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Talladega Company manufactures an electric clock radio. The company expects production of 5,000 units this year. Currently, Talladega produces the clock used in the product. Talladega has received an offer from Daytona, Incoporated to supply the clock. If Talladega discontinues production of the clock, the company will be able to eliminate its product-level costs because no other products along the same line are produced by the company. However, due to its concern for quality, the company will have to inspect each clock. Various costs and items are described below: Required: Select the appropriate classification of the cost item from the drop-down that best describes the item in the context of the described outsourcing decision. A cost varies if the amount of the cost or the incurrence of the cost differs between the two alternatives: continuing to make the clocks or purchasing the clocks from Daytona. Purchase cost of clocks from Daytona Item Income that can be earned from renting the idled facilities if Talladega no longer makes the clocks Direct materials costs Direct labor costs Variable overhead costs Cost of equipment used to make clocks Assembly setup costs Materials handling costs Inspection costs if clock is purchased Relevant or Not Relevant Varies between alternatives Opportunity Cost Varies between alternatives Varies between alternatives Varies between alternatives Sunk Cost Varies between alternatives Varies between alternatives Varies between alternatives Clock Department manager's salary Depreciation on machinery used to produce clocks Allocated corporate costs Other facility-level costs Impact on employee morale if production is discontinued Does not vary between alternatives Sunk Cost Does not vary between alternatives Does not vary between alternatives Opportunity Cost

Talladega Company manufactures an electric clock radio. The company expects production of 5,000 units this year. Currently, Talladega produces the clock used in the product. Talladega has received an offer from Daytona, Incoporated to supply the clock. If Talladega discontinues production of the clock, the company will be able to eliminate its product-level costs because no other products along the same line are produced by the company. However, due to its concern for quality, the company will have to inspect each clock. Various costs and items are described below: Required: Select the appropriate classification of the cost item from the drop-down that best describes the item in the context of the described outsourcing decision. A cost varies if the amount of the cost or the incurrence of the cost differs between the two alternatives: continuing to make the clocks or purchasing the clocks from Daytona. Purchase cost of clocks from Daytona Item Income that can be earned from renting the idled facilities if Talladega no longer makes the clocks Direct materials costs Direct labor costs Variable overhead costs Cost of equipment used to make clocks Assembly setup costs Materials handling costs Inspection costs if clock is purchased Relevant or Not Relevant Varies between alternatives Opportunity Cost Varies between alternatives Varies between alternatives Varies between alternatives Sunk Cost Varies between alternatives Varies between alternatives Varies between alternatives Clock Department manager's salary Depreciation on machinery used to produce clocks Allocated corporate costs Other facility-level costs Impact on employee morale if production is discontinued Does not vary between alternatives Sunk Cost Does not vary between alternatives Does not vary between alternatives Opportunity Cost

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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Talladega Company manufactures an electric clock radio. The company expects production of 5,000 units this year. Currently, Talladega produces the clock used in the product. Talladega has received an offer from Daytona, Incoporated to supply the clock. If Talladega discontinues production of the clock, the company will be able to eliminate its product-level costs because no other products along the same line are produced by the company. However, due to its concern for quality, the company will have to inspect each clock. Various costs and items are described below: Required: Select the appropriate classification of the cost item from the drop-down that best describes the item in the context of the described outsourcing decision. A cost varies if the amount of the cost or the incurrence of the cost differs between the two alternatives: continuing to make the clocks or purchasing the clocks from Daytona. Purchase cost of clocks from Daytona Item Income that can be earned from renting the idled facilities if Talladega no longer makes the clocks Direct materials costs Direct labor costs Variable overhead costs Cost of equipment used to make clocks Assembly setup costs Materials handling costs Inspection costs if clock is purchased Relevant or Not Relevant Varies between alternatives Opportunity Cost Varies between alternatives Varies between alternatives Varies between alternatives Sunk Cost Varies between alternatives Varies between alternatives Varies between alternatives Clock Department manager's salary Depreciation on machinery used to produce clocks Allocated corporate costs Other facility-level costs Impact on employee morale if production is discontinued Does not vary between alternatives Sunk Cost Does not vary between alternatives Does not vary between alternatives Opportunity Cost
Transcribed Image Text:Talladega Company manufactures an electric clock radio. The company expects production of 5,000 units this year. Currently, Talladega produces the clock used in the product. Talladega has received an offer from Daytona, Incoporated to supply the clock. If Talladega discontinues production of the clock, the company will be able to eliminate its product-level costs because no other products along the same line are produced by the company. However, due to its concern for quality, the company will have to inspect each clock. Various costs and items are described below: Required: Select the appropriate classification of the cost item from the drop-down that best describes the item in the context of the described outsourcing decision. A cost varies if the amount of the cost or the incurrence of the cost differs between the two alternatives: continuing to make the clocks or purchasing the clocks from Daytona. Purchase cost of clocks from Daytona Item Income that can be earned from renting the idled facilities if Talladega no longer makes the clocks Direct materials costs Direct labor costs Variable overhead costs Cost of equipment used to make clocks Assembly setup costs Materials handling costs Inspection costs if clock is purchased Relevant or Not Relevant Varies between alternatives Opportunity Cost Varies between alternatives Varies between alternatives Varies between alternatives Sunk Cost Varies between alternatives Varies between alternatives Varies between alternatives Clock Department manager's salary Depreciation on machinery used to produce clocks Allocated corporate costs Other facility-level costs Impact on employee morale if production is discontinued Does not vary between alternatives Sunk Cost Does not vary between alternatives Does not vary between alternatives Opportunity Cost
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