The cost items that is relevant to make-or-outsource decision.

Question

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Answer 1

Question

Chapter 6, Problem 26PSB

a.

To determine

The cost items that is relevant to make-or-outsource decision.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Decision making: It is a vital capacity in the management, since decision making is identified with issue, a compelling decision making accomplishes the preferred objectives or goals by taking care of such issues.

The cost items that are relevant to make-or-outsource decision are as follows:

The unit-level costs of creation can be avoided if the Product X is bought. Likewise, it is sensible to accept that the cost the salary of production supervisor can be avoided if the manufacturing development is rejected. Since Company R will keep on promoting the item, the selling costs, product-level advertising cost, and facility-sustaining costs will proceed irrespective whether Product X is made or bought. These costs may not be avoided by obtaining the Product X. Thus, the below items would be relevant to the make-or-outsource decision. The items that relevant to make-or-outsource decision is mentioned in the below part.

Determine the total avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×100,000)+($0.20×100,000)+($0.50×100,000)+$160,000]=[$120,000+$20,000+$50,000+$160,000]=$350,000

Therefore the total avoidable cost is $350,000.

b.

To determine

Whether Company R continue to make the product or buy from the supplier by determining the change in net income.

b.

Expert Solution

Explanation of Solution

Determine the cost per unit

Cost per unit=[Avoidable CostNumber of Units]=[$350,000100,000]=$3.50

Therefore the cost per unit is $3.50.

Determine the increase in net income

Increase in Net Income=[Number of Units×(Avoidable Cost−Actual Price)]=[(100,000×($3.50−$3.20))]=[100,000×$0.30]=$30,000

Therefore the increase in net income is $30,000.

The reason on whether Company R would continue to make the product or buy from the supplier is as follows:

The avoidable cost per unit of manufacturing the Product X is $3.50 per unit. Since the cost to buy is $3.20, Company R can lessen costs by buying instead of producing the item. Consequently, outsourcing the item would expand income by $30,000.

Therefore Company R should purchase the product.

c.

To determine

Whether Company R should buy Product X if sales increase by 60,000 units.

c.

Expert Solution

Explanation of Solution

Determine the avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×160,000)+($0.20×160,000)+($0.50×160,000)+$160,000]=[$192,000+$32,000+$80,000+$160,000]=$464,000

Therefore the avoidable cost is $464,000.

Determine the cost per unit

Avoidable Cost=[Avoidable CostNumber of Units]=[$464,000160,000]=$2.90

Therefore the cost per unit is $2.90.

The reasons on whether Company R should buy Product X if sales increase by 60,000 units is as follows:

The cost of the supervisor’s salary is fixed with respect to the number of units of Product X manufactured and sold. Likewise, the cost per unit will drop as a result of increase in sales. At the current level of 160,000 units the avoidable cost per unit is lower to manufacture at $2.90, than to purchase at $3.20. Company R should keep on making the Product X. As this issue illustrates, the decision to outsource should think about the opportunity of future development and also present production.

Therefore Company R should continue to make the product.

d.

To determine

The qualitative factors that Company R should consider before deciding to outsource Product X.

d.

Expert Solution

Explanation of Solution

The qualitative factors that Company R should consider before deciding to outsource Product X is as follows:

Before focusing on the outsourcing decision, Company R must think about the capacity of the provider to furnish Product X as per the organization's quality norms. Likewise, Company R must guarantee itself that the item will be conveyed on an appropriate premise. By outsourcing, Company R is losing the advantages of vertical integration. The organization is subject to the provider's execution.

The loss of control should be weighed in contradiction of the advantages of cost reduction. Company R can shield itself from inconsistent providers by keeping up a rundown of licensed providers. Company R should furnish these providers with hikes or incentives for providing exceptional services, for example, amount buys and quick invoice payment so as to increase favored customer standing. The provider in the scenario mentions the suppliers.

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Answer 2

Question

Chapter 6, Problem 26PSB

a.

To determine

The cost items that is relevant to make-or-outsource decision.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Decision making: It is a vital capacity in the management, since decision making is identified with issue, a compelling decision making accomplishes the preferred objectives or goals by taking care of such issues.

The cost items that are relevant to make-or-outsource decision are as follows:

The unit-level costs of creation can be avoided if the Product X is bought. Likewise, it is sensible to accept that the cost the salary of production supervisor can be avoided if the manufacturing development is rejected. Since Company R will keep on promoting the item, the selling costs, product-level advertising cost, and facility-sustaining costs will proceed irrespective whether Product X is made or bought. These costs may not be avoided by obtaining the Product X. Thus, the below items would be relevant to the make-or-outsource decision. The items that relevant to make-or-outsource decision is mentioned in the below part.

