1.
Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.
The financial advantage or disadvantage of purchasing drums from outside if the company needs 60,000 drums per year.
1.
Answer to Problem 6.28P
The financial advantage is $36000 if the drums are purchased from outside supplier
Explanation of Solution
| Differential Cost per D | Total Differential Cost 60000 drums | |||
| Make $ | Buy | Make | Buy | |
| Outside supplier’s price | 18 | 1,080,000 | ||
| Direct material | 10.35 | 621000 | ||
| Direct labor | 4.20 | 252000 | ||
| Variable | 1.05 | 63000 | ||
| supervision | 0.75 | 45000 | ||
| Equipment rental | 2.25 | 135000 | ||
| Total cost | 18.60 | 18 | 116000 | 1,080,000 |
Financial advantage:
Therefore, financial advantage is $36000 if the drums are purchased from outside supplier
Given that making new equipment reduces direct labor and variable overhead cost by 30% so it is taken as 70% (
Equipment rental is $135000 per year here we need per drum cost so
2.
Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.
The financial advantage or disadvantage of purchasing drums from outside if the company needs 75,000 drums per year.
2.
Answer to Problem 6.28P
The financial advantage is $0 if the drums are purchased from outside supplier
Explanation of Solution
| Differential Cost per D | Total Differential Cost 60000 drums | |||
| Make $ | Buy | Make | Buy | |
| Outside supplier’s price | 18 | 1,350,000 | ||
| Direct material | 10.35 | 776250 | ||
| Direct labor | 4.20 | 315000 | ||
| Variable overhead | 1.05 | 78750 | ||
| supervision | 0.75 | 45000 | ||
| Equipment rental | 2.25 | 135000 | ||
| Total cost | 18.60 | 18 | 1350000 | 1350000 |
Financial advantage:
Therefore, financial advantage is $0 if the drums are purchased from outside supplier
Equipment rental is $135000 per year here we need per drum cost so
Supervision cost also declined with increase drums.
3.
Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.
The financial advantage or disadvantage of purchasing drums from outside if the company needs 90,000 drums per year
3.
Answer to Problem 6.28P
The financial advantage is $36000 if the drums are purchased from outside supplier
Explanation of Solution
| Differential Cost per D | Total Differential Cost 60000 drums | |||
| Make $ | Buy $ | Make $` | Buy $ | |
| Outside supplier’s price | 18 | 1,620,000 | ||
| Direct material | 10.35 | 931,500 | ||
| Direct labor | 4.20 | 378,000 | ||
| Variable overhead | 1.05 | 94,500 | ||
| supervision | 0.75 | 45,000 | ||
| Equipment rental | 2.25 | 135,000 | ||
| Total cost | 18.60 | 18 | 1,584,000 | 1,620,000 |
Financial advantage:
Therefore, financial advantage is $36000 if the drums are purchased from outside supplier
Equipment rental is $135000 per year here we need per drum cost so
Supervision cost also declined with increase drums.
4.
Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.
The factors recommended for the company before making a decision.
4.
Answer to Problem 6.28P
The factors are given below.
Explanation of Solution
The other factors that need to be considered by the firm before decision making are:
- Requirement of the quality of material and the quality supplied by the supplier
- Quantity of the drums produced in the future
- Cost of material and labor in future.
- Rely on single supplier by the company.
- Supplier capability of delivering the material on time.
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Chapter 6 Solutions
MANAGERIAL ACCOUNTING
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