!Required informationSelf-Study Problem 11-2 (Algo) The Make-vs.-Buy Decision[The following information applies to the questions displayed below.]Highvalu Incorporated manufactures a moderately priced set of lawn furniture (a table and fourchairs) that it sells for $320. The company currently manufactures and sells 7,900 sets per year. Themanufacturing costs include $104 for direct materials and $64 for direct labor per set. The overheadcharge per set is $54, which consists entirely of fixed costs.Assume that Highvalu currently purchases the chair cushions for its lawn set from an outside vendorfor $21 per set. HighValu's chief operations officer wants an analysis of the comparative costs ofmanufacturing these cushions to determine whether bringing the manufacturing in-house wouldsave the company money. Additional information shows that if HighValu were to manufacture thecushions, the direct materials cost would be $8 and the direct labor cost would be $6 per set. Inaddition, to produce the cushions, HighValu would have to purchase cutting and sewing equipment,which would add $29,000 to annual fixed costs.Part 1 (Algo)Required:1. What is the total relevant cost per year to purchase the chair cushions from the outside supplier?2. What is the total relevant cost per year to produce the chair cushions internally?3. What is the estimated net annual effect on operating income of producing the cushions internally rather thanpurchasing the cushions from an external supplier?1.Total relevant cost per year2. Total relevant cost per year3. The estimated net annual effect on operating income

Relevant cost is a management accounting term that describes avoidable costs incurred when making…

Answered: Assume that HighValu currently…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Begonia uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are: Direct materials $10 Direct labor 3 Variable overhead 2 Fixed overhead 4 Begonia uses 130,000 units of 87A per year. Benzyl Company has offered to sell Begonia 130,000 units of 87A per year for $18. Fixed overhead is unavoidable. Should Begonia make or buy the part? Group of answer choices It should make the part because it will save $390,000 over buying it. It should buy the part because it will save $390,000 over making it. It should make the part because it will save $1,250,000 over buying it. It should buy the part because it will save 1,250,000 over making it. It should buy the part because it will save $340,000 over making it.
.A Company produces Optimist sailboats. The costs of producing 107000 tiller extensions for use in the boats are as follows:Direct labor $253000Direct materials 302000Variable overhead 66000Fixed overhead 185000An outside supplier has offered to supply the tiller extensions for $725000. If the company accepts the offer $86000 of fixed costs can be avoided. What is the financial advantage (disadvantage) of accepting the supplier’s offer?
Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Giada Company produces 14,000 units of a component part used in tablet computers. An outside supplier has offered to supply the part for $1.16. The unit cost is: Direct materials $0.73 Direct labor 0.28 Variable overhead 0.07 Fixed overhead 2.00 Total unit cost $3.08 Required: 1. What are the alternatives for Giada Company? 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. List the relevant cost(s) of external purchase. 3. Which alternative is more cost effective and by how much? by $fill in the blank 5 4. What if $21,960 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much? by $fill in the blank 7
Concord Company produces Optimist sailboats. The costs of producing 107000 tiller extensions for use in the boats are as follows: Direct labor $253000 Direct materials 302000 Variable overhead 66000 Fixed overhead 185000 An outside supplier has offered to supply the tiller extensions for $725000. If Concord accepts the offer $86000 of fixed costs can be avoided. What is the financial advantage (disadvantage) of accepting the supplier’s offer? $26000 ($5000) ($26000) $5000
alshetem 2. A company is analyzing a make-versus-purchase situation for a component used in several products, and the engineering department has developed these data: ion A: Purchase 10,000 items per year at a fixed price of $8.50 per item. The cost of placing the order is negligible according to the present cost accounting procedure. ion B: Manufacture 10,000 items per year, using available capacity in the factory. Cost estimates are direct materials $5.00 per item and direct labor = $1.50 per item. Manufacturing overhead is $3.00 per item. Based on these data, should the item be purchased or manufactured? poge buopoa eotoriq 1elted not qge a bsolqu 10 (80lorig ni
1. Kool Kat Furniture manufactures sofas for distribution to several major retail chains. The following costs are incurred in the production and sale of sofas. For each cost listed below, determine if it is a Fixed Cost, a Variable Cost, or a Mixed Cost. Fixed Cost Variable Cost Mixed Cost Cost а. Wood for framing the sofas b. Salary of production vice president C. Rent on experimental equipment, $50 for every sofa produced d. Rental costs of warehouse, $30,000 a month Insurance premiums on property, plant, & equipment, $25,000 per year plus $25 per $25,000 of insured value over $16,000,000. е. Consulting fee of $120,000 paid to efficiency specialists Salesperson's salary, $80,000 plus 4% of the selling price of each f. g. sofa sold h. Janitorial supplies, $25 for each sofa produced i. Employer's FICA taxes on controller's salary of $180,000 j. Fabric for sofa coverings k. Hourly wages of sewing machine operators I. Sewing supplies m. Salary of designers n. Foam rubber for cushion…
Sheridan, Inc. currently manufactures a wicket as its main product. Costs per unit are as follows: Direct materials and direct labor $11 Variable overhead Fixed overhead Total 7 9 $27 Saran Company has contacted Sheridan with an offer to sell it 5400 wickets for $21 each. Of Sheridan's $9 per unit fixed cost, $5 per unit is unavoidable. Should Sheridan make or buy the wickets and why? O Make because the cost savings is $16200 O Make because the cost savings is $5400 O Buy because the cost savings is $10800 O Buy because the cost savings is $5400
Kuat Drive Inc. manufactures machine parts for Star Destroyer engines. CEO Adhi Mundy is considering an offer from a subcontractor to provide 2,000 units of product R2D2 for $120,000. If Kuat Drive does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs: Cost per unit ($) Direct Materials 28 Direct Labor 18 Variable Overhead 16 Allocated Fixed Overhead 4 Questions: What is the relevant cost to make the product internally? What is the estimated increase or decrease in short-term operating profit of producing the product internally versus purchasing the product from a supplier? Which alternative is more attractive to Kuat Drive Inc, make or buy the machine parts? What strategic considerations likely bear on this make vs buy decision? (at least 2 considerations)
Easy Access Medical Supplies makes semi-motorized walking sticks. They have decided to investigate whether they should continue to make or buy the walking sticks from a supplier. Currently, the cost of producing 10,000 semi-motorized walking sticks is as follows: Cost description Per Unit $ Direct Material 15 Direct Labor 10 Variable Factory Overhead 8 Fixed Factory Overhead 15 $48 The same component can be purchased from an outside supplier for $38 per unit. If the company purchases the semi-motorized walking sticks, 20% of the fixed costs will be eliminated. Required: Using incremental analysis, determine if the component should be purchased from the outside supplier? Would your decision in part a) change if the company has the opportunity to rent out its facilities that it currently uses to manufacture the component for $5,500 ? Show full computations. Why “Opportunity Costs” are not recorded in the financial books but…
Easy Access Medical Supplies makes semi-motorized walking sticks. They have decided to investigate whether they should continue to make or buy the walking sticks from a supplier. Currently, the cost of producing 10,000 semi-motorized walking sticks is as follows: Cost description Per Unit $ Direct Material 15 Direct Labor 10 Variable Factory Overhead 8 Fixed Factory Overhead 15 $48 The same component can be purchased from an outside supplier for $38 per unit. If the company purchases the semi-motorized walking sticks, 20% of the fixed costs will be eliminated. Required: a) Using incremental analysis, determine if the component should be purchased from the outside supplier? b) Would your decision in part a) change if the company has the opportunity to rent out its facilities that it currently uses to manufacture the component for $5,500 ? Show full computations. c) Why “Opportunity Costs” are not recorded…
Vaughn, Inc. currently manufactures a wicket as its main product. Costs per unit are as follows: Direct materials and direct labor $11 Variable overhead Fixed overhead Total 5 8 $24 Saran Company has contacted Vaughn with an offer to sell it 6400 wickets for $18 each. Of Vaughn's $8 per unit fixed cost. $5 per unit is unavoidable. Should Vaughn make or buy the wickets and why? O Make because the cost savings is $12800 ◇ Buy because the cost savings is $6400 ○ Buy because the cost savings is $19200 ○ Make because the cost savings is $6400
Millennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $150 and has a total product cost of $120, as follows: Direct materials $90 Direct labor 20 Factory overhead 10 Total $120 It is estimated that the competitive selling price for color laser printers of this type will drop to $140 next year. Millennium Printers wants to establish a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas: Purchase a plastic printer cover with snap-on assembly. This will reduce the amount of direct labor by nine minutes per unit. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $3 per unit. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 45% of the factory overhead is related to running injection molding machines. The direct…

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