Determine the total avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×100,000)+($0.20×100,000)+($0.50×100,000)+$160,000]=[$120,000+$20,000+$50,000+$160,000]=$350,000

Therefore the total avoidable cost is $350,000.

b.

To determine

Whether Company R continue to make the product or buy from the supplier by determining the change in net income.

b.

Expert Solution

Explanation of Solution

Determine the cost per unit

Cost per unit=[Avoidable CostNumber of Units]=[$350,000100,000]=$3.50

Therefore the cost per unit is $3.50.

Determine the increase in net income

Increase in Net Income=[Number of Units×(Avoidable Cost−Actual Price)]=[(100,000×($3.50−$3.20))]=[100,000×$0.30]=$30,000

Therefore the increase in net income is $30,000.

The reason on whether Company R would continue to make the product or buy from the supplier is as follows:

The avoidable cost per unit of manufacturing the Product X is $3.50 per unit. Since the cost to buy is $3.20, Company R can lessen costs by buying instead of producing the item. Consequently, outsourcing the item would expand income by $30,000.

Therefore Company R should purchase the product.

c.

To determine

Whether Company R should buy Product X if sales increase by 60,000 units.

c.

Expert Solution

Explanation of Solution

Determine the avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×160,000)+($0.20×160,000)+($0.50×160,000)+$160,000]=[$192,000+$32,000+$80,000+$160,000]=$464,000

Therefore the avoidable cost is $464,000.

Determine the cost per unit

Avoidable Cost=[Avoidable CostNumber of Units]=[$464,000160,000]=$2.90

Therefore the cost per unit is $2.90.

The reasons on whether Company R should buy Product X if sales increase by 60,000 units is as follows:

The cost of the supervisor’s salary is fixed with respect to the number of units of Product X manufactured and sold. Likewise, the cost per unit will drop as a result of increase in sales. At the current level of 160,000 units the avoidable cost per unit is lower to manufacture at $2.90, than to purchase at $3.20. Company R should keep on making the Product X. As this issue illustrates, the decision to outsource should think about the opportunity of future development and also present production.

Therefore Company R should continue to make the product.

d.

To determine

The qualitative factors that Company R should consider before deciding to outsource Product X.

d.

Expert Solution

Explanation of Solution

The qualitative factors that Company R should consider before deciding to outsource Product X is as follows:

Before focusing on the outsourcing decision, Company R must think about the capacity of the provider to furnish Product X as per the organization's quality norms. Likewise, Company R must guarantee itself that the item will be conveyed on an appropriate premise. By outsourcing, Company R is losing the advantages of vertical integration. The organization is subject to the provider's execution.

The loss of control should be weighed in contradiction of the advantages of cost reduction. Company R can shield itself from inconsistent providers by keeping up a rundown of licensed providers. Company R should furnish these providers with hikes or incentives for providing exceptional services, for example, amount buys and quick invoice payment so as to increase favored customer standing. The provider in the scenario mentions the suppliers.

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Answer 3

Question

Chapter 6, Problem 26PSB

a.

To determine

The cost items that is relevant to make-or-outsource decision.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Decision making: It is a vital capacity in the management, since decision making is identified with issue, a compelling decision making accomplishes the preferred objectives or goals by taking care of such issues.

The cost items that are relevant to make-or-outsource decision are as follows:

The unit-level costs of creation can be avoided if the Product X is bought. Likewise, it is sensible to accept that the cost the salary of production supervisor can be avoided if the manufacturing development is rejected. Since Company R will keep on promoting the item, the selling costs, product-level advertising cost, and facility-sustaining costs will proceed irrespective whether Product X is made or bought. These costs may not be avoided by obtaining the Product X. Thus, the below items would be relevant to the make-or-outsource decision. The items that relevant to make-or-outsource decision is mentioned in the below part.

Determine the total avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×100,000)+($0.20×100,000)+($0.50×100,000)+$160,000]=[$120,000+$20,000+$50,000+$160,000]=$350,000

Therefore the total avoidable cost is $350,000.

b.

To determine

Whether Company R continue to make the product or buy from the supplier by determining the change in net income.

b.

Expert Solution

Explanation of Solution

Determine the cost per unit

Cost per unit=[Avoidable CostNumber of Units]=[$350,000100,000]=$3.50

Therefore the cost per unit is $3.50.

