Wildhorse Company must decide whether to make or buy some of its components. The costs of producing 67,200 switches for its generators are as follows. Direct materials Direct labor $30,200 $38,252 Variable overhead Fixed overhead $45,900 $81,200 Instead of making the switches at an average cost of $2.91 ($195,552 ÷ 67,200), the company has an opportunity to buy the switches at $2.67 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

Wildhorse Company must decide whether to make or buy some of its components. The costs of producing 67,200 switches for its generators are as follows. Direct materials Direct labor $30,200 $38,252 Variable overhead Fixed overhead $45,900 $81,200 Instead of making the switches at an average cost of $2.91 ($195,552 ÷ 67,200), the company has an opportunity to buy the switches at $2.67 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter5: Process Costing

Section: Chapter Questions

Problem 1PA: The following product Costs are available for Haworth Company on the production of chairs: direct...

See similar textbooks

Related questions

Q: 10. I What is the major benefit of Breakeven Analysis? A. B. It allows you to know how much you have…

A: Break-even analysis shows the level of output where the sales generated by the company are able to…

Q: Which one of the following statement is not correct? Group of answer choices -Opportunity costs are…

A: Managerial accounting is helpful in decision-making related to a product whether the product should…

Q: explain how sunk costs create a barrier to entry into the market place.

A: Sunk costs are expenses that can not be retrieved if a corporation wishes to leave a market.

Q: What is the major benefit of Breakeven Analysis? AB A. B. C. OP D. It allows you to know how much…

A: Break-even analysis in economics, business, and cost accounting refers to the point at which total…

Q: Company XYZ produces and sells two types of calculators: Basic and Scientific. The Basic has a lower…

A: Hi student Since there are multiple questions, we will answer only first question. If you want…

Q: When companies consider outsourcing a product, fixed costs are always irrelevant. Question 31…

A: Fixed cost is the cost that does not change with the change in the output of the company. The…

Q: Firms with relatively high nonfinancial fixed costs are said to have a highdegree of what?

A: DOL (degree of operating leverage) is a multiple that estimates how much a firm's operating income…

Q: “Sunk costs are easy to spot—they’re simply the fixed costs associated with a decision.” Do…

A: Sunk cost: Sunk cost is the cost that has been incurred as a result of past events and such cost…

Q: Mariana Manufacturing and Bellow Brothers compete in the same industry and in all respects their…

Q: Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known…

A: Variable costs are costs that varies with the change in the level of output whereas fixed costs are…

Q: ompanies allocate costs? What are some of th

A: The process by which a firm allocates and assigns its different expenses or costs to certain goods,…

Q: McCollum Company manufactures two products. Both products have the same sales price, and the volume…

A: Variance cost are those cost which changes with change in production volume. Fixed cost do not…

Q: The president of Bright Corporation tells you that he sees a dim future for his company. He feels…

A: If fixed costs are high, a company find it difficult to manage short term revenue fluctuation,…

Q: Business Unit A, the supplying business unit, is selling to an outside market. It has excess…

A: Transfer price refers to the price which is used by the related parties to charge one another. For…

Q: Lowering price does not always increase revenue with increased demand. Besides reducing price, what…

A: Reducing prices will not always stimulate demand to the desired extent especially in case of…

Q: The lower the MARR (minimum attractive rate of return), the higher the price that a company should…

A: MARR is often known as the hurdle rate in finance. Now any type of investment is associated with…

Q: “A company should not allocate costs that are fixed in the short run to customers.” Do you agree?…

A: Cost Allocation:The process of assigning the cost to the cost object is cost allocation. The cost…

Q: What is one potential limitation of full-cost-based transfer prices?

A: Full cost based transfer pricing means transfer price based on total product cost per unit which…

Q: Corning’s market value was below its book value because it was facing pricing pressure in the…

A: The price pressure hypothesis (PPH) predicts that shocks will have a temporary effect on prices…

Q: Which of the following costs are always incremental and relevant in decision analysis? a)…

A: Avoidable costs are those costs that can be avoided if some production is stopped or outsourcing of…

Q: What's the best ETF to buy? And why?

A: ETFs are the best popular traded option for investors looking for growth in their money with both…

Q: When negotlating a transfer price, which price is most acceptable to the selling divislon if they…

A: A company may have two or more division in which two different goods are produced and one good can…

Q: Increased unemployment can reduce consumer demand for goods and services, leading to ?

A: Deflation is the state of economy in which overall price level decreases.

Q: machine instead and is comparing two options Beryfs Iced Tea currently rents a bottling machine for…

A: The net present value is a capital budgeting technique that involves the evaluation of a capital…

Q: When the selling division in an Internal transfer can sell every product eat Its market price, then…

A: Given the selling division can already sell all the units outside at the market price. So…

Q: What is mining? Explain why the real cost of goldis more than what most people pay for it. What…

A: The use of cyanide in gold mining is common. The extraction of gold requires a large labor as well…

Question

Wildhorse Company will incur what amount of additional costs if it buys the switches?

