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 $6.9 million. The variable costs of labor and material are $7 per 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 $3.4 million, 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.).

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 $6.9 million. The variable costs of labor and material are $7 per 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 $3.4 million, 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.).

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...

See similar textbooks

Similar questions

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?
A global manufacturer of electrical switching equipment (ESE) is considering outsourcing the manufacturing of an electrical breaker used in the manufacturing of switch boards. The company estimates that the annual fixed cost of manufacturing the part in-house, which includes equipment, maintenance, and management, amounts to $8 million. The variable cost of labor and materials are $11.00 per breaker. The company has an offer from a major subcontractor to produce the part for $16.00 per breaker.a. How many breakers would the electrical switching equipment company need per year to make the in-house option the least costly?b. Assume the subcontractor wants the company to share in the costs of the equipment. The ESE company estimates that the total annual cost would be $5 million, which also includes management oversight for the new supply contract. For this concession, the subcontractor will drop the per-unit price to $12.00. Under this assumption, how many breakers would the ESE company…
A global manufacturer of electrical switching equipment(ESE) is considering outsourcing the manufacturing ofan electrical breaker used in the manufacturing of switchboards. The company estimates that the annual fixed cost ofmanufacturing the part in-house, which includes equipment,maintenance, and management, amounts to $8 million. Thevariable cost of labor and materials are $11.00 per breaker.The company has an offer from a major subcontractor to pro-duce the part for $16.00 per breaker.a. How many breakers would the electrical switching equip-ment company need per year to make the in-house optionthe least costly?b. Assume the subcontractor wants the company to share inthe costs of the equipment. The ESE company estimatesthat the total annual cost would be $5 million, whichalso includes management oversight for the new supplycontract. For this concession, the subcontractor will dropthe per-unit price to $12.00. Under this assumption, howmany breakers would the ESE company need per…
A company produces 300 microwave ovens per month, each of which includes 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: O A. decrease by $6,600 B. decrease by $7,800 C. increase by $14,400 D. stay the same
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. "_"
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…
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.
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…
Magnificent Modems has excess production capacity and is considering the possibility of making and selling security tokens. The following estimates are based on a production and sales volume of 1,000 security tokens. Unit-level manufacturing costs are expected to be $20. Sales commissions will be established at $1 per unit. The current facility-level costs, including depreciation on manufacturing equipment ($60,000), rent on the manufacturing facility ($50,000), depreciation on the administrative equipment ($12,000), and other fixed administrative expenses ($71,950), will not be affected by the production of the security tokens. The chief accountant has decided to allocate the facility-level costs to the existing product (modems) and to the new product (security tokens) on the basis of the number of units of product made (i.e., 5,000 modems and 1,000 security tokens). Required a. Determine the per-unit cost of making and selling 1,000 security tokens. Note: Do not round intermediate…
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 8.200 units per year for $9.50 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 60 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? 3-0. Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $10,000 in annual…
MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Company (MLC) to produce 10,000 units of the module per year for $16 each. The following information pertains to MSI’s production of the control modules: Direct materials $ 9 Direct labor 4 Variable manufacturing overhead 2 Fixed manufacturing overhead 3 Total cost per unit $ 18 MSI has determined it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Required: 1. Compute the difference in cost between making and buying the control module. 2. Should MSI buy the modules from MLC or continue to make them? 3-a. Suppose the MSI space currently used for the modules could be utilized by a new product line that would generate…
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 ...