Guthrie Generators manufactures a solenold that it uses in several of its products. Management is considering whether to continue manufacturing the solenoids or to buy them from an outside source. The following information is available: 1. The company needs 20,000 solenoids per year. The solenoids can be purchased from an outside supplier at a cost of $15 per unit. 2. The unit cost of manufacturing the solenoids is $20, computed as follows: Direct materials Direct labor Factory overhead: Variable Fixed Total manufacturing costs Cost per unit ($400,000 ÷ 20,000 units) 3. If the company decides not to manufacture the solenolds, It will eliminate all of the raw materials and direct labor costs but only 75 percent of the variable factory overhead costs. 4. If the solenoids are purchased from the outside source, machinery used in the production of solenolds will be sold at its book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $5,000 in fixed costs associated with depreciation and taxes. No other reductions in fixed factory overhead will result from discontinuing the production of the solenolds. Required: a-1. Prepare a schedule to determine the incremental cost or benefit of buying the solenoids from the outside supplier. a-2. Would you recommend that the company manufacture the solenolds or buy them from the outside source? b-1. Assume that if the solenoids are purchased from the outside source, the manufacturing space previously used to produce them can be used to manufacture an additional 4,000 electric wire harnesses used in the Installation of home generators. The wire harnesses have an estimated contribution margin of $4 per unit. Manufacturing additional wire harnesses would have no effect on fixed factory overhead. Compute Incremental cost or benefit of buying the solenolds from the outside source and using the factory space to produce additional wire harnesses. b-2. Would this new assumption change your recommendation as to whether to make or buy the solenolds? Complete this question by entering your answers in the tabs below. Req A1 Reg A2 Req B1 Req 82 Prepare a schedule to determine the incremental cost or benefit of buying the solenoids from the outside supplier. Make the Buy the Incremental Solenoids Solenoids Analysis Manufacturing costs for 20.000 solenoids: Direct materials Direct labor Factory overhead: Variable factory overhead Fixed factory overhead Cost to purchase Total $ 180,000 40,000 80,000 100,000 $ 400,000 $ 20 $ 180,000 40,000 $ 80,000 100,000 S 400 000 $ 180,000 40,000 60,000 5,000

Guthrie Generators manufactures a solenold that it uses in several of its products. Management is considering whether to continue manufacturing the solenoids or to buy them from an outside source. The following information is available: 1. The company needs 20,000 solenoids per year. The solenoids can be purchased from an outside supplier at a cost of $15 per unit. 2. The unit cost of manufacturing the solenoids is $20, computed as follows: Direct materials Direct labor Factory overhead: Variable Fixed Total manufacturing costs Cost per unit ($400,000 ÷ 20,000 units) 3. If the company decides not to manufacture the solenolds, It will eliminate all of the raw materials and direct labor costs but only 75 percent of the variable factory overhead costs. 4. If the solenoids are purchased from the outside source, machinery used in the production of solenolds will be sold at its book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $5,000 in fixed costs associated with depreciation and taxes. No other reductions in fixed factory overhead will result from discontinuing the production of the solenolds. Required: a-1. Prepare a schedule to determine the incremental cost or benefit of buying the solenoids from the outside supplier. a-2. Would you recommend that the company manufacture the solenolds or buy them from the outside source? b-1. Assume that if the solenoids are purchased from the outside source, the manufacturing space previously used to produce them can be used to manufacture an additional 4,000 electric wire harnesses used in the Installation of home generators. The wire harnesses have an estimated contribution margin of $4 per unit. Manufacturing additional wire harnesses would have no effect on fixed factory overhead. Compute Incremental cost or benefit of buying the solenolds from the outside source and using the factory space to produce additional wire harnesses. b-2. Would this new assumption change your recommendation as to whether to make or buy the solenolds? Complete this question by entering your answers in the tabs below. Req A1 Reg A2 Req B1 Req 82 Prepare a schedule to determine the incremental cost or benefit of buying the solenoids from the outside supplier. Make the Buy the Incremental Solenoids Solenoids Analysis Manufacturing costs for 20.000 solenoids: Direct materials Direct labor Factory overhead: Variable factory overhead Fixed factory overhead Cost to purchase Total $ 180,000 40,000 80,000 100,000 $ 400,000 $ 20 $ 180,000 40,000 $ 80,000 100,000 S 400 000 $ 180,000 40,000 60,000 5,000

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 54P

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