Vernon Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost ofproducing 9,100 containers follows.Unit-level materialsUnit-level laborUnit-level overheadProduct-level costs*Allocated facility-level costs$5,7006,5003,2008,40027,100*One-third of these costs can be avoided by purchasing the containers.Russo Container Company has offered to sell comparable containers to Vernon for $2.60 each.Requireda. Calculate the total relevant cost. Should Vernon continue to make the containers?b. Vernon could lease the space it currently uses in the manufacturing process. If leasing would produce $12,700 per month, calculatethe total avoidable costs. Should Vernon continue to make the containers?a. Total relevant costa. Should Vernon continue to make the containers?b. Total avoidable costb. Should Vernon continue to make the containers?

Buy cost is the cost of purchasing the product from outside.Make cost is the cost of making/…

Answered: Vernon Electronics currently produces…

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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Adams Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows. Unit-level materials $ 5,400 Unit-level labor 6,400 Unit-level overhead 3,900 Product-level costs* 10,500 Allocated facility-level costs 28,200 *One-third of these costs can be avoided by purchasing the containers.Russo Container Company has offered to sell comparable containers to Adams for $2.80 each.Required Calculate the total relevant cost. Should Adams continue to make the containers? Adams could lease the space it currently uses in the manufacturing process. If leasing would produce $12,500 per month, calculate the total avoidable costs. Should Adams continue to make the containers?
The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. From the point of view of Slate’s management, how much of the SD output should be transferred to the AD?
Mighty Safe Fire Alarm is currently buying 61,000 motherboards from MotherBoard, Inc. at a price of $63 per board. Mighty Safe is considering making its own motherboards. The costs to make the motherboards are as follows: direct materials, $34 per unit; direct labor, $11 per unit; and variable factory overhead, $14 per unit. Fixed costs for the plant would increase by $80,000. Which option should be selected and why? a.make, $244,000 increase in profits b.buy, $164,090 more in profits c.buy, $80,000 more in profits d.make, $164,090 increase in profits
Lakeside Inc. produces a product that currently sells for $60 per unit. Current production costs per unit include direct materials, $16; direct labor, $18; variable overhead, $11; and fixed overhead, $11. Product engineering has determined that certain production changes could refine the product quality and functionality. These new production changes would increase material and labor costs by 20% per unit. Lakeside has received an offer from a nonprofit organization to buy 9,200 units at $46 per unit. Lakeside currently has unused production capacity. Required: a. Calculate the effect on Lakeside's operating income of accepting the order from the nonprofit organization. Increase in operating income
Adams Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,300 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs $5,900 6,200 3,500 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Adams for $2.60 each. Required X Answer is complete but not entirely correct. $ 19,300 Yes $ 24,180 X No 11,100 26,900 a. Calculate the total relevant cost. Should Adams continue to make the containers? b. Adams could lease the space it currently uses in the manufacturing process. If leasing would produce $11,800 per month, calculate the total avoidable costs. Should Adams continue to make the containers? a. Total relevant cost a. Should Adams continue to make the containers? b. Total avoidable cost b. Should Adams continue to make the containers?
Jordan Corporation, which makes and sells 80,600 radios annually, currently purchases the radio speakers it uses for $25 each. Each radio uses one speaker. The company has idle capacity and is considering the possibility of making the speakers that it needs. Jordan estimates that the cost of materials and labor needed to make speakers would be a total of $23 for each speaker. In addition, supervisory salaries, rent, and other manufacturing costs would be $181,000. Allocated facility-level costs would be $97,800. Required a. Determine the change in net income Jordan would experience if it decides to make the speakers. Net income will be lower by
Day Star collected the following information: Cost to buy one unit Production costs per unit: Direct materials Direct labour Variable overhead Total fixed overhead Day Star can sell 25,000 units per year, at $80 each. The company also has an offer from a subsidiary to rent its plant facilities for $2,000,000. The fixed overhead will be incurred in each alternative, but there will be a savings of $150,000 in the fixed costs under the renting alternative. A) buy Based on the above information only, should Day Star make or buy the product or rent its facilities out? B) make $22 $16 $2 $360,000 C) either make or buy - indifferent $48 D) rent the facilities to the subsidiary E) either make or rent - indifferent
The Wood Division of Sheridan Company manufactures rubber moldings and sells them externally for $55. Its variable cost is $38 per unit, and its fixed cost per unit is $5. Sheridan’s president wants the Wood Division to transfer 4300 units to another company division at a price of $23.Assuming the Wood Division has available capacity of 4300 units, the minimum transfer price it should accept is $5. $23. $38. $55.
Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $130,000, which includes fixed costs of $90,000 and variable costs of $40,000. The company can buy the part from an outside supplier for $3.30 per unit, and avoid 30% of the fixed costs. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $179,000 profit. If Harvey Automobiles makes the part, what will its operating income be? $179,000 greater than if the company bought the part $49,000 greater than if the company bought the part $49,000 less than if the company bought the part $79,000 greater than if the company bought the part
Campbell Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,200 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs $ 6,900 6,400 4,100 9,600 26,600 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Campbell for $2.80 each. Required a. Calculate the total relevant cost. Should Campbell continue to make the containers? b. Campbell could lease the space it currently uses in the manufacturing process. If leasing would produce $12,800 per month, calculate the total avoidable costs. Should Campbell continue to make the containers? a. Total relevant cost Should Campbell continue to make the containers? b. Total avoidable cost Should Campbell continue to make the containers?
Mighty Safe Fire Alarm is currently buying 57,000 motherboards from MotherBoard, Inc., at a price of $63 per board. Mighty Safe is considering making its own boards. The costs to make the board are as follows: direct materials, $33 per unit; direct labor, $12 per unit; and variable factory overhead, $15 per unit. Fixed costs for the plant would increase by $90,000. Which option should be selected and why? Oa. a. buy, $90,000 increase in profits Ob. make, $80,940 increase in profits c. make, $171,000 increase in profits Od. buy, $80,940 increase in profits
Tamarisk Manufacturing incurs unit costs of $7.20 ($5.20 variable and $2.00 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 17,200 of the parts for $5.70 per unit. If it accepts the offer, Tamarisk will save all variable costs and $1.00 of fixed costs. Prepare an analysis showing the total cost savings, if any, that Tamarisk will realize by buying the part. (Round per unit answers to 2 decimal places, eg. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number, e.g.-15,000 or parenthesis, e.g. (15,000).)

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