Chapter 12 Sol(1) - Exercise123(30minutes) 1. PerUnit...

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Exercise 12-3  (30 minutes) 1. Per Unit  Differential  Costs 15,000 units Make Buy Make Buy Cost of purchasing. ...................... $20 $300,000 Direct materials. ........................... $ 6 $ 90,000 Direct labour. ............................... 8 120,000 Variable manufacturing overhead 1 15,000 Fixed manufacturing overhead,  traceable 1 .................................. 2 30,000 Fixed manufacturing overhead,  common. ...................................       0          0                          0                          0    Total costs. ................................... $17 $20 $255,000 $300,000 Difference in favour of continuing  to make the parts. ..................... $3 $45,000 1 Only the supervisory salaries can be avoided if the parts are  purchased. The remaining book value of the special equipment is a  sunk cost; hence, the $3 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. 2. Make Buy Cost of purchasing (part 1). ........................... $300,000 Cost of making (part 1). ................................. $255,000 Opportunity cost—segment margin forgone  on a potential new product line. ..................       65,000                             Total cost. ....................................................... $320,000 $300,000 Difference in favour of purchasing from the  outside supplier. .......................................... $20,000 Thus, the company should accept the offer and purchase the parts  from the outside supplier.
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Exercise 12-4  (15 minutes) 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.  Per Total Unit 10 bracelets Incremental revenue. .............................. $349.95 $3,499.50 Incremental costs: Variable costs: Direct materials. ................................ 143.00 1,430.00 Direct labour. ..................................... 86.00 860.00 Variable manufacturing overhead. .... 7.00 70.00 Special filigree. ..................................           6.00                 60.00     Total variable cost. ............................... $242.00 2,420.00 Fixed costs: Purchase of special tool. ...................         465.00     Total incremental cost. ............................   2,885.00     Incremental operating income. ............... $        614.50     Even though the price for the special order is below the company's 
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This note was uploaded on 12/04/2011 for the course ADM 2341 taught by Professor Managerialaccounting during the Spring '07 term at University of Ottawa.

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Chapter 12 Sol(1) - Exercise123(30minutes) 1. PerUnit...

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