Wildhorse Company must decide whether to make or buy some of its components. The costs of producing 67,200 switches for its
generators are as follows.
Direct materials
Direct labor
$30,200
$38,252
Variable overhead
Fixed overhead
$45,900
$81,200
Instead of making the switches at an average cost of $2.91 ($195,552 +67,200), the company has an opportunity to buy the switches
at $2.67 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

Prepare an incremental analysis showing whether the company should make or buy the switches. (Enter negative amounts using
either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Direct materials
Direct labor
Variable manufacturing
costs
Fixed manufacturing
costs
Purchase price
Total cost
$
Make
CORDO
$
$
Buy
10
0
0
$
Net Income
Increase (Decrease)
HE
I

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduce to incremental analysis

VIEW

Step 2: Working for purchase price

VIEW

Step 3: Working for fixed overhead incurred even if switches are buy from outside

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

The following product Costs are available for Haworth Company on the production of chairs: direct materials, $15,500; direct labor, $22.000; manufacturing overhead, $16.500; selling expenses, $6,900; and administrative expenses, $15,200. What are the prime costs? What are the conversion costs? What is the total product cost? What is the total period cost? If 7,750 equivalent units are produced, what is the equivalent material cost per unit? If 22,000 equivalent units are produced, what is the equivalent conversion cost per unit?
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
The following product costs are available for Stellis Company on the production of erasers: direct materials, $22,000; direct labor, $35,000; manufacturing overhead, $17,500; selling expenses, $17,600; and administrative expenses; $13,400. What are the prime costs? What are the conversion costs? What is the total product cost? What is the total period cost? If 13,750 equivalent units are produced, what is the equivalent material cost per unit? If 17,500 equivalent units are produced, what is the equivalent conversion cost per unit?
Sagar
Denger
Juanita Company must decide whether to make or buy some of its components for the appliances it produces. The costs of producing 166,000 electrical cords for its appliances are as follows: $90,000 $32,000 $20,000 $24,000 Direct materials Variable overhead Direct labor Fixed overhead Instead of making the electrical cords at an average cost per unit of $1.00 ($166,000/166,000), the company has an opportunity to buy the cords at $0.90 per unit. If the company purchases the cords, all variable costs will be eliminated. What is the total relevant cost per unit in deciding either to buy or produce the component? After considering the incremental costs and benefits, should the company continue to produce or buy the cords from the supplier?
Blossom Company must decide whether to make or buy some of its components. The costs of producing 62,600 switches for its generators are as follows. Direct materials $29,800 Direct labor $29,940 Variable overhead Fixed overhead Instead of making the switches at an average cost of $2.90 ($181,540 ÷ 62,600), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated. (a) Direct materials Direct labor Variable manufacturing costs Fixed manufacturing costs Purchase price Total cost $45,400 $76,400 Prepare an incremental analysis showing whether the company should make or buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Senter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount enter a dollar amount Senter a total amount Make…
Juanita Company must decide whether to make or buy some of its components for the appliances it produces. The costs of producing 166,000 electrical cords for its appliances are as follows. Direct materials $90,000 Variable overhead $32,000 Direct labor 20,000 Fixed overhead 24,000 Instead of making the electrical cords at an average cost per unit of $1.00 ($166,000 - 166,000), the company has an opportunity to buy the cords at $0.90 per unit. If the company purchases the cords, all variable costs and one-fourth of the fixed costs will be eliminated. Required a- Prepare an incremental analysis showing whether the company should make or buy the electrical cords b- Will your answer be different if the released productive capacity will generate additional income of $5,000? Managerial Accounting - Ch.7
Specter Company makes 20,000 units per year of a part it uses in the products it manufactures.The unit product cost of this part is computed as follows:Direct materials $25.10Direct labour 18.20Variable manufacturing overhead 2.40Fixed manufacturing overhead 13.40Unit product cost $56.70An outside supplier has offered to sell the company all these parts it needs for $56.00 a unit. Ifthe company accepts this offer, the facilities now being used to make the part could be used tomake more units of a product that is in high demand. The additional contribution margin on thisother product would be $50,000 per year.If the part were purchased from the outside supplier, all the direct labour cost of the part wouldbe avoided. However, $5.10 of the fixed manufacturing overhead cost being applied to the partwould continue even if the part were purchased from the outside supplier. This fixedmanufacturing overhead cost would be applied to the company's remaining products.Required:Part a:Calculate…
Howell Corporaon produces an execuve jet for which it currently manufactures a fuel valve; the cost ofthe valve is indicated below:Cost per UnitVariable costsDirect material $900Direct labor 600Variable overhead 300Fixed costsDepreciaon of equipment 500Depreciaon of building 200Supervisory salaries 300The company has an offer from Duvall Valves to produce the part for $2,000 per unit and supply 1,000 valves(the number needed in the coming year). If the company accepts this offer and shuts down producon ofvalves, producon workers and supervisors will be reassigned to other areas. The equipment cannot be usedelsewhere in the company, and it has no market value. However, the space occupied by the producon of thevalve can be used by another producon group that is currently leasing space for $55,000 per year.What is the incremental savings of buying the valves? (The answer should be stated in a per‐unit format and is a positive number)
What are the fixed overhead costs of making the component?
Wilma Company must decide whether to make or buy some of its components. The costs of producing 60,000 switches for its generators are as follows. Direct materials $30,000 Variable overhead $45,000 Direct labor $42,000 Fixed overhead $60,000 Instead of making the switches at an average cost of $2.95 ($177,000 ÷ 60,000), the company has an opportunity to buy the switches at $2.7 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated. (a) Prepare an incremental analysis showing whether the company should make or buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net IncomeIncrease (Decrease) Direct materials $ $ $ Direct labor Variable manufacturing costs Fixed manufacturing costs Purchase price Total…