The Ace Bicycle Company produces bicycles. This year's expected production is 10,000 units. Currently Ace makes the chains for its bicycles. Ace's accountant reports the following costs for making the 10,000 bicycle chains. Description Direct materials Direct labor Variable manufacturing overhead Inspection, setup, material handling Machine rent Allocated fixed costs of taxes and insurance Total Costs per units $4.00 $2.00 $1.50 Costs for 10,000 units $ 40,000 $ 20,000 $15,000 $ 2,000 $3,000 $ 30,000 $110,000 Ace has received an offer from an outside vendor to supply any number of chains Ace requires at $9 per chain. The following additional information is available: • Inspection, setup, and materials handling costs vary with the number of batches in which the chains are produced. Ace produces chains in batch sizes of 1,000 units. Ace estimates that it will produce the 10,000 units in ten batches. • Ace rents the machine used to make the chains. If Ace buys all its chains from the outside vendor, it does not need to pay rent on this machine. Assume that if Ace purchases the chains from the outside supplier, the facility where the chains are currently made will remain idle. What is per unit cost if ACE accept the offer at the anticipated production (and sales) volume of 10,000 units? a) 11 b) 10 c) none of these d) 12
The Ace Bicycle Company produces bicycles. This year's expected production is 10,000 units. Currently Ace makes the chains for its bicycles. Ace's accountant reports the following costs for making the 10,000 bicycle chains. Description Direct materials Direct labor Variable manufacturing overhead Inspection, setup, material handling Machine rent Allocated fixed costs of taxes and insurance Total Costs per units $4.00 $2.00 $1.50 Costs for 10,000 units $ 40,000 $ 20,000 $15,000 $ 2,000 $3,000 $ 30,000 $110,000 Ace has received an offer from an outside vendor to supply any number of chains Ace requires at $9 per chain. The following additional information is available: • Inspection, setup, and materials handling costs vary with the number of batches in which the chains are produced. Ace produces chains in batch sizes of 1,000 units. Ace estimates that it will produce the 10,000 units in ten batches. • Ace rents the machine used to make the chains. If Ace buys all its chains from the outside vendor, it does not need to pay rent on this machine. Assume that if Ace purchases the chains from the outside supplier, the facility where the chains are currently made will remain idle. What is per unit cost if ACE accept the offer at the anticipated production (and sales) volume of 10,000 units? a) 11 b) 10 c) none of these d) 12
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Ace Bicycle Company produces bicycles. This year's expected production is 10,000 units. Currently Ace makes the chains for its
bicycles. Ace's accountant reports the following costs for making the 10,000 bicycle chains.
Description
Direct materials
Direct labor
Variable manufacturing overhead.
Inspection, setup, material handling
Machine rent
Allocated fixed costs of taxes and insurance
Total
Costs per units
$4.00
$2.00
$1.50
Costs for 10,000 units
$ 40,000
$ 20,000
$15,000
$ 2,000
$3,000
$ 30,000
$110,000
Ace has received an offer from an outside vendor to supply any number of chains Ace requires at $9 per chain. The following additional
information is available:
• Inspection, setup, and materials handling costs vary with the number of batches in which the chains are produced. Ace produces
chains in batch sizes of 1,000 units. Ace estimates that it will produce the 10,000 units in ten batches.
• Ace rents the machine used to make the chains. If Ace buys all its chains from the outside vendor, it does not need to pay rent on
this machine.
Assume that if Ace purchases the chains from the outside supplier, the facility where the chains are currently made will remain idle.
What is per unit cost if ACE accept the offer at the anticipated production (and sales) volume of 10,000 units?
a) 11
b) 10
c) none of these
d) 12
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