Determine the increase in net income

Increase in Net Income=[Number of Units×(Avoidable Cost−Actual Price)]=[(100,000×($3.50−$3.20))]=[100,000×$0.30]=$30,000

Therefore the increase in net income is $30,000.

The reason on whether Company R would continue to make the product or buy from the supplier is as follows:

The avoidable cost per unit of manufacturing the Product X is $3.50 per unit. Since the cost to buy is $3.20, Company R can lessen costs by buying instead of producing the item. Consequently, outsourcing the item would expand income by $30,000.

Therefore Company R should purchase the product.

c.

To determine

Whether Company R should buy Product X if sales increase by 60,000 units.

c.

Expert Solution

Explanation of Solution

Determine the avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×160,000)+($0.20×160,000)+($0.50×160,000)+$160,000]=[$192,000+$32,000+$80,000+$160,000]=$464,000

Therefore the avoidable cost is $464,000.

Determine the cost per unit

Avoidable Cost=[Avoidable CostNumber of Units]=[$464,000160,000]=$2.90

Therefore the cost per unit is $2.90.

The reasons on whether Company R should buy Product X if sales increase by 60,000 units is as follows:

The cost of the supervisor’s salary is fixed with respect to the number of units of Product X manufactured and sold. Likewise, the cost per unit will drop as a result of increase in sales. At the current level of 160,000 units the avoidable cost per unit is lower to manufacture at $2.90, than to purchase at $3.20. Company R should keep on making the Product X. As this issue illustrates, the decision to outsource should think about the opportunity of future development and also present production.

Therefore Company R should continue to make the product.

d.

To determine

The qualitative factors that Company R should consider before deciding to outsource Product X.

d.

Expert Solution

Explanation of Solution

The qualitative factors that Company R should consider before deciding to outsource Product X is as follows:

Before focusing on the outsourcing decision, Company R must think about the capacity of the provider to furnish Product X as per the organization's quality norms. Likewise, Company R must guarantee itself that the item will be conveyed on an appropriate premise. By outsourcing, Company R is losing the advantages of vertical integration. The organization is subject to the provider's execution.

The loss of control should be weighed in contradiction of the advantages of cost reduction. Company R can shield itself from inconsistent providers by keeping up a rundown of licensed providers. Company R should furnish these providers with hikes or incentives for providing exceptional services, for example, amount buys and quick invoice payment so as to increase favored customer standing. The provider in the scenario mentions the suppliers.

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Answer 4

Question

Chapter 6, Problem 26PSB

a.

To determine

The cost items that is relevant to make-or-outsource decision.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Decision making: It is a vital capacity in the management, since decision making is identified with issue, a compelling decision making accomplishes the preferred objectives or goals by taking care of such issues.

The cost items that are relevant to make-or-outsource decision are as follows:

The unit-level costs of creation can be avoided if the Product X is bought. Likewise, it is sensible to accept that the cost the salary of production supervisor can be avoided if the manufacturing development is rejected. Since Company R will keep on promoting the item, the selling costs, product-level advertising cost, and facility-sustaining costs will proceed irrespective whether Product X is made or bought. These costs may not be avoided by obtaining the Product X. Thus, the below items would be relevant to the make-or-outsource decision. The items that relevant to make-or-outsource decision is mentioned in the below part.

Determine the total avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×100,000)+($0.20×100,000)+($0.50×100,000)+$160,000]=[$120,000+$20,000+$50,000+$160,000]=$350,000

Therefore the total avoidable cost is $350,000.

b.

To determine

Whether Company R continue to make the product or buy from the supplier by determining the change in net income.

b.

Expert Solution

Explanation of Solution

Determine the cost per unit

Cost per unit=[Avoidable CostNumber of Units]=[$350,000100,000]=$3.50

Therefore the cost per unit is $3.50.

Determine the increase in net income

Increase in Net Income=[Number of Units×(Avoidable Cost−Actual Price)]=[(100,000×($3.50−$3.20))]=[100,000×$0.30]=$30,000

Therefore the increase in net income is $30,000.

The reason on whether Company R would continue to make the product or buy from the supplier is as follows:

The avoidable cost per unit of manufacturing the Product X is $3.50 per unit. Since the cost to buy is $3.20, Company R can lessen costs by buying instead of producing the item. Consequently, outsourcing the item would expand income by $30,000.

Therefore Company R should purchase the product.

c.

To determine

Whether Company R should buy Product X if sales increase by 60,000 units.

c.

