Unit Cost of Goods Sold Direct labor 53 Materials 122 Overhead 49 Total 224

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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A line of furniture is made by the Drazal Company in South Carolina and is being considered for outsourcing to China. The unit manufacturing costs in the U.S. are:
Unit Cost of Goods Sold
Direct labor 53
Materials 122
Overhead 49
Total 224
When produced in China, direct labor will be 60 percent of the U.S. cost and overhead will also be 60 percent of the U.S. cost, since it consists mostly of salaries. Materials
costs will be 10 percent lower in China. Transporting the furniture from China will cost $27,000 for seven containers
to transport the annual supply of 500 units from the factory in China to the Drazal warehouse in the U.S. by rail, truck, and sea. To ensure quality, it will cost $12,000 per year to mmonitor the supplier and inspect the units in China before they are sent. The cost of administering the contract is $5,000 per year.
a. What are the total costs of supplying this product from China?
b. What risks are associated with the Chinese supplier?
c. Should the product be outsourced to China?
d. Why is it so expensive to make this product in China
when the labor is so cheap?

Unit Cost of Goods Sold
Direct labor
53
Materials
122
Overhead
49
Total
224
Transcribed Image Text:Unit Cost of Goods Sold Direct labor 53 Materials 122 Overhead 49 Total 224
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