ADM 2341 Lecture Notes - Lecture 12: Sunk Costs, Variable Cost, Filigree

32 views6 pages

skycricket871

18 Dec 2015

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Difference in favour of continuing to make the parts 1only the supervisory salaries can be avoided if the switches are purchased. The remaining book value of the special equipment is a sunk cost; hence, the ( x 75%) per unit depreciation expense is not relevant to this decision. Based on these data, the company should reject the offer and should continue to produce the parts internally. Opportunity cost segment margin forgone on a potential new product line Difference in favour of purchasing from the outside supplier Thus, the company should accept the offer and purchase the parts from the outside supplier. Only the incremental costs and benefits are relevant. In particular, only the variable manufacturing overhead and the cost of the special tool are relevant overhead costs in this situation. The other manufacturing overhead costs are fixed and are not affected by the decision.

Related Questions

Climate-Control, Inc., manufactures a variety of heating andair-conditioning units. The company is currently manufacturing allof its own component parts. An outside supplier has offered to sella thermostat to Climate-Control for $31 per unit. To evaluate thisoffer, Climate-Control, Inc., has gathered the followinginformation relating to its own cost of producing the thermostatinternally:

		Per Unit		15,500Units per year
Directmaterials	$	9	$	139,500
Direct labor		11		170,500
Variablemanufacturing overhead		2		31,000
Fixed manufacturingoverhead, traceable		6*		93,000
Fixed manufacturingoverhead, common, but allocated		13		201,500

Total cost	$	41	$	635,500

*40% supervisory salaries; 60%depreciation of special equipment (no resale value).

Required:

1a.

Assuming that the company has no alternative use for thefacilities now being used to produce the thermostat, compute thetotal cost of making and buying the parts. (Enter "0"wherever required. Round your Fixed manufacturing overhead per unitrate to two decimal places in intermediatecalculations.)

	Per Unit
	Deferential		15000 Units
	Csts
	Make	Buy	Make	Buy
Cost of purchasing
Direct materials
Direct labor
Variable manufacturing overhead
Variable manufacturing overhead, traceable
Fixed manufacturing overhead, common
Total costs
Diference in favor making (buying

2a.	Suppose that if the thermostats were purchased, Climate-Control,Inc., could use the freed capacity to launch a new product. Thesegment margin of the new product would be $109,300 per year.Compute the total cost of making and buying the parts.(Round your Fixed manufacturing overhead per unit rate totwo decimals.)

	Make	Buy
Cost of purchasing
Soct of making
Opportunity cost---segment margin forgone on a petential new produst
Total sost
Difference in favor of making (buying)

turquoisewalrus571

Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally:

		Per Unit		15,000 Units Per Year
Direct materials	$	14	$	210,000
Direct labor		10		150,000
Variable manufacturing overhead		3		45,000
Fixed manufacturing overhead, traceable		6*		90,000
Fixed manufacturing overhead, allocated		9		135,000

Total cost	$	42	$	630,000

*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).

Required:

1a.	Assuming that the company has no alternative use for the facilities that are now being used to produce the carburetors, compute the total cost of making and buying the parts.

1b.

Should the outside supplierâs offer be accepted?

	Accept
	Reject

2a.	Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,000 per year. Compute the total cost of making and buying the parts.

2b.

Should Troy Engines, Ltd., accept the offer to buy the carburetors for $35 per unit?

	Accept
	Reject

	Per Unit			15,000 Units Per Year
Direct materials	$	14		$	210,000
Direct labor		10			150,000
Variable manufacturing overhead		3			45,000
Fixed manufacturing overhead, traceable		6	*		90,000
Fixed manufacturing overhead, allocated		9			135,000
Total cost	$	42		$	630,000

*One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).

Required:

1a. Assuming that the company has no alternative use for the facilities that are now being used to produce the carburetors, compute the total cost of making and buying the parts.

1b. Should the outside supplierâs offer be accepted?

	Accept
	Reject

2a. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,000 per year. Compute the total cost of making and buying the parts.

2b. Should Troy Engines, Ltd., accept the offer to buy the carburetors for $35 per unit?

	Accept
	Reject

lemoncod516

ADM 2341 Lecture Notes - Lecture 12: Sunk Costs, Variable Cost, Filigree

Document Summary

Get access

Related Documents

ACCTG322 Lecture Notes - Deutsche Luft Hansa, Filigree, Sunk Costs

ADMS 2510 Lecture : Week10 Tutorial Question Solution.docx

ACIS 2115 Lecture 4: Final Exam Practice Problems

Related Questions