a.
The avoidable cost per unit of making the bike frames, based on the results whether Company SB should outsource the bike frames.
a.
Explanation of Solution
Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.
Decision making: It is a vital capacity in the management, since decision making is identified with issue, a compelling decision making accomplishes the preferred objectives or goals by taking care of such issues.
Sunk cost: A sunk cost, otherwise called a stranded cost, is a cost that has just happened and cannot be transformed or evaded. It is also called as a cost that has just been paid and cannot be discounted or lessened.
Opportunity cost: An opportunity cost is the financial idea of potential profits that an organization surrenders by making an elective move.
Determine the total avoidable costs
The facility-sustaining costs and stock holding costs about 20% remain the equivalent irrespective of whether frames are obtained or produced. Because these costs do not contrast between the alternatives, they are not avoidable. The
Therefore the total avoidable cost is $2,122,000.
Determine the avoidable cost per unit
Therefore the avoidable cost per unit is $106.10.
Determine the increase in income
Outsourcing will reduce the cost and increases the income.
Therefore the increase in income is $272,000.
From the results obtained above, the avoidable cost of $106.10 is greater than the purchase cost of $92.50. Hence, Company SB should outsource the frames. Outsourcing would diminish cost and increments productivity by $272,000.
Therefore, Company SB should outsource the bike frames.
b.
The avoidable cost per unit of produce the bike frames using new equipment and old equipment and the impact on profitability if the frames are made using old equipment versus the new equipment.
b.
Explanation of Solution
Determine the total avoidable costs of old equipment
Therefore the total avoidable cost of old equipment is $920,000.
Determine the unit level labor costs
Therefore the unit level labor cost is $17.
Determine the depreciation cost
Therefore the depreciation cost is $210,000.
Determine the total avoidable costs of new equipment
Therefore the total avoidable cost of new equipment is $550,000.
Determine the cost per unit of old equipment
Therefore the cost per unit of old equipment is $46.
Determine the cost per unit of new equipment
Therefore the cost per unit of new equipment is $27.50.
Determine the avoidable costs of using the old equipment
Therefore the avoidable cost of using the old equipment is $370,000.
From the results obtained above, the cost of depreciation of the new equipment is certifiably not a sunk cost for this situation on the grounds that the new equipment has not been bought. The avoidable cost of utilizing the current equipment is $370,000 greater than that of utilizing the new equipment. Thus, replacing the current equipment with the new equipment will build the organization's income by $370,000.
Therefore Company SB should replace the current equipment.
c.
Whether Company SB should purchase the new equipment or outsource the bike frame and the impact on profitability between two alternatives.
c.
Explanation of Solution
Determine the total avoidable costs between two alternatives (old and new equipment)
Therefore the total avoidable cost between two alternatives is $1,752,000.
Determine the cost per unit between two alternatives (old and new equipment)
Therefore the cost per unit of old equipment is $87.60.
Determine the difference of cost per unit between two alternatives
Therefore the difference of cost per unit between two alternatives is $4.90.
Determine the increase in profitability
Therefore the increase in profitability is $98,000.
From the results obtained above, the cost per unit is $87.60, the savings from replacing the old equipment is $4.90 per frame and the increase in profitability is $98,000. Hence the old equipment should be replaced.
Therefore Company SB should replace the old equipment.
d.
The qualitative factors Company SB should consider before making a decision to outsource and the ways in which the company minimize the risk of establishing supplier relationship.
d.
Explanation of Solution
The qualitative factors Company SB should consider before making a decision to outsource and the ways in which the company minimizes the risk of establishing supplier relationship is as follows:
Before focusing on the outsourcing decision, Company SB must think about the capacity of the provider or suppliers to deliver the frames as per the organization's quality principles. Likewise, Company SB must guarantee itself that the frames will be conveyed on a convenient premise. By outsourcing, Company SB is dropping the advantages of vertical integration.
The organization is reliant on the provider's enactment. The loss of control should be weighed in contradiction of the advantages of cost reduction. Company SB can shield itself from problematic providers by keeping up a rundown of licensed providers. Company SB should furnish these providers with hikes or incentives for providing exceptional services, for example, amount buys and quick invoice payment so as to increase favored customer standing.
Want to see more full solutions like this?
