Andrea Company manufactures a part for its production cycle. The annual costs per unit for 20,000 units of this part are as follows: Direct materials Direct labor Variable indirect production costs Fixed indirect production costs Total cost $15 12 19 16 $62 Andrea Company has been approached by a supplier who will sell 20,000 units of the same part for $940,000. All the fixed indirect production costs are unavoidable if Andrea Compary ceases production of the part. Required A) Assuming there is no alternative use for the facilities, should Andrea Company buy or make the part? B) Assume the facilities can be rented out for $100,000 per year Should Andrea Company buy the part? If so, how much money will be saved? You should show your workings and provide a justification for the answer you provided

Andrea Company manufactures a part for its production cycle. The annual costs per unit for 20,000 units of this part are as follows: Direct materials Direct labor Variable indirect production costs Fixed indirect production costs Total cost $15 12 19 16 $62 Andrea Company has been approached by a supplier who will sell 20,000 units of the same part for $940,000. All the fixed indirect production costs are unavoidable if Andrea Compary ceases production of the part. Required A) Assuming there is no alternative use for the facilities, should Andrea Company buy or make the part? B) Assume the facilities can be rented out for $100,000 per year Should Andrea Company buy the part? If so, how much money will be saved? You should show your workings and provide a justification for the answer you provided

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?
Sheffield Corp. incurs the following costs to produce 9000 units of a subcomponent: Direct materials Direct labor Variable overhead Fixed overhead $9000 O $28950 O $(3500) $8950 O $(3250) 12500 12200 20000 An outside supplier has offered to sell Sheffield the subcomponent for $2.75 a unit. No fixed overhead costs are avoidable. If Sheffield accepts the offer, by how much will net income increase (decrease)?
Sheffield Corp. incurs the following costs to produce 10500 units of a subcomponent: Direct materials Direct labor Variable overhead Fixed overhead $(3600). $9200 Ⓒ$8150. $950. $(950). 11750 13000 An outside supplier has offered to sell Sheffield the subcomponent for $2.80 a unit. No fixed costs are avoidable. If Sheffield accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3600. The increase (decrease) in net income from accepting the offer would be 20800
Nelly Technology manufactures a particular computer component. Currently, the costs per unit are asfollows:Direct material P 50Direct labor 500Variable overhead 250Fixed overhead 400Fur Inc. has obtained Nelly with a offer to sell 10,000 units of the component for P1,100 per unit. IfNelly accepts the proposal, P2,500,000 of the fixed overhead will be eliminated. Should Nelly makeor buy the component?
Stripe Company has been purchasing a component, Part Q, for P19.20 per unit. Stripe is currently operating at 70% of capacity, and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q is estimated as follows: Direct materials P11.50 Direct labor 4.50 Variable factory overhead 1.12 Fixed factory overhead 3.15 Total P20.27 Should the company make or buy the component? Prepare a differential analysis report dated March 12 of the current year to support your answer.
Crane Company uses 9000 units of Part A in producing its products. A supplier offers to make Part A for $5. CraneCompany has relevant costs of $8 a unit to manufacture Part A. If there is excess capacity, the relevant cost of buying Part A from the supplier is $72000. $45000. $27000. $0.
Harmony is currently producing 100 units of a necessary component part by incurring $60,000 in direct materials, $12,500 in direct labour, $22,500 in variable overhead, and $15,000 in fixed overhead. If Harmony purchases the component externally, $10,000 of fixed costs can be avoided. What is the external price where the company is indifferent between buying and selling? $950 $1,050 O $1,000 O $1,100 Save for Later Submit Answer
What is the net advantage (disadvantage) of purchasing the part rather than making it? Ahringer Company makes 50,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct materials P19.10 Direct labor 21.70 Variable manufacturing overhead Fixed manufacturing overhead Unit product cost 2.10 14.20 P57.10 An outside supplier has offered to sell the company all of these parts it needs for P50.10 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be P135,000 per year. If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, P9.30 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed…
Bramble Corp. incurs the following costs to produce 12000 units of a subcomponent: Direct materials $8400 Direct labor 12000 Variable overhead 12000 Fixed overhead 19000 An outside supplier has offered to sell Bramble the subcomponent for $2.15 a unit. No fixed costs are avoidable. If Bramble accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3600. The increase (decrease) in net income from accepting the offer would be O $(3600). $10200. O $(3000). O $3000.
Concord Corporation manufactures widgets. Bowden Company has approached Concord with a proposal to sell the company widgets at a price of $88000 for 100000 units. The following costs are associated with Concord's production process when 100000 units are produced: Direct material Direct labor Manufacturing overhead Total $ 33000 29500 48500 $111000 Manufacturing overhead of $12150 of costs will be eliminated if the components are no longer produced by Concord. What is the incremental cost or savings to Concord if the widgets are bought instead of made? $23000 incremental savings $13350 incremental cost $10850 incremental savings $23000 incremental cost
Company XYZ is conducting an engineering economic analysis to decide whether to make vs purchase position for a necessary element needed ins several products. Now the engineering department has established this information: Option A to purchase 10,000 units annually at a fixed price of $8.50 per unit. The cost of placing the order is insignificant as per the present cost accounting procedure. Option B to manufacture 10,000 units annually with a direct labor cost of $1.50 per unit, manufacturing overhead cost is allotted at 200% of direct labor (which is $3.00 per unit) ) and Direct materials cost at $5.00 per unit. Based on the information, should the unit be purchased or manufactured?
Cox Electric makes electronic components and has estimated the following for a new design of one of its products: Fixed cost = $10,000 Material cost per unit = $ 0.15 Labor cost per unit = $ 0.10 Revenue per unit = $ 0.65 These data are given in the file CoxElectric. Note that fixed cost is incurred regardless of the amount produced. Per-unit material and labor cost together make up the variable cost per unit. Assuming Cox Electric sells all that it produces, profit is calculated by subtracting the fixed cost and total variable cost rom total revenue. Create a spreadsheet model and construct a 1-way table and determine the breakeven point (use intervals of 10,000 units). Group of answer choices 20,000 - 30,000 10,000 - 20,000 30,000 - 40,000 25,000 30,000 20,000