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costacctg13_sm_ch11

# 3 inthisrequirementthedecisio nonmud

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Unformatted text preview: es are Direct materials Direct manufacturing labor Variable manufacturing overhead Total variable costs \$200,000 150,000 100,000 \$450,000 The variable costs per unit are \$450,000 ÷ 150,000 = \$3.00 per unit. Let X = number of starter assemblies required in the next 12 months. The data can be presented in both “all data” and “relevant data” formats: All Data Relevant Data Alternative Alternative Alternative Alternative 1: 2: 1: 2: Buy Make Buy Make Variable manufacturing costs \$ 3X – \$ 3X – Fixed general manufacturing overhead 150,000 \$150,000 – – Fixed overhead, avo idable 100,000 – 100,000 – Divisio n 2 manager’s salary 40,000 50,000 40,000 \$50,000 Divisio n 3 manager’s salary 50,000 – 50,000 – Purchase cost, if bought from Tidnish Electronics – 4X – 4X Total \$340,000 \$200,000 \$190,000 \$50,000 + \$ 3X + \$ 4X + \$ 3X + \$ 4X The number of units at which the costs of make and buy are equivalent is All data analys is: o r Relevant data analys is: \$340,000 + \$3X = \$200,000 + \$4X X = 140,000 \$190,000 + \$3X = \$50,000 + \$4X X = 140,000 Assuming cost minimizat ion is the object ive, then • If production is expected to be less than 140,000 units, it is preferable to buy unit s fro m Tidnish. • If production is expected to exceed 140,000 units, it is preferable to manufacture internally (make) the units. • If production is expected to be 140,000 units, Oxford should be indifferent between buying unit s from Tidnish and manufacturing (making) the units internally. 11­26 2. The informat ion on the storage cost, which is avoidable if self­manufacture is discontinued, is relevant; these storage charges represent current outlays that are avo idable if self­manufacture is discontinued. Assume these \$50,000 charges are represented as an opportunit y cost of the make alternative. The costs of internal manufacture that incorporate this \$50,000 opportunit y cost are All data analys is: Relevant data analys is: \$390,000 + \$3X \$240,000 + \$3X The number of unit...
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