Expert Solution

Explanation of Solution

Determine the avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×160,000)+($0.20×160,000)+($0.50×160,000)+$160,000]=[$192,000+$32,000+$80,000+$160,000]=$464,000

Therefore the avoidable cost is $464,000.

Determine the cost per unit

Avoidable Cost=[Avoidable CostNumber of Units]=[$464,000160,000]=$2.90

Therefore the cost per unit is $2.90.

The reasons on whether Company R should buy Product X if sales increase by 60,000 units is as follows:

The cost of the supervisor’s salary is fixed with respect to the number of units of Product X manufactured and sold. Likewise, the cost per unit will drop as a result of increase in sales. At the current level of 160,000 units the avoidable cost per unit is lower to manufacture at $2.90, than to purchase at $3.20. Company R should keep on making the Product X. As this issue illustrates, the decision to outsource should think about the opportunity of future development and also present production.

Therefore Company R should continue to make the product.

d.

To determine

The qualitative factors that Company R should consider before deciding to outsource Product X.

d.

Expert Solution

Explanation of Solution

The qualitative factors that Company R should consider before deciding to outsource Product X is as follows:

Before focusing on the outsourcing decision, Company R must think about the capacity of the provider to furnish Product X as per the organization's quality norms. Likewise, Company R must guarantee itself that the item will be conveyed on an appropriate premise. By outsourcing, Company R is losing the advantages of vertical integration. The organization is subject to the provider's execution.

The loss of control should be weighed in contradiction of the advantages of cost reduction. Company R can shield itself from inconsistent providers by keeping up a rundown of licensed providers. Company R should furnish these providers with hikes or incentives for providing exceptional services, for example, amount buys and quick invoice payment so as to increase favored customer standing. The provider in the scenario mentions the suppliers.

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Answer 5

Chapter 6, Problem 26PSB

a.

To determine

The cost items that is relevant to make-or-outsource decision.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Decision making: It is a vital capacity in the management, since decision making is identified with issue, a compelling decision making accomplishes the preferred objectives or goals by taking care of such issues.

The cost items that are relevant to make-or-outsource decision are as follows:

The unit-level costs of creation can be avoided if the Product X is bought. Likewise, it is sensible to accept that the cost the salary of production supervisor can be avoided if the manufacturing development is rejected. Since Company R will keep on promoting the item, the selling costs, product-level advertising cost, and facility-sustaining costs will proceed irrespective whether Product X is made or bought. These costs may not be avoided by obtaining the Product X. Thus, the below items would be relevant to the make-or-outsource decision. The items that relevant to make-or-outsource decision is mentioned in the below part.

Determine the total avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×100,000)+($0.20×100,000)+($0.50×100,000)+$160,000]=[$120,000+$20,000+$50,000+$160,000]=$350,000

Therefore the total avoidable cost is $350,000.

b.

To determine

Whether Company R continue to make the product or buy from the supplier by determining the change in net income.

b.

Expert Solution

Explanation of Solution

Determine the cost per unit

Cost per unit=[Avoidable CostNumber of Units]=[$350,000100,000]=$3.50

Therefore the cost per unit is $3.50.

Determine the increase in net income

Increase in Net Income=[Number of Units×(Avoidable Cost−Actual Price)]=[(100,000×($3.50−$3.20))]=[100,000×$0.30]=$30,000

Therefore the increase in net income is $30,000.

The reason on whether Company R would continue to make the product or buy from the supplier is as follows:

The avoidable cost per unit of manufacturing the Product X is $3.50 per unit. Since the cost to buy is $3.20, Company R can lessen costs by buying instead of producing the item. Consequently, outsourcing the item would expand income by $30,000.

Therefore Company R should purchase the product.

c.

To determine

Whether Company R should buy Product X if sales increase by 60,000 units.

c.

Expert Solution

Explanation of Solution

Determine the avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×160,000)+($0.20×160,000)+($0.50×160,000)+$160,000]=[$192,000+$32,000+$80,000+$160,000]=$464,000

Therefore the avoidable cost is $464,000.

Determine the cost per unit

Avoidable Cost=[Avoidable CostNumber of Units]=[$464,000160,000]=$2.90

Therefore the cost per unit is $2.90.

