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3 years ago

Make-or-Buy Decision

Business

1 answer:

notsponge [240]3 years ago

3 0

Answer:

A. Make carrying case(Alternative 1) $41.00

Buy carrying case (Alternative 2)$44.00

Differential effect on net income (Alternative 2)($3.00)

B. Assuming there were no better alternative uses for the spare capacity, it would BE ADVISABLE to manufacture the CARRYING CASES. Fixed overhead is IRRELEVANT to this decision.

Explanation:

A. Preparation of a Differential Analysis

DIFFERENTIAL ANALYSIS

Make carrying case Buy carrying case

(Alternative 1) (Alternative 2)

Alternative 1 Alternative 2 Differential effect on net income (Alternative 2)

Sales price

$0.00 $0.00 $0.00

Purchase Price

$0.00 $40.00 ($40.00)

Direct materials

$16.00 $0.00 $16.00

Direct labor

$20.00 $0.00 $20.00

Variable manufacture overhead (20*5%=$1.00)

$1.00 $0.00 $1.00

Fixed manufacture overhead($5.00-$1.00) $4.00 $4.00 $0.00

Income(Loss)

$41.00 $44.00 ($3.00)

Based on the above calculation Alternative 1 which is carrying case should be Choose by the Company .

B. Therefore Assuming there were no better alternative uses for the spare capacity, it would BE ADVISABLE to manufacture the CARRYING CASES. Fixed overhead is IRRELEVANT to this decision.

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b. 9,605 units

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(a) Find the total cost of producing 200 units. (Round your answer to the nearest cent.)

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Since x = 200 units, we substitute it into equation (1) solve as follows:

C(200) = 850 ln(200 + 10) + 1700

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