The avoidable cost per unit of making the Model K, based on the results whether Company CT should outsource Model K.

Question

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Answer 1

Question

Chapter 6, Problem 27PSB

a.

To determine

The avoidable cost per unit of making the Model K, based on the results whether Company CT should outsource Model K.

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.

Avoidable cost: The cost that can be rejected off completely or to some degree by choosing one option over another in a decision making circumstance. In managerial accounting, this term is identical with relevant cost and differential cost.

Determine the total avoidable costs

The facility-sustaining costs and stock holding costs about 50% remain the equivalent irrespective of whether Model K are obtained or produced. Because these costs do not contrast between the alternatives, they are not avoidable. The depreciation cost is a sunk cost that is not avoidable. Nonetheless, the annual lease option of $40,000 is an opportunity cost that can be avoided if they quit producing Model K.

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($20×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$200,000+$40,000+$40,000+$60,000+$60,000]=$550,000

Therefore the total avoidable cost is $550,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$550,00010,000]=$55

Therefore the avoidable cost per unit is $55.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Purchase Price)]=[10,000×($55−$35)]=[10,000×$20]=$200,000

Therefore the increase in income is $200,000.

Conclusion

From the results obtained above, the avoidable cost of $55 is greater than the purchase cost of $35. Hence Company CT should outsource Model K. Outsourcing would diminish cost and increments productivity by $200,000.

Therefore Company CT should outsource the Model K.

b.

To determine

The avoidable cost per unit of produce Model K using new equipment and old equipment and the impact on profitability if Model K are made using old equipment versus the new equipment.

b.

Expert Solution

Explanation of Solution

Determine the avoidable manufacturing costs of Model K

Avoidable ManufacturingCost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($16×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$160,000+$40,000+$40,000+$60,000+$60,000]=$510,000

Therefore the avoidable cost of using the old equipment is $510,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$510,00010,000]=$51

Therefore the avoidable cost per unit is $51.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Avoidable Cost per unitNew)]=[10,000×($55−$51)]=[10,000×$4]=$40,000

Therefore the increase in income is $40,000.

Conclusion

From the results obtained above, the avoidable cost of $51 is lesser than the actual purchase cost of $55. Hence the productivity would increments by $40,000.

Therefore Company CT should replace the current equipment.

c.

To determine

The impact on profitability between two alternatives.

c.

Expert Solution

Explanation of Solution

Determine the difference of cost per unit between two alternatives

Difference=[Actual Cost−Cost per unit]=[$51−$35]=$16

Therefore the difference of cost per unit between two alternatives is $16.

Determine the increase in profitability

Increase in Profitability=[Number of Units×Difference in Cost per unit]=[$16×10,000]=$160,000

Therefore the increase in profitability is $160,000.

Conclusion

From the results obtained above, utilizing the new equipment to make Model K is less expensive than utilizing the old equipment and it is even more profitable to outsource Model K. In fact, productivity will be $160,000 higher with outsourcing than it will be if the new equipment is utilized to produce Model K.

Therefore Company CT should outsource Model K.

d.

To determine

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimize the risk of establishing supplier relationship.

d.

Expert Solution

Explanation of Solution

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimizes the risk of establishing supplier relationship is as follows:

Before focusing on the outsourcing decision, Company CT must think about the capacity of the provider or suppliers to deliver the Model K as per the organization's quality principles. Likewise, Company CT must guarantee itself that the Model K will be conveyed on a convenient premise. By outsourcing, Company CT is dropping the advantages of vertical integration.

The organization is reliant on the provider's enactment. The loss of control should be weighed in contradiction of the advantages of cost reduction. Company CT can shield itself from problematic providers by keeping up a rundown of licensed providers. Company CT 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.

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Answer 2

Question

Chapter 6, Problem 27PSB

a.

To determine

The avoidable cost per unit of making the Model K, based on the results whether Company CT should outsource Model K.

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.

Avoidable cost: The cost that can be rejected off completely or to some degree by choosing one option over another in a decision making circumstance. In managerial accounting, this term is identical with relevant cost and differential cost.

Determine the total avoidable costs

The facility-sustaining costs and stock holding costs about 50% remain the equivalent irrespective of whether Model K are obtained or produced. Because these costs do not contrast between the alternatives, they are not avoidable. The depreciation cost is a sunk cost that is not avoidable. Nonetheless, the annual lease option of $40,000 is an opportunity cost that can be avoided if they quit producing Model K.

