Reinhart Corporation makes bicycles. For many years, Reinhart has made the rear wheel assembly for its bicycles. Recently, Bennett Company offered to sell these rear wheel assemblies to Reinhart. If Reinhart makes the assembly, its cost per rear wheel assembly is as follows:                                                                                                                            Direct materials                                            $10.00                         Direct labor                                                     18.00                         Variable manufacturing overhead                  10.00                         Fixed manufacturing overhead, avoidable       8.00                                       Fixed manufacturing overhead, unavoidable                         (allocated on the basis of labor-hours)           10.00                                       Unit product cost                                          $56.00                 These costs are based on an annual production of 50,000 units.   Bennett offered to sell the assembly to Reinhart for $48.00 each. The total order would amount to 50,000 rear wheel assemblies per year, which Reinhart’s management will buy instead of making if the company can save at least $75,000 per year.                          Should Reinhart make rear wheel assemblies or buy them from Bennett? Show computations. Discuss qualitative factors that might be considered in the decision-making process.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Reinhart Corporation makes bicycles. For many years, Reinhart has made the rear wheel assembly for its bicycles. Recently, Bennett Company offered to sell these rear wheel assemblies to Reinhart. If Reinhart makes the assembly, its cost per rear wheel assembly is as follows: 

                                                                                               

 

                        Direct materials                                            $10.00

                        Direct labor                                                     18.00

                        Variable manufacturing overhead                  10.00

                        Fixed manufacturing overhead, avoidable       8.00              

                        Fixed manufacturing overhead, unavoidable

                        (allocated on the basis of labor-hours)           10.00              

                        Unit product cost                                          $56.00              

 

These costs are based on an annual production of 50,000 units.

 

Bennett offered to sell the assembly to Reinhart for $48.00 each. The total order would amount to 50,000 rear wheel assemblies per year, which Reinhart’s management will buy instead of making if the company can save at least $75,000 per year.

 

                      

  1. Should Reinhart make rear wheel assemblies or buy them from Bennett? Show computations.
  2. Discuss qualitative factors that might be considered in the decision-making process.

 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Relevant cost analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education