Question
In: Accounting
(Make-or-Buy) Swan Manufacturing needed to determine if it would be cheaper to make 20,000 units of...
(Make-or-Buy) Swan Manufacturing needed to determine if it would be cheaper to make 20,000 units of a component, which is used in production of an equipment, in-house or to purchase them from an outside supplier for $4.00 each. Cost information on internal production includes the following (for 20,000 units per month):
| Total cost | Unit Cost | |
| Direct Materials | 34.000 | 1.7 |
| Direct Labor | 24.000 | 1.2 |
| VAriable Overhead | 12.000 | 0.6 |
| Fixed Overhead | 50.000 | 2.5 |
| total | 120.000 dollars | 6 dollars |
Fixed overhead will continue whether this component is produced
internally or purchased from a supplier. No additional costs of
purchasing will be incurred beyond the purchase price.
Required:
1. What are the alternatives for Swan Manufacturing?
2. List the relevant cost(s) of internal production and of external
purchase.
3. Which alternative is more cost effective and by how much?
4. Now assume that the fixed overhead includes $15,000 of cost that
can be avoided if the component is purchased externally. Which
alternative is more cost effective and by how much?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Structuring a Make-or-Buy Problem Fresh Foods, a large restaurant chain, needed to determine if it would...
Structuring a Make-or-Buy Problem
Fresh Foods, a large restaurant chain, needed to determine if it
would be cheaper to produce 5,000 units of its main food ingredient
for use in its restaurants or to purchase them from an outside
supplier for $12 each. Cost information on internal production
includes the following:
Total Cost
Unit Cost
Direct materials
$25,000
$5.00
Direct labour
15,000
3.00
Variable manufacturing overhead
7,500
1.50
Variable marketing overhead
9,000
1.80
Fixed plant overhead
30,000
6.00
Total
$86,500...
Structuring a Make-or-Buy Problem Fresh Foods, a large restaurant chain, needs to determine if it would...
Structuring a Make-or-Buy Problem Fresh Foods, a large
restaurant chain, needs to determine if it would be cheaper to
produce 5,000 units of its main food ingredient for use in its
restaurants or to purchase them from an outside supplier for $12
each. Cost information on internal production includes the
following: Total Cost Unit Cost Direct materials $25,000 $ 5.00
Direct labor 15,000 3.00 Variable manufacturing overhead 7,500 1.50
Variable marketing overhead 10,000 2.00 Fixed plant overhead 30,000
6.00 Total...
Structuring a Make-or-Buy Problem Fresh Foods, a large restaurant chain, needs to determine if it would...
Structuring a Make-or-Buy Problem
Fresh Foods, a large restaurant chain, needs to determine if it
would be cheaper to produce 5,000 units of its main food ingredient
for use in its restaurants or to purchase them from an outside
supplier for $12 each. Cost information on internal production
includes the following:
Total Cost
Unit Cost
Direct materials
$25,000
$5.00
Direct labor
15,000
3.00
Variable manufacturing overhead
7,500
1.50
Variable marketing overhead
8,000
1.60
Fixed plant overhead
30,000
6.00
Total
$85,500 ...
Structuring a Make-or-Buy Problem Fresh Foods, a large restaurant chain, needs to determine if it would...
Structuring a Make-or-Buy Problem
Fresh Foods, a large restaurant chain, needs to determine if it
would be cheaper to produce 5,000 units of its main food ingredient
for use in its restaurants or to purchase them from an outside
supplier for $12 each. Cost information on internal production
includes the following:
Total Cost
Unit Cost
Direct materials
$25,000
$5.00
Direct labor
15,000
3.00
Variable manufacturing overhead
7,500
1.50
Variable marketing overhead
11,500
2.30
Fixed plant overhead
30,000
6.00
Total
$89,000 ...
Structuring a Make-or-Buy Problem Fresh Foods, a large restaurant chain, needs to determine if it would...
Structuring a Make-or-Buy Problem
Fresh Foods, a large restaurant chain, needs to determine if it
would be cheaper to produce 5,000 units of its main food ingredient
for use in its restaurants or to purchase them from an outside
supplier for $12 each. Cost information on internal production
includes the following:
Total Cost
Unit Cost
Direct materials
$25,000
$5.00
Direct labor
15,000
3.00
Variable manufacturing overhead
7,500
1.50
Variable marketing overhead
11,000
2.20
Fixed plant overhead
30,000
6.00
Total
$88,500 ...
Structuring a Make-or-Buy Problem Fresh Foods, a large restaurant chain, needs to determine if it would...
Structuring a Make-or-Buy Problem
Fresh Foods, a large restaurant chain, needs to determine if it
would be cheaper to produce 5,000 units of its main food ingredient
for use in its restaurants or to purchase them from an outside
supplier for $12 each. Cost information on internal production
includes the following:
Total Cost
Unit Cost
Direct materials
$25,000
$ 5.00
Direct labor
15,000
3.00
Variable manufacturing overhead
7,500
1.50
Variable marketing overhead
10,000
2.00
Fixed plant overhead
30,000
6.00
Total...
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Make-or-Buy, Traditional Analysis
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follows:
Direct materials
$47.35
Direct labor
10.50
Variable overhead
2.55
Fixed overhead
3.45
Total
$63.85
Of the total fixed overhead assigned to ABS-43, $12,404 is
direct fixed overhead (the annual lease cost of machinery used to
manufacture Part ABS-43), and the remainder is common fixed...
Make-or-Buy, Traditional Analysis Wehner Company is currently manufacturing Part ABS-43, producing 53,200 units annually. The part...
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53,200 units annually. The part is used in the production of
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follows:
Direct materials
$45.25
Direct labor
8.55
Variable overhead
2.15
Fixed overhead
4.00
Total
$59.95
Of the total fixed overhead assigned to ABS-43, $15,800 is
direct fixed overhead (the annual lease cost of machinery used to
manufacture Part ABS-43), and the remainder is common fixed...
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