Final Fa2009 Solution

630000

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: llowing product line contribution margin income statement for fiscal year 2008. Total Per Unit Revenue ................................................................. $630,000 ............ $30.00 Variable Manufacturing Costs ................................. 189,000 ................ 9.00 Variable Selling and Admin. Expense....................... 52,500 ................ 2.50 Contribution Margin ........................................... 388,500 .............. 18.50 Fixed Manufacturing Overhead ............................... 105,000 ................ 5.00 Fixed Selling and Admin. Cost ................................. 31,500 ................ 1.50 Operating Income ............................................. $252,000 ............ $12.00 Inspiration is considering outsourcing the manufacturing of its posters to Pip Printing. Pip has offered to sell the posters to Inspiration for $10 each. If Inspiration purchases these posters externally, it will need to spend $1 each for the special logo that it puts on the back of each poster. Inspiration believes that Pip’s posters will be identical in quality to the posters Inspiration manufactures. It is convinced that Pip is a reliable supplier. 31. By what amount will Inspiration’s fixed manufacturing costs change if it outsources the posters? $0 32. Will Inspiration’s annual profit increase or decrease if it outsources the posters? By what amount? Manufacturing cost Cost to Purchase Cost for logo Total Insource $189,000 $189,000 Outsource 21,000@$10 = $210,000 21,000@$1 = 21,000 $231,000 So, profit will decrease by $42,000 if it outsources. 6A:002 Fall 2009 – Final Exam Page 15 33. Now assume that outsourcing posters will allow Inspiration to use the poster production floor space to store other products that it makes. If it does this, it will no longer need to rent external storage space at a cost $52,500 per year. What is the maximum price per poster that Inspiration should be willing to pay Pip for the posters? Manufacturing cost Cost to Purchase Cost for logo Saved rent Insource $189,000 Out...
View Full Document

Ask a homework question - tutors are online