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($20×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$200,000+$40,000+$40,000+$60,000+$60,000]=$550,000

Therefore the total avoidable cost is $550,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$550,00010,000]=$55

Therefore the avoidable cost per unit is $55.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Purchase Price)]=[10,000×($55−$35)]=[10,000×$20]=$200,000

Therefore the increase in income is $200,000.

Conclusion

From the results obtained above, the avoidable cost of $55 is greater than the purchase cost of $35. Hence Company CT should outsource Model K. Outsourcing would diminish cost and increments productivity by $200,000.

Therefore Company CT should outsource the Model K.

b.

To determine

The avoidable cost per unit of produce Model K using new equipment and old equipment and the impact on profitability if Model K are made using old equipment versus the new equipment.

b.

Expert Solution

Explanation of Solution

Determine the avoidable manufacturing costs of Model K

Avoidable ManufacturingCost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($16×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$160,000+$40,000+$40,000+$60,000+$60,000]=$510,000

Therefore the avoidable cost of using the old equipment is $510,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$510,00010,000]=$51

Therefore the avoidable cost per unit is $51.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Avoidable Cost per unitNew)]=[10,000×($55−$51)]=[10,000×$4]=$40,000

Therefore the increase in income is $40,000.

Conclusion

From the results obtained above, the avoidable cost of $51 is lesser than the actual purchase cost of $55. Hence the productivity would increments by $40,000.

Therefore Company CT should replace the current equipment.

c.

To determine

The impact on profitability between two alternatives.

c.

Expert Solution

Explanation of Solution

Determine the difference of cost per unit between two alternatives

Difference=[Actual Cost−Cost per unit]=[$51−$35]=$16

Therefore the difference of cost per unit between two alternatives is $16.

Determine the increase in profitability

Increase in Profitability=[Number of Units×Difference in Cost per unit]=[$16×10,000]=$160,000

Therefore the increase in profitability is $160,000.

Conclusion

From the results obtained above, utilizing the new equipment to make Model K is less expensive than utilizing the old equipment and it is even more profitable to outsource Model K. In fact, productivity will be $160,000 higher with outsourcing than it will be if the new equipment is utilized to produce Model K.

Therefore Company CT should outsource Model K.

d.

To determine

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimize the risk of establishing supplier relationship.

d.

Expert Solution

Explanation of Solution

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimizes the risk of establishing supplier relationship is as follows:

Before focusing on the outsourcing decision, Company CT must think about the capacity of the provider or suppliers to deliver the Model K as per the organization's quality principles. Likewise, Company CT must guarantee itself that the Model K will be conveyed on a convenient premise. By outsourcing, Company CT is dropping the advantages of vertical integration.

The organization is reliant on the provider's enactment. The loss of control should be weighed in contradiction of the advantages of cost reduction. Company CT can shield itself from problematic providers by keeping up a rundown of licensed providers. Company CT 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.

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Answer 3

Question

Chapter 6, Problem 27PSB

a.

To determine

The avoidable cost per unit of making the Model K, based on the results whether Company CT should outsource Model K.

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.

Avoidable cost: The cost that can be rejected off completely or to some degree by choosing one option over another in a decision making circumstance. In managerial accounting, this term is identical with relevant cost and differential cost.

Determine the total avoidable costs

The facility-sustaining costs and stock holding costs about 50% remain the equivalent irrespective of whether Model K are obtained or produced. Because these costs do not contrast between the alternatives, they are not avoidable. The depreciation cost is a sunk cost that is not avoidable. Nonetheless, the annual lease option of $40,000 is an opportunity cost that can be avoided if they quit producing Model K.

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($20×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$200,000+$40,000+$40,000+$60,000+$60,000]=$550,000

Therefore the total avoidable cost is $550,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$550,00010,000]=$55

Therefore the avoidable cost per unit is $55.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Purchase Price)]=[10,000×($55−$35)]=[10,000×$20]=$200,000

Therefore the increase in income is $200,000.

Conclusion

From the results obtained above, the avoidable cost of $55 is greater than the purchase cost of $35. Hence Company CT should outsource Model K. Outsourcing would diminish cost and increments productivity by $200,000.

Therefore Company CT should outsource the Model K.

b.

To determine

The avoidable cost per unit of produce Model K using new equipment and old equipment and the impact on profitability if Model K are made using old equipment versus the new equipment.

b.

