Make orBuy
Walsh Corporation currently makes the nylon mooring cover for itsmain product, a fiberglass boat designed for tournament bassfishing. The costs of producing the 2,000 covers needed each yearfollow:
Nylon fabric $325,000 Wood battens 64,000 Brass fittings 32,000 Direct labor 128,000 Variable manufacturing overhead 96,000 Fixed manufacturing overhead 160,000
Calvin Company, aspecialty fabricator of synthetic materials, can make the neededcovers of comparable quality for $325 each, F.O.B. shipping point.Walsh would furnish its own trademark insignia at a unit cost of$20. Transportation in would be $16 per unit, paid by WalshCorporation.
Walsh's chiefaccountant has prepared a cost analysis that shows that only 30% offixed overhead could be avoided if the covers are purchased. Thecovers have been made in a remote section of Walsh's factorybuilding, using equipment for which no alternate use is apparent inthe foreseeable future.
a. Prepare adifferential analysis showing whether or not you would recommendthat the mooring covers be purchased from Calvin Company.
If appropriate, use anegative sign with your answer to represent a net disadvantageanswer. Do not use negative signs with any other answers.
Make or Buy Differential Analysis Cost to purchase covers: $Answer Costs avoided by purchasing covers: Direct materials $Answer Direct labor Answer Variable manufacturing overhead Answer Fixed manufacturing overhead Answer Answer Net advantage (disadvantage) to purchase alternative $Answer
b. Assuming that theproduction capacity released by purchasing the covers could bedevoted to a subcontracting job for another company that netted acontribution margin of $65,000, what maximum purchase price couldWalsh pay for the covers?
Round answer to twodecimal places, if applicable.
$Answer
Make orBuy
Walsh Corporation currently makes the nylon mooring cover for itsmain product, a fiberglass boat designed for tournament bassfishing. The costs of producing the 2,000 covers needed each yearfollow:
| Nylon fabric | $325,000 | |||
| Wood battens | 64,000 | |||
| Brass fittings | 32,000 | |||
| Direct labor | 128,000 | |||
| Variable manufacturing overhead | 96,000 | |||
| Fixed manufacturing overhead | 160,000 |
Calvin Company, aspecialty fabricator of synthetic materials, can make the neededcovers of comparable quality for $325 each, F.O.B. shipping point.Walsh would furnish its own trademark insignia at a unit cost of$20. Transportation in would be $16 per unit, paid by WalshCorporation.
Walsh's chiefaccountant has prepared a cost analysis that shows that only 30% offixed overhead could be avoided if the covers are purchased. Thecovers have been made in a remote section of Walsh's factorybuilding, using equipment for which no alternate use is apparent inthe foreseeable future.
a. Prepare adifferential analysis showing whether or not you would recommendthat the mooring covers be purchased from Calvin Company.
If appropriate, use anegative sign with your answer to represent a net disadvantageanswer. Do not use negative signs with any other answers.
| Make or Buy Differential Analysis | ||
|---|---|---|
| Cost to purchase covers: | $Answer | |
| Costs avoided by purchasing covers: | ||
| Direct materials | $Answer | |
| Direct labor | Answer | |
| Variable manufacturing overhead | Answer | |
| Fixed manufacturing overhead | Answer | Answer |
| Net advantage (disadvantage) to purchase alternative | $Answer | |
b. Assuming that theproduction capacity released by purchasing the covers could bedevoted to a subcontracting job for another company that netted acontribution margin of $65,000, what maximum purchase price couldWalsh pay for the covers?
Round answer to twodecimal places, if applicable.
$Answer
