Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Chapter 25, Problem 3CMA
To determine
Identify the supplier’s unit price, that will be beneficial to Company
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Make or Buy
Desert Industries manufactures 5,000 units of Part X300 each month for use in production. The facilities now being used to
produce Part X300 have fixed monthly overhead costs of $75,000, and a theoretical capacity to produce 7,000 units per month.
If Desert were to buy Part X300 from an outside supplier, the facilities would be idle and 80% of the fixed costs would continue
to be incurred. There are no alternative uses for the production facilities. The variable production costs of Part X300 are $34 per
unit. Fixed overhead is allocated based on planned production levels.
If Desert Industries continues to use 5,000 units of Part X300 each month, it would realize a net benefit by purchasing Part X300
from an outside supplier only if the supplier's unit price is less than what amount?
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Make or Buy
Desert Industries manufactures 5,000 units of Part X300 each month for use in production. The facilities now being used to produce Part X300 have fixed monthly overhead costs of $45,000, and a theoretical capacity to produce 7,000 units per month. If Desert were to buy Part X300 from an outside supplier, the facilities would be idle and 80% of the fixed costs would continue to be incurred. There are no alternative uses for the production facilities. The variable production costs of Part X300 are $25 per unit. Fixed overhead is allocated based on planned production levels. If Desert Industries continues to use 5,000 units of Part X300 each month, it would realize a net benefit by purchasing Part X300 from an outside supplier only if the supplier’s unit price is less than what amount?$Answer
Gelb Company currently manufactures 40,000 units per year of a key component for its manufacturing process. Variable costs are $1.95 per unit, fixed costs related to making this component are $65,000 per year, and allocated fixed costs are $58,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.50 per unit. Should it continue to manufacture the component, or should it buy this component from the outside supplier?
Chapter 25 Solutions
Financial And Managerial Accounting
Ch. 25 - Explain the meaning of (A) differential revenue,...Ch. 25 - A company could sell a building for 250,000 or...Ch. 25 - A chemical company has a commodity-grade and...Ch. 25 - A company accepts incremental business at a...Ch. 25 - A company fabricates a component at a cost of...Ch. 25 - Prob. 6DQCh. 25 - In the long run, the normal selling price must be...Ch. 25 - Although the cost-plus approach to product pricing...Ch. 25 - How does the target cost method differ from...Ch. 25 - Prob. 10DQ
Ch. 25 - Lease or sell Plymouth Company owns equipment with...Ch. 25 - Prob. 2BECh. 25 - Make or buy A company manufactures various-sized...Ch. 25 - Replace equipment A machine with a book value of...Ch. 25 - Process or sell Product J19 is produced for 11 per...Ch. 25 - Prob. 6BECh. 25 - Product cost markup percentage Green Thumb Garden...Ch. 25 - Prob. 8BECh. 25 - Differential analysis for a lease or sell decision...Ch. 25 - Prob. 2ECh. 25 - Differential analysis for a discontinued product A...Ch. 25 - Differential analysis for a discontinued product...Ch. 25 - Prob. 5ECh. 25 - Decision to discontinue a product On the basis of...Ch. 25 - Make-or-buy decision Somerset Computer Company has...Ch. 25 - Make-or-buy decision for a service company The...Ch. 25 - Machine replacement decision A company is...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Sell or process further Calgary Lumber Company...Ch. 25 - Sell or process further Dakota Coffee Company...Ch. 25 - Decision on accepting additional business...Ch. 25 - Accepting business at a special price Box Elder...Ch. 25 - Prob. 15ECh. 25 - Product cost method of product pricing La Femme...Ch. 25 - Product cost method of product costing Smart...Ch. 25 - Target costing Toyota Motor Corporation (TM) uses...Ch. 25 - Target costing Instant Image Inc. manufactures...Ch. 25 - Product decisions under bottlenecked operations...Ch. 25 - Prob. 21ECh. 25 - Total cost method of product pricing Based on the...Ch. 25 - Variable cost method of product pricing Based on...Ch. 25 - Differential analysis involving opportunity costs...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Prob. 4PACh. 25 - Prob. 5PACh. 25 - Product pricing using the cost-plus approach...Ch. 25 - Differential analysis involving opportunity costs...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Differential analysis for further processing The...Ch. 25 - Prob. 5PBCh. 25 - Product pricing using the cost-plus approach...Ch. 25 - Analyze Pacific Airways Pacific Airways provides...Ch. 25 - Service yield pricing and differential equations...Ch. 25 - Prob. 3MADCh. 25 - Service yield pricing and differential analysis...Ch. 25 - Aaron McKinney is a cost accountant for Majik...Ch. 25 - Prob. 3TIFCh. 25 - Prob. 4TIFCh. 25 - Accepting service business at a special price If...Ch. 25 - Prob. 6TIFCh. 25 - In differential cost analysis, which one of the...Ch. 25 - Prob. 2CMACh. 25 - Prob. 3CMACh. 25 - Oakes Inc. manufactured 40,000 gallons of Mononate...