Expert Solution

Explanation of Solution

Determine the avoidable manufacturing costs of Model K

Avoidable ManufacturingCost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($16×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$160,000+$40,000+$40,000+$60,000+$60,000]=$510,000

Therefore the avoidable cost of using the old equipment is $510,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$510,00010,000]=$51

Therefore the avoidable cost per unit is $51.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Avoidable Cost per unitNew)]=[10,000×($55−$51)]=[10,000×$4]=$40,000

Therefore the increase in income is $40,000.

Conclusion

From the results obtained above, the avoidable cost of $51 is lesser than the actual purchase cost of $55. Hence the productivity would increments by $40,000.

Therefore Company CT should replace the current equipment.

c.

To determine

The impact on profitability between two alternatives.

c.

Expert Solution

Explanation of Solution

Determine the difference of cost per unit between two alternatives

Difference=[Actual Cost−Cost per unit]=[$51−$35]=$16

Therefore the difference of cost per unit between two alternatives is $16.

Determine the increase in profitability

Increase in Profitability=[Number of Units×Difference in Cost per unit]=[$16×10,000]=$160,000

Therefore the increase in profitability is $160,000.

Conclusion

From the results obtained above, utilizing the new equipment to make Model K is less expensive than utilizing the old equipment and it is even more profitable to outsource Model K. In fact, productivity will be $160,000 higher with outsourcing than it will be if the new equipment is utilized to produce Model K.

Therefore Company CT should outsource Model K.

d.

To determine

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimize the risk of establishing supplier relationship.

d.

Expert Solution

Explanation of Solution

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimizes the risk of establishing supplier relationship is as follows:

Before focusing on the outsourcing decision, Company CT must think about the capacity of the provider or suppliers to deliver the Model K as per the organization's quality principles. Likewise, Company CT must guarantee itself that the Model K will be conveyed on a convenient premise. By outsourcing, Company CT is dropping the advantages of vertical integration.

The organization is reliant on the provider's enactment. The loss of control should be weighed in contradiction of the advantages of cost reduction. Company CT can shield itself from problematic providers by keeping up a rundown of licensed providers. Company CT 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.

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Answer 4

Question

Chapter 6, Problem 27PSB

a.

To determine

The avoidable cost per unit of making the Model K, based on the results whether Company CT should outsource Model K.

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.

Avoidable cost: The cost that can be rejected off completely or to some degree by choosing one option over another in a decision making circumstance. In managerial accounting, this term is identical with relevant cost and differential cost.

Determine the total avoidable costs

The facility-sustaining costs and stock holding costs about 50% remain the equivalent irrespective of whether Model K are obtained or produced. Because these costs do not contrast between the alternatives, they are not avoidable. The depreciation cost is a sunk cost that is not avoidable. Nonetheless, the annual lease option of $40,000 is an opportunity cost that can be avoided if they quit producing Model K.

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($20×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$200,000+$40,000+$40,000+$60,000+$60,000]=$550,000

Therefore the total avoidable cost is $550,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$550,00010,000]=$55

Therefore the avoidable cost per unit is $55.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Purchase Price)]=[10,000×($55−$35)]=[10,000×$20]=$200,000

Therefore the increase in income is $200,000.

Conclusion

From the results obtained above, the avoidable cost of $55 is greater than the purchase cost of $35. Hence Company CT should outsource Model K. Outsourcing would diminish cost and increments productivity by $200,000.

Therefore Company CT should outsource the Model K.

b.

To determine

The avoidable cost per unit of produce Model K using new equipment and old equipment and the impact on profitability if Model K are made using old equipment versus the new equipment.

b.

Expert Solution

Explanation of Solution

Determine the avoidable manufacturing costs of Model K

Avoidable ManufacturingCost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($16×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$160,000+$40,000+$40,000+$60,000+$60,000]=$510,000

Therefore the avoidable cost of using the old equipment is $510,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$510,00010,000]=$51

Therefore the avoidable cost per unit is $51.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Avoidable Cost per unitNew)]=[10,000×($55−$51)]=[10,000×$4]=$40,000

Therefore the increase in income is $40,000.

Conclusion

From the results obtained above, the avoidable cost of $51 is lesser than the actual purchase cost of $55. Hence the productivity would increments by $40,000.

Therefore Company CT should replace the current equipment.

c.

To determine

The impact on profitability between two alternatives.

c.

