Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $202 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-D cost to produce 19,000 monitors: Direct materials Direct labor Variable factory overhead Fixed manufacturing overhead Fixed non-manufacturing overhead Total cost of producing 19,000 monitors $ 2,185,000 1,292,000 684,000 551,000 798,000 $ 5,510,000 Make or Buy Decisions Differential Analysis Report Unit cost $115 68 36 29 $290 You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $50,300, but non-manufacturing costs would remain the same if monitors are bought. Fill in the differential analysis. Purchase price of 19,000 monitors Differential cost to make: Direct materials Direct labor Overhead Differential income (loss) from making monitors 42
Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $202 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-D cost to produce 19,000 monitors: Direct materials Direct labor Variable factory overhead Fixed manufacturing overhead Fixed non-manufacturing overhead Total cost of producing 19,000 monitors $ 2,185,000 1,292,000 684,000 551,000 798,000 $ 5,510,000 Make or Buy Decisions Differential Analysis Report Unit cost $115 68 36 29 $290 You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $50,300, but non-manufacturing costs would remain the same if monitors are bought. Fill in the differential analysis. Purchase price of 19,000 monitors Differential cost to make: Direct materials Direct labor Overhead Differential income (loss) from making monitors 42
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Make or Buy Decision:
Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $202 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's
cost to produce 19,000 monitors:
19,000 monitors
$ 2,185,000
1,292,000
684,000
551,000
798,000
$ 5,510,000
$290
You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are
not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all
materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $50,300, but non-manufacturing costs would remain the same if monitors are bought.
Fill in the differential analysis.
Direct materials
Direct labor
Variable factory overhead
Fixed manufacturing overhead
Fixed non-manufacturing overhead
Purchase price of 19,000 monitors
Differential cost to make:
Direct materials
Direct labor
Overhead
Total cost of
producing
Make or Buy Decisions
Differential Analysis Report
Feedback
Differential income (loss) from making monitors
Unit cost
$115
68
36
29
42
✓ Check My Work
Enter only the differential relevant costs in the appropriate space and calculate differential income or loss. The challenge is in determining differential overhead.
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