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- Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?arrow_forwardElly Industries is a multi-product company that currently manufactures 30,000 units of part MR24 each month for use in production of its products. The facilities now being used to produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 35,000 units per month. If Elly were to buy part MR24 from an outside supplier, the facilities would be idle, but its fixed costs would continue at 40% of their present amount. The variable production costs of Part MR24 are $11 per unit. If Elly Industries continues to use 30,000 units of part MR24 each month, it would realize a financial advantage by purchasing this part from an outside supplier only if the supplier's unit price is less than:arrow_forwardRegis Company manufactures plugs at a cost of $36 per unit, which includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually (as part of a larger product it produces). Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If Regis Company purchases the plugs but does not rent the unused facility, the company would:arrow_forward
- Gilberto Company currently manufactures 78,000 units per year of one of its crucial parts. Variable costs are $2.60 per unit, fixed costs related to making this part are $88,000 per year, and allocated fixed costs are $75,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of $3.80 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 78,000 and buying 78,000 units. Should the company continue to manufacture the part, or should it buy the part from the outside supplier?arrow_forwardABC Company (ABC) currently produces 6,000 units of M1 (a component uses in many electric appliances) per year under normal capacity and sells M1 at $66 per unit. The company is considering the possibility to buy a similar component from an outside supplier. If ABC accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but 60% of the fixed manufacturing overhead will have to be absorbed by other products. The released factory equipment could be used to produce a net income of $66,000. The cost to produce M1 is as follows.Direct materials $105,000 Direct labor $45,000Total overhead $90,000. The total overhead costs include variable handling costs of $5 per unit. The remainder of the overhead costs consists of 10% variable costs and 90% fixed costs. A very good foreign manufacturer, 3Z Company (3Z) has offered to sell the component at $36 per unit, plus $0.5 shipping cost per unit. GQ Company (GQ), a new local manufacturer, has alsooffered to…arrow_forwardA 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 samearrow_forward
- 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$6.9million. The variable costs of labor and material are$7per 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$3.4million, 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.).arrow_forwardGilberto Company currently manufactures 65,000 units per year of one of its crucial parts. Variable costs are $1.95 per unit, fixed costs related to making this part are $75,000 per year, and allocated fixed costs are $62,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of $3.25 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it buy the part from the outside supplier?arrow_forwardRegis Company manufactures plugs at a cost of $40 per unit, which includes $5 of fixed overhead. Regis needs 30,000 of these plugs annually (as part of a larger product it produces). Orlan Company has offered to sell these units to Regis at $39 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If the plugs are purchased and the facility rented, Regis Company wishes to realize $100,000 in net savings annually. To achieve this goal, the minimum annual rent on the facility must be: Question 16 options: a) $120,000. b) $100,000. c) $70,000. d) $310,000. e) $220,000.arrow_forward
- Gilberto Company currently manufactures 79,000 units per year of one of its crucial parts. Variable costs are $2.65 per unit, fixed costs related to making this part are $89,000 per year, and allocated fixed costs are $76,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of $3.85 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 79,000 and buying 79,000 units. Should the company continue to manufacture the part, or should it buy the part from the outside supplier? Complete this question by entering your answers in the tabs below. Outside Supplier Calculate the total incremental cost of making 79,000 units. (Round cost per unit answers to 2 decimal places.) Incremental Costs to Make Relevant Amount per Relevant Fixed Unit Costs Costs to Make Costs to Buy Variable cost per unit Fixed manufacturing costs Total incremental cost…arrow_forwardGelb Company currently manufactures 40,000 units per year of a key component for its manufacturing process. Variable costs are $1.95 per unit, fixed costs related to making this component are $65,000 per year, and allocated fixed costs are $58,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.50 per unit. Calculate the total incremental cost of making 40,000 units and buying 40,000 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier?arrow_forwardHoboken Industries currently manufactures 30,000 units of part MR24 each month for use in production of several of its products. The facilities now used to produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 84,000 units per month. If the company were to buy part MR24 from an outside supplier, the facilities would be idle, but its fixed costs would continue at 40 percent of their present amount. The variable production costs of part MR24 are $11 per unit.Required:1. If Hoboken Industries continues to use 30,000 units of part MR24 each month, it would realize a net benefit by purchasing part MR24 from an outside supplier only if the supplier’s unit price is less than what amount?2. If Hoboken Industries is able to obtain part MR24 from an outside supplier at a unit purchase price of $12.875, what is the monthly usage at which it will be indifferent between purchasing and making part MR24?arrow_forward
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