Question

Golfers, Inc. (GI) manufactures golf related equipment including golf balls. This year’s expected production of golf balls is 120,000 packs (each consisting of four golf balls). Cost data are as follows:

  

	Per Pack			120,000 Packs
Product costs directly traceable to balls:
Direct materials	$	2.20		$	264,000
Direct labour		0.60			72,000
Variable manufacturing overhead		0.25			30,000
Fixed manufacturing overhead					67,200
General allocated overhead					39,600
					472,800

  

The full cost of one pack of golf balls is $3.94. GI has received an offer from an outside supplier to supply any desired quantity of balls at a price of $4.45 per pack of four golf balls. The cost accounting department has provided the following information:

  

a.	The direct fixed manufacturing overhead is the cost of leasing the machine that stamps out the balls. The machine can produce a maximum of 500,000 balls per year. If the balls are bought, the machine will no longer be needed.
b.	No other costs will be affected.

  

Required:

1.	Prepare an analysis showing whether GI would be better off making or buying the balls at a projected volume of 120,000 packs (480,000 golf balls). (Round "Per Unit" answers to 2 decimal places.)

  

       

2-a.	At what volume would GI be indifferent between making and buying? (Do not round intermediate calculations and round your final answer to nearest whole number.)

  

     

2-b.	What does the indifference point indicate? (Do not round intermediate calculations and round your final answers to nearest whole number.)

  

     

3.	Select the quantitative and/or qualitative factors that GI should consider before making the final decision. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)
	Possibility of interruptions in supply. Current price and changes in price. Alternative use for facilities freed up Ability to maintain quality of tennis balls. Any labour or production issues that may happen. Change in management structure. Climatic conditions in area where plant is situated.

Answer 1