Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Chapter 10, Problem 5PA
Boston Executive. Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs:
The company received an offer from Elite Mini-Bars to produce the insets for $2,100 per Unit and supply 1,000 mini-bars for the coming year’s estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the company’s total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased.
The specialized equipment cannot be used and has no market value. However, the space occupied by the mini bar production can be used by a different production group that will lease it for $55,000 per year. Should the company make or buy the mini-bar insert?
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The company has an offer from Duvall Valves to produce the part for $2,000 per unit and supply 1,000 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas. The equipment cannot be used elsewhere in the company, and it has no market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year. What is the incremental savings of buying the valves? (The answer should be stated in a per-unit format and is a positive number)
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WorldSystems does not yet know how many switches it will need this year; however, another company has offered to sell WorldSystems
$11.50 per unit. If WorldSystems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used fe
purpose, yet none of the fixed costs are avoidable.
E (Click the icon to view the manufacturing costs.)
Read the reguirements.
Requirement 1. Given the same cost structure, should WorldSystems make or buy the switch? Show your analysis.
Complete an incremental analysis to show whether WorldSystems should make or buy the switch. (Enter a "0" for any zero amounts. Round amounts to the nearest cent. Use a minus sign or parentheses when the cost to buy exceeds the cost to make.)
World Systems
Incremental Analysis for Outsourcing Decision
- X
Make
Buy…
Hanson, Inc. makes 1,000 units per year of a part called a prositron for use in one of its products. Data concerning the unit production costs of prositron follow:An outside supplier has offered to sell Hanson, Inc. all of the prositrons it requires. If Hanson, Inc. decided to discontinue making the prositrons, 10% of the above fixed manufacturing overhead costs could be avoided.
Required:
Assume Hanson, Inc. has no alternative use for the facilities presently devoted to production of the prositrons. If the outside supplier offers to sell the prositrons for $850 each, should Hanson, Inc. accept the offer? Fully support your answer with appropriate calculations.b. Assume that Hanson, Inc. could use the facilities presently devoted to production of the prositrons to expand production of another product that would yield an additional contribution margin of $50,000 annually. What is the maximum price Hanson, Inc. should be willing to pay the outside supplier for prositrons?
There is not…
Chapter 10 Solutions
Principles of Accounting Volume 2
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