The reasons on whether Company R should buy Product X if sales increase by 60,000 units is as follows:

The cost of the supervisor’s salary is fixed with respect to the number of units of Product X manufactured and sold. Likewise, the cost per unit will drop as a result of increase in sales. At the current level of 160,000 units the avoidable cost per unit is lower to manufacture at $2.90, than to purchase at $3.20. Company R should keep on making the Product X. As this issue illustrates, the decision to outsource should think about the opportunity of future development and also present production.

Therefore Company R should continue to make the product.

d.

To determine

The qualitative factors that Company R should consider before deciding to outsource Product X.

d.

Expert Solution

Explanation of Solution

The qualitative factors that Company R should consider before deciding to outsource Product X is as follows:

Before focusing on the outsourcing decision, Company R must think about the capacity of the provider to furnish Product X as per the organization's quality norms. Likewise, Company R must guarantee itself that the item will be conveyed on an appropriate premise. By outsourcing, Company R is losing the advantages of vertical integration. The organization is subject to the provider's execution.

The loss of control should be weighed in contradiction of the advantages of cost reduction. Company R can shield itself from inconsistent providers by keeping up a rundown of licensed providers. Company R should furnish these providers with hikes or incentives for providing exceptional services, for example, amount buys and quick invoice payment so as to increase favored customer standing. The provider in the scenario mentions the suppliers.

Answer 6

Chapter 6, Problem 26PSB

a.

To determine

The cost items that is relevant to make-or-outsource decision.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Decision making: It is a vital capacity in the management, since decision making is identified with issue, a compelling decision making accomplishes the preferred objectives or goals by taking care of such issues.

The cost items that are relevant to make-or-outsource decision are as follows:

The unit-level costs of creation can be avoided if the Product X is bought. Likewise, it is sensible to accept that the cost the salary of production supervisor can be avoided if the manufacturing development is rejected. Since Company R will keep on promoting the item, the selling costs, product-level advertising cost, and facility-sustaining costs will proceed irrespective whether Product X is made or bought. These costs may not be avoided by obtaining the Product X. Thus, the below items would be relevant to the make-or-outsource decision. The items that relevant to make-or-outsource decision is mentioned in the below part.

Determine the total avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×100,000)+($0.20×100,000)+($0.50×100,000)+$160,000]=[$120,000+$20,000+$50,000+$160,000]=$350,000

Therefore the total avoidable cost is $350,000.

Answer 7

Chapter 6, Problem 26PSB

a.

To determine

The cost items that is relevant to make-or-outsource decision.

Answer 8

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Decision making: It is a vital capacity in the management, since decision making is identified with issue, a compelling decision making accomplishes the preferred objectives or goals by taking care of such issues.

The cost items that are relevant to make-or-outsource decision are as follows:

The unit-level costs of creation can be avoided if the Product X is bought. Likewise, it is sensible to accept that the cost the salary of production supervisor can be avoided if the manufacturing development is rejected. Since Company R will keep on promoting the item, the selling costs, product-level advertising cost, and facility-sustaining costs will proceed irrespective whether Product X is made or bought. These costs may not be avoided by obtaining the Product X. Thus, the below items would be relevant to the make-or-outsource decision. The items that relevant to make-or-outsource decision is mentioned in the below part.

Determine the total avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×100,000)+($0.20×100,000)+($0.50×100,000)+$160,000]=[$120,000+$20,000+$50,000+$160,000]=$350,000

Therefore the total avoidable cost is $350,000.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

To determine

Whether Company R continue to make the product or buy from the supplier by determining the change in net income.

b.

Expert Solution

Explanation of Solution

Determine the cost per unit

Cost per unit=[Avoidable CostNumber of Units]=[$350,000100,000]=$3.50

Therefore the cost per unit is $3.50.

Determine the increase in net income

Increase in Net Income=[Number of Units×(Avoidable Cost−Actual Price)]=[(100,000×($3.50−$3.20))]=[100,000×$0.30]=$30,000

Therefore the increase in net income is $30,000.

The reason on whether Company R would continue to make the product or buy from the supplier is as follows:

The avoidable cost per unit of manufacturing the Product X is $3.50 per unit. Since the cost to buy is $3.20, Company R can lessen costs by buying instead of producing the item. Consequently, outsourcing the item would expand income by $30,000.

Therefore Company R should purchase the product.

Answer 13

b.

To determine

Whether Company R continue to make the product or buy from the supplier by determining the change in net income.

Answer 14

b.

Expert Solution

Explanation of Solution

Determine the cost per unit

Cost per unit=[Avoidable CostNumber of Units]=[$350,000100,000]=$3.50

Therefore the cost per unit is $3.50.

