Diamond Brands manufactures cereals. Sanders Company has approached Diamond Brands with a proposal to sell the company oatmeal at a price of $21,000. The following costs are associated with the production of oatmeal:
Direct material 13,000
Direct labor 4,000
Manufacturing overhead 7,000
Total $25,000
The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated fixed costs.
Should Diamond Brands make or buy the oatmeal?
Diamond Brands manufactures cereals. Sanders Company has approached Diamond Brands with a proposal to sell the company oatmeal at a price of $21,000. The following costs are associated with the production of oatmeal:
Direct material 13,000
Direct labor 4,000
Manufacturing overhead 7,000
Total $25,000
The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated fixed costs.
Should Diamond Brands make or buy the oatmeal?
Related questions
The information below representsthe beginning and ending inventory amounts along with theproduction and sales for the month in umbrella units
Beginning Inventory: 0 Umbrellas
Production: 80,000 Umbrellas
Sales: 60,000 Umbrellas
Ending Inventory: 20,000 Umbrellas
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Using the information
Prepare a variable costing income statement.
Prepare an absorption costing income statement.
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
| Requirement 1 | ||||
| Hampshire Company | ||||
| Variable Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Variable Costs of GoodsSold | $ | |||
| Variable Selling Costs | X | $ | $ | $ |
| Contribution Margin | $ | |||
| Fixed Costs: | ||||
| Fixed Manufacturing Costs | $ | |||
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
| Requirement 2 | ||||
| Hampshire Company | ||||
| Absorption Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Allocated Fixed Manufacturing Costs | X | $ | $ | |
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Costs of GoodsSold | $ | |||
| Gross Margin | $ | |||
| Fixed Costs: | ||||
| Variable Selling Costs | X | $ | $ | |
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
Sports Equipment Unlimited makes and sells soccer goals and hassales of 20,000 units per year. The plant is operating at fullcapacity.
A potential supplier has approached Sports Equipment Unlimited andoffered to supply the soccer goals at a finished cost of$31.50
per goal. If the company buys rather than manufactures, they willbe able to eliminate 60% of fixed manufacturing costs byleasing
unused space. The current costs are as follows:
| Per Unit | ||
| Direct Labor | 200,000 | 10.00 |
| Direct Materials | 247,000 | 12.35 |
| Variable Manufacturing Overhead | 60,000 | 3.00 |
| Fixed Manufacturing Overhead | 170,000 | 8.50 |
| Total Manufacturing Cost | 677,000 | 33.85 |
INSTRUCTIONS:
Prepare an incremental analysis for the decisions to make or buythe soccer goals.
Show the cost of continuing to make and to buy the goals. Show theeffect on net
income if they buy. Should Sports Equipment Unlimited buy thegoals?
