Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel's kitchen and adjoining meeting room operate at 70 percent of capacity. Mel's purchases the cookles for $0.60 each but is considering making them instead. Mel's can bake each cookle for $0.20 for materlals, $0.15 for direct labor, and $0.45 for overhead without increasing its capacity. The $0.45 for overhead includes an allocation of $0.30 per cookle for fixed overhead. However, total fixed overhead for the company would not increase If Mel's makes the cookles. Mel himself has come to you for advice. "it would cost me $0.80 to make the cookles, but only $0.60 to buy. Should I continue buying them?" Materials and labor are variable costs, but variable overhead would be only $0.15 per cookie. Two cookles are put into every lunch. Exercise 4-48 (Static) Make or Buy with Opportunity Costs (LO 4-4) Mel suddenly finds an opportunity to sell boxed dinners. The new opportunity would require the use of the 30 percent unused capacity. The contribution margin from the dinners would amount to $3,000 annually. Required: a. If Mel decides to sell dinners, what are the total costs for both making and buying the cookies? Total cost of making cookies Total cost of buying cookies
Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel's kitchen and adjoining meeting room operate at 70 percent of capacity. Mel's purchases the cookles for $0.60 each but is considering making them instead. Mel's can bake each cookle for $0.20 for materlals, $0.15 for direct labor, and $0.45 for overhead without increasing its capacity. The $0.45 for overhead includes an allocation of $0.30 per cookle for fixed overhead. However, total fixed overhead for the company would not increase If Mel's makes the cookles. Mel himself has come to you for advice. "it would cost me $0.80 to make the cookles, but only $0.60 to buy. Should I continue buying them?" Materials and labor are variable costs, but variable overhead would be only $0.15 per cookie. Two cookles are put into every lunch. Exercise 4-48 (Static) Make or Buy with Opportunity Costs (LO 4-4) Mel suddenly finds an opportunity to sell boxed dinners. The new opportunity would require the use of the 30 percent unused capacity. The contribution margin from the dinners would amount to $3,000 annually. Required: a. If Mel decides to sell dinners, what are the total costs for both making and buying the cookies? Total cost of making cookies Total cost of buying cookies
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A. If mel decides to sell dinners, what are the total costs for both making and buying the cookies?
b. Should mel continue to buy the cookies?
Transcribed Image Text:Exercise 4-47 and 4-48 (Static) (LO 4-4)
(The following information applies to the questions displayed below.)
Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel's kitchen
and adjoining meeting room operate at 70 percent of capacity. Mel's purchases the cookies for $0.60 each but is
considering making them instead. Mel's can bake each cookie for $0.20 for materials, $0.15 for direct labor, and $0.45 for
overhead without increasing its capacity. The $0.45 for overhead includes an allocation of $0.30 per cookie for fixed
overhead. However, total fixed overhead for the company would not increase if Mel's makes the cookies.
Mel himself has come to you for advice. "t would cost me $0.80 to make the cookies, but only $0.60 to buy. Should I
continue buying them?" Materials and labor are variable costs, but variable overhead would be only $0.15 per cookie. Two
cookles are put Into every lunch.
Exercise 4-48 (Static) Make or Buy with Opportunity Costs (LO 4-4)
Mel suddenly finds an opportunity to sell boxed dinners. The new opportunity would require the use of the 30 percent unused
capacity. The contribution margin from the dinners would amount to $3,000 annually.
Required:
a. If Mel decides to sell dinners, what are the total costs for both making and buying the cookies?
Total cost of making cookies
Total cost of buying cookies
b. Should Mel continue to buy the cookies?
Transcribed Image Text:Exercise 4-48 (Static) Make or Buy with Opportunity Costs (LO 4-4)
Mel suddenly finds an opportunity to sell boxed dinners. The new opportunity would require the use of the 30 percent unused
capacity. The contribution margin from the dinners would amount to $3,000 annually.
Required:
a. If Mel decides to sell dinners, what are the total costs for both making and buying the cookies?
Total cost of making cookies
Total cost of buying cookies
b. Should Mel continue to buy the cookies?
Yes
O No
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