COST ACCOUNTING
16th Edition
ISBN: 9781323694008
Author: Horngren
Publisher: PEARSON C
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Chapter 11, Problem 11.36P
International outsourcing. Riverside Clippers Corp manufactures garden tools in a factory in Taneytown, Maryland. Recently the company designed a collection of tools for professional use rather than consumer use. Management needs to make a good decision about whether to produce this line in their existing space in Maryland, where space is available or to accept an offer from a manufacturer in Taiwan. Data concerning the decision are:
| Expected annual sales of tools (in units) | 800,000 |
| Average selling price of tools | $12 |
| Price quoted by Taiwanese company, in New Taiwanese Dollars (NTD) | 175 |
| Current exchange rate | 35NTD = 1$ |
| Variable |
$4.75 per unit |
| Incremental annual fixed manufacturing costs associated with the new product line | $400,000 |
| Variable selling and distribution costsa | $1 per unit |
| Annual fixed selling and distribution costsa | $220,000 |
a Selling and distribution costs are the same regardless of whether the tools are manufactured in Maryland or imported.
- 1. Should Riverside Clippers Corp manufacture the 800,000 garden tools in the Maryland facility or purchase them from the supplier in Taiwan? Explain.
Required
- 2. Riverside Clippers Corp believes that the U.S. dollar may weaken in the coming months against the New Taiwanese Dollar and does not want to face any currency risk. Assume that Riverside Clippers Corp can enter into a forward contract today to purchase 175 NTD for $5,35. Should Riverside Clippers Corp manufacture the 800,000 garden tools in the Maryland facility or purchase them from the Taiwan supplier? Explain.
- 3. What are some of the qualitative factors that Riverside Clippers Corp should consider when deciding whether to outsource the garden tools manufacturing to Taiwan?
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International outsourcing. Riverside Clippers Corp manufactures garden tools in a factory in Taneytown, Maryland. Recently, the company designed a collection of tools for professional use rather than consumer use. Management needs to make a good decision about whether to produce this line in their existing space in Maryland, where space is available or to accept an offer from a manufacturer in Taiwan. Data concerning the decision are:
A manufacturer produces hacksaw blades. Recently, the manufacturer has decided to enhance its product line and offer band blades. Two alternatives are being analyzed: purchase band blades overseas or produce them in-house. If the band blades are made in-house, the manufacturer will not be able to produce hacksaw blades, forgoing a $30,000 profit contribution.
Revenue from sale of band blades $180,000
Outside purchase 170,000
Direct material and labor 100,000
Variable manufacturing overhead 50,000
Avoidable fixed manufacturing overhead 10,000
Calculate the incremental cost of making and purchasing band blades, respectively.
Mohave Corporation is considering outsourcing production of the umbrella tote bag included with some of its products. The company
has received a bid from a supplier in Vietnam to produce 8,100 units per year for $8.50 each. Mohave the following information about
the cost of producing tote bags:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost per unit
$ 4.00
2.00
1.00
2.00
$9.00
Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 60 percent of the fixed overhead cost is
unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags.
Required:
1. Compute the difference in cost between making and buying the umbrella tote bag.
2. Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them?
3-a. Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that…
Chapter 11 Solutions
COST ACCOUNTING
Ch. 11 - Prob. 11.1QCh. 11 - Define relevant costs. Why are historical costs...Ch. 11 - All future costs are relevant. Do you agree? Why?Ch. 11 - Distinguish between quantitative and qualitative...Ch. 11 - Describe two potential problems that should be...Ch. 11 - Variable costs are always relevant, and fixed...Ch. 11 - A component part should be purchased whenever the...Ch. 11 - Prob. 11.8QCh. 11 - Managers should always buy inventory in quantities...Ch. 11 - Management should always maximize sales of the...
Ch. 11 - Prob. 11.11QCh. 11 - Cost written off as depreciation on equipment...Ch. 11 - Managers will always choose the alternative that...Ch. 11 - Prob. 11.14QCh. 11 - Prob. 11.15QCh. 11 - Qualitative and quantitative factors. Which of the...Ch. 11 - Special order, opportunity cost. Chade Corp. is...Ch. 11 - Prob. 11.18MCQCh. 11 - Keep or drop a business segment. Lees Corp. is...Ch. 11 - Relevant costs. Ace Cleaning Service is...Ch. 11 - Disposal of assets. Answer the following...Ch. 11 - Relevant and irrelevant costs. Answer the...Ch. 11 - Multiple choice. (CPA) Choose the best answer. 1....Ch. 11 - Special order, activity-based costing. (CMA,...Ch. 11 - Make versus buy, activity-based costing. The...Ch. 11 - Inventory decision, opportunity costs. Best Trim,...Ch. 11 - Relevant costs, contribution margin, product...Ch. 11 - Selection of most profitable product. Body Image,...Ch. 11 - Theory of constraints, throughput margin, relevant...Ch. 11 - Closing and opening stores. Sanchez Corporation...Ch. 11 - Prob. 11.31ECh. 11 - Relevance of equipment costs. Janets Bakery is...Ch. 11 - Equipment upgrade versus replacement. (A. Spero,...Ch. 11 - Special order, short-run pricing. Diamond...Ch. 11 - Short-run pricing, capacity constraints. Fashion...Ch. 11 - International outsourcing. Riverside Clippers Corp...Ch. 11 - Relevant costs, opportunity costs. Gavin Martin,...Ch. 11 - Opportunity costs and relevant costs. Jason Wu...Ch. 11 - Opportunity costs. (H. Schaefer, adapted) The Wild...Ch. 11 - Make or buy, unknown level of volume. (A....Ch. 11 - Make versus buy, activity-based costing,...Ch. 11 - Prob. 11.42PCh. 11 - Product mix, special order. (N. Melumad, adapted)...Ch. 11 - Theory of constraints, throughput margin, and...Ch. 11 - Theory of constraints, contribution margin,...Ch. 11 - Closing down divisions. Ainsley Corporation has...Ch. 11 - Dropping a product line, selling more tours....Ch. 11 - Prob. 11.48PCh. 11 - Dropping a customer, activity-based costing,...Ch. 11 - Equipment replacement decisions and performance...
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