Chapter 13 Solutions
Survey Of Accounting
- Problem 4 - Average with Lost Units Problem 4 The Salty Mfg. Co. operates three producing departments, A, B and C. It uses the weighted average costing method. The following data are on the production of Department B for October, 2021: Transfer In Added in Department B Materials Conversion (In pesos) Cost (PhP) Units in Pesos) In process, Oct. 1 Received from Department A Total 5,000 20,000 25,000 19,000 1,000 9,990 39,010 1,020 21,855 998 21,877 Transferred out Normal Loss Abnormal loss In process, Oct. 31 Factory costs are applied evenly throughout the process. Beginning work in process was 20% done while ending work in process is X done. Abnormal loss occurred at the end of the process. What should be the accumulated cost of work in process as of October 31 if the normal loss occurred during the process (with adjustment for lost units based on the remaining good units? 4,500 Your answerarrow_forwardExercise 5-11A (Algo) Allocating facility-level costs and a product elimination decision LO 5-3 Baird Boards produces two kinds of skateboards. Selected unit data for the two boards for the last quarter follow: Production costs Direct materials Direct labor Allocated overhead Total units produced and sold Total sales revenue Basco Boards a. Cost per unit b. Profit $24.20 $ 30.20 $15.10 4, 200 $ 357,000 Basco Boards Baird allocates production overhead using activity-based costing. It allocates delivery expense and sales commissions, which amount to $55,000 per quarter, to the two products equally. Shimano Boards Required a. Compute the per-unit cost for each product. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. b. Compute the profit for each product. $36.40 $51.40 $18.40 8,200 $ 1,000,400 Shimano Boardsarrow_forwardPractice Problem 6 Product Z passes through three processes - A, B and C. The expenses incurred in the three processes during the year 2007 were as under: Particulars Processes A B Units of input issued Details 1000 RO RO RO Cost per unit 50 Direct Materials 1600 3315 3220 Direct labor 2600 8000 6392 Sale price of output (per unit) 70 100 200 The normal loss of the three processes, calculated on the input of every process was A- 5%, B – 15% and C- 20%. The loss of process A was sold at 1RO per unit, and that of Process B at 3 RO and C at 6RO per unit. Two-third of the output of Process A and one- half of the output of Process B was passed to the next process and balance was sold. The entire output of Process C was sold. Prepare three process accounts.arrow_forward
- Question Content Area Prior to installing a JIT system, Grindstone Company used machine hours to assign maintenance costs to its three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $432,000 per year. The machine hours used by each product and the quantity produced of each product are as follows: Machine Hours Quantity Produced 4-inch 5,000 15,000 rolls 6-inch 12,000 12,500 rolls 9-inch 7,000 11,200 rolls After installing JIT, three manufacturing cells were created, and the cell workers were trained to perform maintenance. Maintenance costs for the three cells still totaled $432,000; however, these costs are now traceable to each cell. Cell, 4-inch $125,000 Cell, 6-inch 175,000 Cell, 9-inch 165,000 The maintenance cost per roll of 9-inch insulation before JIT is installed would be a. $14.00. b. $11.25. c. $7.75. d. $30.00.arrow_forwardQuestion 7 You are contemplating leaving your full-time employment to concentrate your ability on the marketing of a new low-energy portable heater. You have spoken to a group of manufacturers of similar product, and you have produced the following data based upon the production of 1200 heaters in the six months to December 31, 2021. R R Unit selling price 160 Less: Direct materials 50 Direct labour 30 Fixed Overheads: Admin 4.00 Rent 7.50 Rates…arrow_forwardExercise 6-11A (Static) Establishing price for an outsourcing decision LO 6-3 Levesque Company makes and sells lawn mowers for which it currently makes the engines. It has an opportunity to purchase the engines from a reliable manufacturer. The annual costs of making the engines are shown here. Cost of materials (20,000 units × $26) Labor (20,000 units × $20) Depreciation on manufacturing equipment* Salary of supervisor of engine production Rental cost of equipment used to make engines Allocated portion of corporate-level facility-sustaining costs Total cost to make 20,000 engines *The equipment has a book value of $90,000 but its market value is zero. Required a. Determine the maximum price per unit that Levesque would be willing to pay for the engines. b. Determine the maximum price per unit that Levesque would be willing to pay for the engines, if production increased to 24,000 units. Note: For all requirements, round intermediate and final answers to 2 decimal places. a. Maximum…arrow_forward
- Question 17 You are contemplating leaving your full-time employment to concentrate your ability on the marketing of a new low-energy portable heater. You have spoken to a group of manufacturers of similar product, and you have produced the following data based upon the production of 1200 heaters in the six months to December 31, 2021. R R Unit selling price 160 Less: Direct materials 50 Direct labour 30 Fixed Overheads: Admin 4.00 Rent 7.50 Rates…arrow_forwardProblem 3 Omantex Co. produces 5,000 units of its new product. The following costs were incurred for that level of production: Direct materials RO 55,000 Direct labor 160,000 Variable overhead 75,000 Fixed overhead 175,000 If Omantex buys the part from Fanja Co. who offers a unit price of RO 68, should the company make or buy the product?arrow_forwardQuestion 11 You are contemplating leaving your full-time employment to concentrate your ability on the marketing of a new low-energy portable heater. You have spoken to a group of manufacturers of similar product, and you have produced the following data based upon the production of 1200 heaters in the six months to December 31, 2021. R R Unit selling price 160 Less: Direct materials 50 Direct labour 30 Fixed Overheads: Admin 4.00 Rent 7.50 Rates…arrow_forward
- Question 23 You are contemplating leaving your full-time employment to concentrate your ability on the marketing of a new low-energy portable heater. You have spoken to a group of manufacturers of similar product, and you have produced the following data based upon the production of 1200 heaters in the six months to December 31, 2021. R R Unit selling price 160 Less: Direct materials 50 Direct labour 30 Fixed Overheads: Admin 4.00 Rent 7.50 Rates…arrow_forwardQuestion Content Area Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 24,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.29. The unit cost is: Direct materials $0.86 Direct labor 0.28 Variable overhead 0.09 Fixed overhead 2.65 Total unit cost $3.88 Required: 1. What are the alternatives for Basu 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 $19,560 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 7arrow_forwardQuestion 4 You are contemplating leaving your full-time employment to concentrate your ability on the marketing of a new low-energy portable heater. You have spoken to a group of manufacturers of similar product, and you have produced the following data based upon the production of 1200 heaters in the six months to December 31, 2021. R R Unit selling price 160 Less: Direct materials 50 Direct labour 30 Fixed Overheads: Admin 4.00 Rent 7.50 Rates…arrow_forward
- Financial & Managerial AccountingAccountingISBN:9781337119207Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning