Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Chapter 10, Problem 6PB
Regal Executive, Inc., produces executive motor coaches and currently manufactures the cent awnings that accompany them at these costs:
The company received an offer from Saied Tents to produce the awnings for $3,200 per unit and supply 1,000 awnings for the coming year’s estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas.
Assume that for the short-term decision-making process demonstrated in this problem, the company’s total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased.
The specialized equipment cannot be used and has no market value. However, the space occupied by the awning production can be used by a different production group that will lease it for $60,000 per year. Should the company make or buy the awnings?
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WorldSystems manufactures an optical switch that it uses in its final product. WorldSystems incurred the following manufacturing costs when it produced 72,000
units last year:
WorldSystems does not yet know how many switches it will need this year; however, another company has offered to sell WorldSystems
$11.50 per unit. If WorldSystems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used fe
purpose, yet none of the fixed costs are avoidable.
E (Click the icon to view the manufacturing costs.)
Read the reguirements.
Requirement 1. Given the same cost structure, should WorldSystems make or buy the switch? Show your analysis.
Complete an incremental analysis to show whether WorldSystems should make or buy the switch. (Enter a "0" for any zero amounts. Round amounts to the nearest cent. Use a minus sign or parentheses when the cost to buy exceeds the cost to make.)
World Systems
Incremental Analysis for Outsourcing Decision
- X
Make
Buy…
The company has an offer from Duvall Valves to produce the part for $2,000 per unit and supply 1,000 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year. What is the incremental savings of buying the valves? (The answer should be stated in a per-unit format and is a positive number)
Futura Company purchases the 71,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $10.40
per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than
buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the
production cost per unit is $11.50 as shown below:
Direct materials
Direct labor
Supervision
Depreciation
Variable manufacturing overhead
Rent
Total product cost
Per Unit
$ 5.00
2.20
1.90
1.20
0.70
0.50
$ 11.50
Total
$ 134,900
$ 85,200
$ 35,500
If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $134,900) to oversee production. However,
the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above
is based on space utilized in the plant. The total rent on the plant is $83,000 per period.…
Chapter 10 Solutions
Principles of Accounting Volume 2
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