Determine the increase in net income

Increase in Net Income=[Number of Units×(Avoidable Cost−Actual Price)]=[(100,000×($3.50−$3.20))]=[100,000×$0.30]=$30,000

Therefore the increase in net income is $30,000.

The reason on whether Company R would continue to make the product or buy from the supplier is as follows:

The avoidable cost per unit of manufacturing the Product X is $3.50 per unit. Since the cost to buy is $3.20, Company R can lessen costs by buying instead of producing the item. Consequently, outsourcing the item would expand income by $30,000.

Therefore Company R should purchase the product.

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

To determine

Whether Company R should buy Product X if sales increase by 60,000 units.

c.

Expert Solution

Explanation of Solution

Determine the avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×160,000)+($0.20×160,000)+($0.50×160,000)+$160,000]=[$192,000+$32,000+$80,000+$160,000]=$464,000

Therefore the avoidable cost is $464,000.

Determine the cost per unit

Avoidable Cost=[Avoidable CostNumber of Units]=[$464,000160,000]=$2.90

Therefore the cost per unit is $2.90.

The reasons on whether Company R should buy Product X if sales increase by 60,000 units is as follows:

The cost of the supervisor’s salary is fixed with respect to the number of units of Product X manufactured and sold. Likewise, the cost per unit will drop as a result of increase in sales. At the current level of 160,000 units the avoidable cost per unit is lower to manufacture at $2.90, than to purchase at $3.20. Company R should keep on making the Product X. As this issue illustrates, the decision to outsource should think about the opportunity of future development and also present production.

Therefore Company R should continue to make the product.

Answer 19

c.

To determine

Whether Company R should buy Product X if sales increase by 60,000 units.

Answer 20

c.

Expert Solution

Explanation of Solution

Determine the avoidable costs

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary]=[($1.20×160,000)+($0.20×160,000)+($0.50×160,000)+$160,000]=[$192,000+$32,000+$80,000+$160,000]=$464,000

Therefore the avoidable cost is $464,000.

Determine the cost per unit

Avoidable Cost=[Avoidable CostNumber of Units]=[$464,000160,000]=$2.90

Therefore the cost per unit is $2.90.

The reasons on whether Company R should buy Product X if sales increase by 60,000 units is as follows:

The cost of the supervisor’s salary is fixed with respect to the number of units of Product X manufactured and sold. Likewise, the cost per unit will drop as a result of increase in sales. At the current level of 160,000 units the avoidable cost per unit is lower to manufacture at $2.90, than to purchase at $3.20. Company R should keep on making the Product X. As this issue illustrates, the decision to outsource should think about the opportunity of future development and also present production.

Therefore Company R should continue to make the product.

Answer 21

c.

Expert Solution

Answer 22

c.

Expert Solution

Answer 23

Expert Solution

Answer 24

d.

To determine

The qualitative factors that Company R should consider before deciding to outsource Product X.

d.

Expert Solution

Explanation of Solution

The qualitative factors that Company R should consider before deciding to outsource Product X is as follows:

Before focusing on the outsourcing decision, Company R must think about the capacity of the provider to furnish Product X as per the organization's quality norms. Likewise, Company R must guarantee itself that the item will be conveyed on an appropriate premise. By outsourcing, Company R is losing the advantages of vertical integration. The organization is subject to the provider's execution.

The loss of control should be weighed in contradiction of the advantages of cost reduction. Company R can shield itself from inconsistent providers by keeping up a rundown of licensed providers. Company R should furnish these providers with hikes or incentives for providing exceptional services, for example, amount buys and quick invoice payment so as to increase favored customer standing. The provider in the scenario mentions the suppliers.

Answer 25

d.

To determine

The qualitative factors that Company R should consider before deciding to outsource Product X.

Answer 26

d.

Expert Solution

Explanation of Solution

The qualitative factors that Company R should consider before deciding to outsource Product X is as follows:

Before focusing on the outsourcing decision, Company R must think about the capacity of the provider to furnish Product X as per the organization's quality norms. Likewise, Company R must guarantee itself that the item will be conveyed on an appropriate premise. By outsourcing, Company R is losing the advantages of vertical integration. The organization is subject to the provider's execution.

The loss of control should be weighed in contradiction of the advantages of cost reduction. Company R can shield itself from inconsistent providers by keeping up a rundown of licensed providers. Company R should furnish these providers with hikes or incentives for providing exceptional services, for example, amount buys and quick invoice payment so as to increase favored customer standing. The provider in the scenario mentions the suppliers.