costacctg13_sm_ch11

makeversusbuyactivitybasedcosting 1

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Unformatted text preview: rating income fro m selling 1,000 fewer units to regular customers equals: Lost revenue, $150 ´ 1,000 Savings in direct materials costs, $35 ´ 1,000 Savings in direct manufacturing labor costs, $40 ´ 1,000 Savings in batch manufacturing costs, $500 ´ 20 Operating inco me lost $(150,000) 35,000 40,000 10,000 $ (65,000) Accepting the special order will result in a decrease in operating inco me of $15,000 ($50,000 – $65,000). The special order should, therefore, be rejected. 3. Award Plus should not accept the special order. Increase in operating inco me by selling 2,500 units under the special order (requirement 1) Operating inco me lost from exist ing customers ($10 ´ 7,500) Net effect on operating inco me of accept ing special order The special order should, therefore, be rejected. $ 50,000 (75,000) $(25,000) 11­6 11­20 (30 min.) Make versus buy, activity­based costing. 1. The expected manufacturing cost per unit of CMCBs in 2009 is as fo llows: Total Manufacturing Manufacturing Costs of CMCB Cost per Unit (1) (2) = (1) ÷ 10,000 $1,700,000 $170 450,000 45 120,000 12 320,000 800,000 $3,390,000 32 80 $339 Direct materials, $170 ´ 10,000 Direct manufacturing labor, $45 ´ 10,000 Variable batch manufacturing costs, $1,500 ´ 80 Fixed manufacturing costs Avo idable fixed manufacturing costs Unavo idable fixed manufacturing costs Total manufacturing costs 2. The fo llowing table ident ifies the incremental costs in 2009 if Svenson (a) made CMCBs and (b) purchased CMCBs from Minton. Total Incremental Costs Incremental Items Make Buy Cost of purchasing CMCBs fro m Minton $3,000,000 Direct materials $1,700,000 Direct manufacturing labor 450,000 Variable batch manufacturing costs 120,000 Avo idable fixed manufacturing costs 320,000 Total incremental costs $2,590,000 $3,000,000 Difference in favor of making $410,000 Per­Unit Incremental Costs Make Buy $300 $170 45 12 32 $259 $300 $41 Note that the opportunit y cost of using capacit y to make CMCBs is zero since Svenson would keep this capacit y idle if it purchases CMCBs from Minton. Svenson should cont inue to manufacture the CMCBs internally since the incremental costs to man...
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This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.

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