor costs. a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Use a minus sign to indicate a loss.…
Variable expenses per unit: Direct Material $20Direct Labour $50Variable Manufacturing Overhead $10Fixed expenses: Fixed Manufacturing Overhead $125,000Fixed Selling Costs $75,000Fixed Administrative Costs $100,000 selling price per unit 200 operating income 420000 the business is considering paying a commission to its sales team as part of the sales expansion effort, which should result in an increase in sales revenue. The head of the marketing department has indicated that theeffort of the sales team should result in a 15% increase in sales volume. Calculate the new break-even sales figure, 2) the newmargin of safety and 3) the new operating profit, to determine whether the new sales commission plan isindeed viable.
Make-or-Buy Decision Matchless Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $58 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 38% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows: $27 Direct materials Direct labor Factory overhead (38% of direct labor) Total cost per unit If Matchless Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 14% of the direct labor costs. a. Prepare a differential analysis dated February 24 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or…
Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 45% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $27 Direct labor 16 Factory overhead (45% of direct labor) 7.2 Total cost per unit $50.2 If Somerset Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 14% of the direct labor costs. a. Prepare a differential analysis dated April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Differential Analysis Make Carrying Case (Alt. 1) or Buy…