Expert Solution

Explanation of Solution

Determine the difference of cost per unit between two alternatives

Difference=[Actual Cost−Cost per unit]=[$51−$35]=$16

Therefore the difference of cost per unit between two alternatives is $16.

Determine the increase in profitability

Increase in Profitability=[Number of Units×Difference in Cost per unit]=[$16×10,000]=$160,000

Therefore the increase in profitability is $160,000.

Conclusion

From the results obtained above, utilizing the new equipment to make Model K is less expensive than utilizing the old equipment and it is even more profitable to outsource Model K. In fact, productivity will be $160,000 higher with outsourcing than it will be if the new equipment is utilized to produce Model K.

Therefore Company CT should outsource Model K.

d.

To determine

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimize the risk of establishing supplier relationship.

d.

Expert Solution

Explanation of Solution

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimizes the risk of establishing supplier relationship is as follows:

Before focusing on the outsourcing decision, Company CT must think about the capacity of the provider or suppliers to deliver the Model K as per the organization's quality principles. Likewise, Company CT must guarantee itself that the Model K will be conveyed on a convenient premise. By outsourcing, Company CT is dropping the advantages of vertical integration.

The organization is reliant on the provider's enactment. The loss of control should be weighed in contradiction of the advantages of cost reduction. Company CT can shield itself from problematic providers by keeping up a rundown of licensed providers. Company CT 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.

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Answer 5

Chapter 6, Problem 27PSB

a.

To determine

The avoidable cost per unit of making the Model K, based on the results whether Company CT should outsource Model K.

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.

Avoidable cost: The cost that can be rejected off completely or to some degree by choosing one option over another in a decision making circumstance. In managerial accounting, this term is identical with relevant cost and differential cost.

Determine the total avoidable costs

The facility-sustaining costs and stock holding costs about 50% remain the equivalent irrespective of whether Model K are obtained or produced. Because these costs do not contrast between the alternatives, they are not avoidable. The depreciation cost is a sunk cost that is not avoidable. Nonetheless, the annual lease option of $40,000 is an opportunity cost that can be avoided if they quit producing Model K.

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($20×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$200,000+$40,000+$40,000+$60,000+$60,000]=$550,000

Therefore the total avoidable cost is $550,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$550,00010,000]=$55

Therefore the avoidable cost per unit is $55.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Purchase Price)]=[10,000×($55−$35)]=[10,000×$20]=$200,000

Therefore the increase in income is $200,000.

Conclusion

From the results obtained above, the avoidable cost of $55 is greater than the purchase cost of $35. Hence Company CT should outsource Model K. Outsourcing would diminish cost and increments productivity by $200,000.

Therefore Company CT should outsource the Model K.

b.

To determine

The avoidable cost per unit of produce Model K using new equipment and old equipment and the impact on profitability if Model K are made using old equipment versus the new equipment.

b.

Expert Solution

Explanation of Solution

Determine the avoidable manufacturing costs of Model K

Avoidable ManufacturingCost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($16×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$160,000+$40,000+$40,000+$60,000+$60,000]=$510,000

Therefore the avoidable cost of using the old equipment is $510,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$510,00010,000]=$51

Therefore the avoidable cost per unit is $51.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Avoidable Cost per unitNew)]=[10,000×($55−$51)]=[10,000×$4]=$40,000

Therefore the increase in income is $40,000.

Conclusion

From the results obtained above, the avoidable cost of $51 is lesser than the actual purchase cost of $55. Hence the productivity would increments by $40,000.

Therefore Company CT should replace the current equipment.

c.

To determine

The impact on profitability between two alternatives.

c.

Expert Solution

Explanation of Solution

Determine the difference of cost per unit between two alternatives

Difference=[Actual Cost−Cost per unit]=[$51−$35]=$16

Therefore the difference of cost per unit between two alternatives is $16.

Determine the increase in profitability

Increase in Profitability=[Number of Units×Difference in Cost per unit]=[$16×10,000]=$160,000

Therefore the increase in profitability is $160,000.

Conclusion

From the results obtained above, utilizing the new equipment to make Model K is less expensive than utilizing the old equipment and it is even more profitable to outsource Model K. In fact, productivity will be $160,000 higher with outsourcing than it will be if the new equipment is utilized to produce Model K.

Therefore Company CT should outsource Model K.

d.

To determine

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimize the risk of establishing supplier relationship.

d.

