fudge is packaged. Of this cost, $0.12 is variable and $0.08 is fixed. A supplier offers to make the boxes for the fudge for $0.15 each. If the offer is accepted, Chuckie’s will save all variable costs but no fixed costs. Chuckie’s uses 2,000 boxes per year. Prepare an incremental analysis showing the total effect on costs if the boxes are bought instead of manufactured. Brief Exercise 126Wood Chuck Furniture currently manufactures rocking chairs as its main product. Each chair uses one seat cushion and one back cushion with the following costs per set of cushions (one seat and one back):Direct materials$ 1.00Direct labour10.00Variable overhead5.00Fixed overhead8.00Total$24.00Sherpert Company has contacted Wood Chuck with an offer to sell it 5,000 sets of cushions for $18.00 each. If Wood Chuck makes the cushions, $5 of the fixed overhead per unit will be allocated to other products. Should Wood Chuck make or buy the cushions? Brief Exercise 127The Compressed Air Company makes scuba tanks. The tanks have a regulator that requires the company to make a special valve. The cost to make this valve is as follows:Direct materials$ 7.50Direct labour3.25Variable manufacturing overhead2.10Fixed manufacturing overhead1.10Unit product cost$13.95The company makes 10,000 tanks every year. An outside supplier has offered to sell thecompany the same valve at a cost of $12.50 per unit. By purchasing the valve the company will eliminate half of its fixed manufacturing overhead.Calculate the relevant costs the company should consider before making the decision to purchase the valve from the outside supplier.
relevant.)Brief Exercise 128Fresh Farms, Inc. grows basil at a total cost of $66,000. The production generates 60,000 bunches of basil which can be sold for $2 per bunch to a spice company, or the basil can be further processed in-house into pesto and then sold for $3.25 per jar. It costs $55,000 more to turn the basil into pesto. If Fresh Farms processes the basil into pesto, how much is the incremental profit or loss? What should Fresh Farms do?
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