3. We produce and sell stereo speakers. We build the wood frame, manufacture the speaker component, and assemble the unit. We are considering buying the speaker component from Sparkle Speakers. Here is our expected cost of manufacturing the speaker component for next year: Variable Manufacturing Costs per component Direct Materials Direct Labor Variable Manufacturing Costs per batch Setup, materials handling, quality control Fixed Manufacturing Costs Avoidable if we purchase speaker component Unavoidable $ 200 60 1,500 300,000 750,000 We plan to manufacture and sell 8,000 speakers next year. We produce the components in batches of 200 units; therefore, we will have 8,000/200 = 40 batch setups. If we purchase the components from Sparkle Speakers, our purchase cost will be $300 per component. Our current production facility would be idle (i.e. no opportunity cost). a. On the basis of financial consideration, should we continue to manufacture the speaker component or should we purchase from Sparkle Speakers? Show work. your b. Assuming it is cheaper to produce, what are some qualitative reasons why we might go ahead and purchase the components? c. Assuming it is cheaper to purchase, what are some qualitative reasons why we might go ahead and produce the components?
3. We produce and sell stereo speakers. We build the wood frame, manufacture the speaker component, and assemble the unit. We are considering buying the speaker component from Sparkle Speakers. Here is our expected cost of manufacturing the speaker component for next year: Variable Manufacturing Costs per component Direct Materials Direct Labor Variable Manufacturing Costs per batch Setup, materials handling, quality control Fixed Manufacturing Costs Avoidable if we purchase speaker component Unavoidable $ 200 60 1,500 300,000 750,000 We plan to manufacture and sell 8,000 speakers next year. We produce the components in batches of 200 units; therefore, we will have 8,000/200 = 40 batch setups. If we purchase the components from Sparkle Speakers, our purchase cost will be $300 per component. Our current production facility would be idle (i.e. no opportunity cost). a. On the basis of financial consideration, should we continue to manufacture the speaker component or should we purchase from Sparkle Speakers? Show work. your b. Assuming it is cheaper to produce, what are some qualitative reasons why we might go ahead and purchase the components? c. Assuming it is cheaper to purchase, what are some qualitative reasons why we might go ahead and produce the components?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:3. We produce and sell stereo speakers. We build the wood frame, manufacture the speaker
component, and assemble the unit. We are considering buying the speaker component from
Sparkle Speakers. Here is our expected cost of manufacturing the speaker component for
next year:
Variable Manufacturing Costs per component
Direct Materials
Direct Labor
Variable Manufacturing Costs per batch
Setup, materials handling, quality control
Fixed Manufacturing Costs
Avoidable if we purchase speaker component
Unavoidable
$
200
60
1,500
300,000
750,000
We plan to manufacture and sell 8,000 speakers next year. We produce the components in
batches of 200 units; therefore, we will have 8,000/200 = 40 batch setups.
If we purchase the components from Sparkle Speakers, our purchase cost will be $300 per
component. Our current production facility would be idle (i.e. no opportunity cost).
a.
On the basis of financial consideration, should we continue to manufacture the speaker
component or should we purchase from Sparkle Speakers? Show work.
your
b. Assuming it is cheaper to produce, what are some qualitative reasons why we might go
ahead and purchase the components?
c.
Assuming it is cheaper to purchase, what are some qualitative reasons why we might go
ahead and produce the components?
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