Expert Solution

Explanation of Solution

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimizes the risk of establishing supplier relationship is as follows:

Before focusing on the outsourcing decision, Company CT must think about the capacity of the provider or suppliers to deliver the Model K as per the organization's quality principles. Likewise, Company CT must guarantee itself that the Model K will be conveyed on a convenient premise. By outsourcing, Company CT is dropping the advantages of vertical integration.

The organization is reliant on the provider's enactment. The loss of control should be weighed in contradiction of the advantages of cost reduction. Company CT can shield itself from problematic providers by keeping up a rundown of licensed providers. Company CT 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.

Answer 6

Chapter 6, Problem 27PSB

a.

To determine

The avoidable cost per unit of making the Model K, based on the results whether Company CT should outsource Model K.

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.

Avoidable cost: The cost that can be rejected off completely or to some degree by choosing one option over another in a decision making circumstance. In managerial accounting, this term is identical with relevant cost and differential cost.

Determine the total avoidable costs

The facility-sustaining costs and stock holding costs about 50% remain the equivalent irrespective of whether Model K are obtained or produced. Because these costs do not contrast between the alternatives, they are not avoidable. The depreciation cost is a sunk cost that is not avoidable. Nonetheless, the annual lease option of $40,000 is an opportunity cost that can be avoided if they quit producing Model K.

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($20×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$200,000+$40,000+$40,000+$60,000+$60,000]=$550,000

Therefore the total avoidable cost is $550,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$550,00010,000]=$55

Therefore the avoidable cost per unit is $55.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Purchase Price)]=[10,000×($55−$35)]=[10,000×$20]=$200,000

Therefore the increase in income is $200,000.

Conclusion

From the results obtained above, the avoidable cost of $55 is greater than the purchase cost of $35. Hence Company CT should outsource Model K. Outsourcing would diminish cost and increments productivity by $200,000.

Therefore Company CT should outsource the Model K.

Answer 7

Chapter 6, Problem 27PSB

a.

To determine

The avoidable cost per unit of making the Model K, based on the results whether Company CT should outsource Model K.

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.

Avoidable cost: The cost that can be rejected off completely or to some degree by choosing one option over another in a decision making circumstance. In managerial accounting, this term is identical with relevant cost and differential cost.

Determine the total avoidable costs

The facility-sustaining costs and stock holding costs about 50% remain the equivalent irrespective of whether Model K are obtained or produced. Because these costs do not contrast between the alternatives, they are not avoidable. The depreciation cost is a sunk cost that is not avoidable. Nonetheless, the annual lease option of $40,000 is an opportunity cost that can be avoided if they quit producing Model K.

Avoidable Cost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($20×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$200,000+$40,000+$40,000+$60,000+$60,000]=$550,000

Therefore the total avoidable cost is $550,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$550,00010,000]=$55

Therefore the avoidable cost per unit is $55.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Purchase Price)]=[10,000×($55−$35)]=[10,000×$20]=$200,000

Therefore the increase in income is $200,000.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Conclusion

From the results obtained above, the avoidable cost of $55 is greater than the purchase cost of $35. Hence Company CT should outsource Model K. Outsourcing would diminish cost and increments productivity by $200,000.

Therefore Company CT should outsource the Model K.

Answer 13

b.

To determine

The avoidable cost per unit of produce Model K using new equipment and old equipment and the impact on profitability if Model K are made using old equipment versus the new equipment.

b.

Expert Solution

Explanation of Solution

Determine the avoidable manufacturing costs of Model K

Avoidable ManufacturingCost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($16×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$160,000+$40,000+$40,000+$60,000+$60,000]=$510,000

Therefore the avoidable cost of using the old equipment is $510,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$510,00010,000]=$51

Therefore the avoidable cost per unit is $51.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Avoidable Cost per unitNew)]=[10,000×($55−$51)]=[10,000×$4]=$40,000

Therefore the increase in income is $40,000.

Conclusion

From the results obtained above, the avoidable cost of $51 is lesser than the actual purchase cost of $55. Hence the productivity would increments by $40,000.

Therefore Company CT should replace the current equipment.

Answer 14

b.

To determine

The avoidable cost per unit of produce Model K using new equipment and old equipment and the impact on profitability if Model K are made using old equipment versus the new equipment.

Answer 15

b.

Expert Solution

Explanation of Solution

Determine the avoidable manufacturing costs of Model K

Avoidable ManufacturingCost=[Unit Material Cost+Unit Labor Cost+Unit Overhead Cost+Supervisor Salary+Opportunity Cost+Inventory Holding Costs]=[($15×10,000)+($16×10,000)+($4×10,000)+$40,000+$60,000+($120,000×50%)]=[$150,000+$160,000+$40,000+$40,000+$60,000+$60,000]=$510,000

Therefore the avoidable cost of using the old equipment is $510,000.

Determine the avoidable cost per unit

Avoidable Cost per unit=[Total Avoidable CostNumber of Units]=[$510,00010,000]=$51

Therefore the avoidable cost per unit is $51.

Determine the increase in income

Outsourcing will reduce the cost and increases the income.

Increase in Income=[Number of Units×(Avoidable Cost per unit−Avoidable Cost per unitNew)]=[10,000×($55−$51)]=[10,000×$4]=$40,000

Therefore the increase in income is $40,000.

Answer 16

b.

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Answer 17

b.

Expert Solution

Answer 18

Expert Solution

Answer 19

Conclusion

From the results obtained above, the avoidable cost of $51 is lesser than the actual purchase cost of $55. Hence the productivity would increments by $40,000.

Therefore Company CT should replace the current equipment.

Answer 20

c.

To determine

The impact on profitability between two alternatives.

c.

Expert Solution

Explanation of Solution

Determine the difference of cost per unit between two alternatives

Difference=[Actual Cost−Cost per unit]=[$51−$35]=$16

Therefore the difference of cost per unit between two alternatives is $16.

Determine the increase in profitability

Increase in Profitability=[Number of Units×Difference in Cost per unit]=[$16×10,000]=$160,000

Therefore the increase in profitability is $160,000.

Conclusion

From the results obtained above, utilizing the new equipment to make Model K is less expensive than utilizing the old equipment and it is even more profitable to outsource Model K. In fact, productivity will be $160,000 higher with outsourcing than it will be if the new equipment is utilized to produce Model K.

Therefore Company CT should outsource Model K.

Answer 21

c.

To determine

The impact on profitability between two alternatives.

Answer 22

c.

Expert Solution

Explanation of Solution

Determine the difference of cost per unit between two alternatives

Difference=[Actual Cost−Cost per unit]=[$51−$35]=$16

Therefore the difference of cost per unit between two alternatives is $16.

Determine the increase in profitability

Increase in Profitability=[Number of Units×Difference in Cost per unit]=[$16×10,000]=$160,000

Therefore the increase in profitability is $160,000.

Answer 23

c.

Expert Solution

Answer 24

c.

Expert Solution

Answer 25

Expert Solution

Answer 26

Conclusion

From the results obtained above, utilizing the new equipment to make Model K is less expensive than utilizing the old equipment and it is even more profitable to outsource Model K. In fact, productivity will be $160,000 higher with outsourcing than it will be if the new equipment is utilized to produce Model K.

Therefore Company CT should outsource Model K.

Answer 27

d.

To determine

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimize the risk of establishing supplier relationship.

d.

Expert Solution

Explanation of Solution

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimizes the risk of establishing supplier relationship is as follows:

Before focusing on the outsourcing decision, Company CT must think about the capacity of the provider or suppliers to deliver the Model K as per the organization's quality principles. Likewise, Company CT must guarantee itself that the Model K will be conveyed on a convenient premise. By outsourcing, Company CT is dropping the advantages of vertical integration.

The organization is reliant on the provider's enactment. The loss of control should be weighed in contradiction of the advantages of cost reduction. Company CT can shield itself from problematic providers by keeping up a rundown of licensed providers. Company CT 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.

Answer 28

d.

To determine

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimize the risk of establishing supplier relationship.

Answer 29

d.

Expert Solution

Explanation of Solution

The qualitative factors Company CT should consider before making a decision to outsource and the ways in which the company minimizes the risk of establishing supplier relationship is as follows:

Before focusing on the outsourcing decision, Company CT must think about the capacity of the provider or suppliers to deliver the Model K as per the organization's quality principles. Likewise, Company CT must guarantee itself that the Model K will be conveyed on a convenient premise. By outsourcing, Company CT is dropping the advantages of vertical integration.

The organization is reliant on the provider's enactment. The loss of control should be weighed in contradiction of the advantages of cost reduction. Company CT can shield itself from problematic providers by keeping up a rundown of licensed providers. Company CT 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.