Concept explainers
Make versus buy, activity-based costing. The Svenson Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2017 and the expected costs in 2018:
Current Costs in 2017 | Expected Costs in 2018 | |
Variable |
||
Direct material cost per CMCB | $ 180 | $ 170 |
Direct manufacturing labor cost per CMCB | 50 | 45 |
Variable manufacturing cost per batch for setups, materials handling, and quality control | 1,600 | 1,500 |
Fixed manufacturing cost | ||
Fixed manufacturing |
320,000 | 320,000 |
Fixed manufacturing overhead costs of plant |
800,000 | 800,000 |
Svenson manufactured 8,000 CMCBs in 2017 in 40 batches of 200 each. In 2018, Svenson anticipates needing 10,000 CMCBs. The CMCBs would be produced in 80 batches of 125 each.
The Minton Corporation has approached Svenson about supplying CMCBs to Svenson in 2018 at $300 per CMCB on whatever delivery schedule Svenson wants.
- 1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2018.
Required
- 2. Suppose the capacity currently used to make CMCBs will become idle if Svenson purchases CMCBs from Minton. On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations.
- 3. Now suppose that if Svenson purchases CMCBs from Minton, its best alternative use of the capacity currently used for CMCBs is to make and sell special circuit boards (CB3s) to the Essex Corporation. Svenson estimates the following incremental revenues and costs from CB3s:
Total expected incremental future revenues | $2,000,000 |
Total expected incremental future costs | $2,150,000 |
On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations.
Learn your wayIncludes step-by-step video
Chapter 11 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Additional Business Textbook Solutions
Foundations of Financial Management
Foundations Of Finance
Fundamentals of Management (10th Edition)
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Intermediate Accounting (2nd Edition)
Principles of Operations Management: Sustainability and Supply Chain Management (10th Edition)
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
- Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage LearningEssentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning