A company produces 300 microwave ovens per montn, each of WNich inciudes one electrical circuit. The company currently manufactures the circuit in - house but is considering outsourcing the circuits at a contract cost of $48 each. Currently, the cost of producing circuits in - house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. Assume the company could not reduce any fixed costs by outsourcing and that there is no alternative use for the facilities presently being used to make circuits. If the company outsources, operating income will:

A company produces 300 microwave ovens per montn, each of WNich inciudes one electrical circuit. The company currently manufactures the circuit in - house but is considering outsourcing the circuits at a contract cost of $48 each. Currently, the cost of producing circuits in - house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. Assume the company could not reduce any fixed costs by outsourcing and that there is no alternative use for the facilities presently being used to make circuits. If the company outsources, operating income will:

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 7EB: Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has...

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Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?
Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?
Daily Kneads, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $20,000 for 20,000 pounds of the product. The costs per pound to make this product include: Cost per Pound $0.30 Direct Labor Direct Materials $0.60 $0.70 Allocated Unavoidable Overhead If Daily Kneads outsources, what is the savings (or loss) per pound for the company as a whole? If the amount is a loss include a negative sign (not parentheses) in your answer. "_"
A large electronics manufacturer is considering outsourcing the manufacturing of a diaphragm used in its large speaker. The company estimates that annual fixed costs of manufacturing the part in-house, which include equipment, maintenance, and management, amounts to$6.9million. The variable costs of labor and material are$7per unit. The company has an offer from a major subcontractor to produce the part for \$12 per unit. However, the subcontractor wants the company to share in the costs of the equipment. The electronics company estimates that the total cost would be$3.4million, which also includes management oversight for the new supply contact. The company must consume more than diaphragms to make the manufacturing the part in-house option least costly. (Enter your response rounded up to the nearest whole number.).
Notson, Inc. produces several models of clocks. An outside supplier has offered to produce the commercial clocks for Notson for $420 each. Notson needs 1,200 clocks annually. Notson has provided the following unit costs for its commercial clocks: Direct materials Direct labor Variable overhead Fixed overhead (40% avoidable) $100 140 80 150 What is the incremental effect on net income if Notson choses to outsource the production of the 1,000 clocks annually? Should Notson make or buy the clocks?
Eyescape Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Eyescape Systems the switch for $14.50 per unit. None of Eyescape's fixed costs are avoidable. 1(Click the icon to view the outsourcing decision.) Eyescape Systems needs 78,000 optical switches. By outsourcing them, Eyescape Systems can use its idle facilities to manufacture another product that will contribute $224,000 to operating income. Read the requirements2. Requirement 1. Identify the expected net costs that Eyescape Systems will incur to acquire 78,000 switches under three alternative plans. Outsource switches Facilities Make new Switch costs Make Idle product Variable costs: Direct materials Direct labor Variable manufacturing overhead Purchase cost Expected profit contribution from the other product…
Voltaic Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 45,000 parts is $105,000.00, which includes fixed costs of $50,000.00 and variable costs of $55,000.00. The company can buy the part from an outside supplier for $1.00 per unit and avoid 20% of the fixed costs. Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $17,000.00. If Voltaic outsources, what will be the effect on operating income? OA. decrease of $37,000.00 B. increase of $37,000.00 C. increase of $17,000.00 OD. decrease of $10,000.00 ...
Rossignol makes downhill ski equipment. Assume that Atomic has offered to produce ski poles for Rossignol for $18 per pair. Rossignol needs 100,000 pairs of poles per period. Rossignol can only avoid $125,000 of fixed costs if it outsources; the remaining fixed costs are unavoidable. Rossignol currently has the following costs at a production level of 100,000 pairs of poles: Manufacturing Costs Total Cost Cost per pair (100,000 pairs) Direct Materials $750,000 $7.50 Direct Labor 80,000 0.80 Variable MOH 520,000 5.20 Fixed MOH 650,000 6.50 Total $2,000,000 $20.00 1. Should Rossignol outsource ski pole production if the next best use of the freed capacity is to leave it idle? What effect will outsourcing have on Rossignol's operating income? 2. If the freed capacity could be used to produce ski boots that would provide $500,000 of operating income, should Rossignol outsource ski pole production?
Value Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 32,000 parts is $90,000, which includes fixed costs of $30,000 and variable costs of $60,000. The company can buy this part from an external supplier for $5 per unit and avoid 10% of the fixed costs. If Value Electronics decides to outsource the production of the part, how will it impact its operating income? A. Operating income increases by $97,000. B. Operating income decreases by $100,000. C. Operating income decreases by $97,000. D. Operating income increases by $100,000.
Mohave Corporation is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,900 units per year for $7.50 each. Mohave the following information about the cost of producing tote bags: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 70 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags. Required: 1. Compute the difference in cost between making and buying the umbrella tote bag. 2. Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them? 3-a. Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $12,000 in…
Bancroft currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $240. Bancroft currently produces 20,000 subcomponents at the following manufacturing costs: Cost per Unit Direct materials $ 90 Direct labor 60 Variable manufacturing overhead 70 Fixed manufacturing overhead 50 Total unit cost $ 270 Required: If Bancroft has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier? If Bancroft has no alternative uses for the manufacturing capacity, what would be the maximum price per unit Bancroft should be willing to pay the supplier? Now assume Bancroft would avoid $640,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier?