You are asked to recommend whether a firm should make or purchase product A. The following are data concerning the two options For the purchase option, the firm can buy product A at $19 per unit. For the make option, the firm can produce product A based on the following cost estimation data. The firm has to pay a weekly rental payment of $19,000 for the production facility With the use of this facility, the firm also has to hire five operators to belp make product A Each operator works eight hours per day, five days per week at the rate of $10 per hour In other words, the rental and labor expenses are fixed costs. The material cost for the make option is $14 per unit of product A a. Find a weekly amount of product A that provides the breakeven point for the firm. The breakeven point in this problem indicates the firm's indifference between purchasing or making product A b. If the firm estimates the sale of product A to be 5,600 units per week, should it make or purchase product A? a. A weekly amount of product A that provides the breakeven point for the firm is units per week. (Round to the nearest whole number) b. f the firm makes 5,600 units per week, the total cost will be S. (Round to the nearest dollar) f the firm purchases 5,600 units per week, the total cost will be S (Round to the nearest doilar) The firm should product A purchase make
You are asked to recommend whether a firm should make or purchase product A. The following are data concerning the two options For the purchase option, the firm can buy product A at $19 per unit. For the make option, the firm can produce product A based on the following cost estimation data. The firm has to pay a weekly rental payment of $19,000 for the production facility With the use of this facility, the firm also has to hire five operators to belp make product A Each operator works eight hours per day, five days per week at the rate of $10 per hour In other words, the rental and labor expenses are fixed costs. The material cost for the make option is $14 per unit of product A a. Find a weekly amount of product A that provides the breakeven point for the firm. The breakeven point in this problem indicates the firm's indifference between purchasing or making product A b. If the firm estimates the sale of product A to be 5,600 units per week, should it make or purchase product A? a. A weekly amount of product A that provides the breakeven point for the firm is units per week. (Round to the nearest whole number) b. f the firm makes 5,600 units per week, the total cost will be S. (Round to the nearest dollar) f the firm purchases 5,600 units per week, the total cost will be S (Round to the nearest doilar) The firm should product A purchase make
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Question
Transcribed Image Text:You are asked to recommend whether a firm should make or purchase product A. The following are data conceming the two options For the purchase option, the firm can buy product A at $19 per unit. For the make option, the firm can produce product A based
on the following cost estimation data. The firm has to pay a weekly rental payment of $19,000 for the production facility With the use of this facility, the firm also has to hire five operators to help make product A Each operator works eight hours per day, five days
per week at the rate of $10 per hour. In other words, the rental and labor expenses are fixed costs. The material cost for the make option is $14 per unit of product A
a. Find a weekly amount of product A that provides the breakeven point for the firm. The breakeven point in this problem indicates the firm's indifference between purchasing or making product A.
b. If the firm estimates the sale of product A to be 5,600 units per week, should it make or purchase product A?
a. A weekly amount of product A that provides the breakeven point for the firm is units per week. (Round to the nearest whole number)
b. If the firm makes 5,600 units per week, the total cost will be S. (Round to the nearest dollar.)
If the firm purchases 5,600 units per week, the total cost will be S (Round to the nearest doilar)
The firm should
V product A.
purchase
make
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