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M6 Project Enter eCampus Username: Correct answers will populate after your enter your username. Outsourcing Dough, Re, Mi Inc. sells many different types of cookie dough. The company is deciding whether to continue making its own dough or to outsource. If the company outsources, they will eliminate all of the variable overhead and 30% of the fixed manufacturing overhead, but will incur shipping costs. Use the information below to determine whether Dough, Re, Mi Inc. should outsource or not. Data Units Per unit Relevant? Cell Formulas Sales price per unit - $ - No Direct materials per unit #NAME? Yes Direct labor per unit 18.00 Yes Variable manufacturing overhead per unit 14.00 Yes Fixed manufacturing overhead (MOH) : per month #NAME? Avoidable fixed MOH per month #NAME? Yes =30%*G15 Unavoidable fixed MOH per month #NAME? No =70%*G15 Sales commissions per unit 3.00 No Advertising costs per month 1.80 No Purchase price of outsourced product per unit 65.00 Yes Shipping costs of outsourced product per unit 1.00 Yes Costs per unit Incremental analysis Manufacture Outsource Manufacture Outsource Variable costs Enter "=0" in the cell for any cost not relevant to the decision. Direct materials #NAME? $ - =G12 =0 Direct labor 18.00 - =G13 =0 Variable manufacturing overhead 14.00 - =G14 =0 Purchase price - 65.00 =0 =G20 Shipping costs - 1.00 =0 =G21 Sales commissions - - =0 =0 Total variable costs #NAME? 66.00 =SUM(E27:E32) =SUM(G27:G32) Fixed costs Fixed manufacturing overhead #NAME? - =G16 =0 Advertising - - =0 =0 Total fixed costs #NAME? - =SUM(E35:E36) =SUM(G35:G36) Incremental cost #NAME? 66.00 =SUM(E33,E37) =SUM(G33,G37) If Dough, Re, Mi outsources, what would its incremental profit (loss) per unit equal? #NAME? =SUM(E38,-G38) If Dough, Re, Mi outsources, what would its incremental profit (loss) given the expected units above? #NAME? =I40*E11 Should Dough, Re, Mi Inc. manufacture or outsource its dough? #NAME? Special Order Pete's Pizza makes the best pizzas in town. Based on Pete's current volume, the price and cost breakdown is outlined below. The local high school has asked Pete to be their sole pizza provider for a large event and has offered to order 500 pizzas at a special price. Assuming Pete has the capacity to produce these pizzas, identify which of the following items are relevant in deciding whether to accept this special order. Per unit Relevant? Normal sales price $ 12.00 No Special price 10.50 Yes Direct materials 4.00 Yes Direct labor 3.00 Yes Variable overhead 0.50 Yes Fixed overhead 3.00 No Should Pete accept the order in either of the following scenarios? A. Pete has capacity to produce these pizzas with no additional investments. B. Pete would need to rent a piece of equipment to accommodate the order. The rent would cost Pete: $ - For each scenario below, enter the relevant amounts of accepting this special order of 500 pizzas in total (not per unit): Scenario A B Enter "=0" in the cell for any cost not relevant to the decision. A B Number of pizzas ordered 500 500 Sales revenue $ 5,250 $ 5,250 =C51*E65 =C51*G65 Variable costs Direct materials 2,000 2,000 =C52*$E$65 =C52*$E$65 Direct labor 1,500 1,500 =C53*$E$65 =C53*$E$65 Variable overhead 250 250 =C54*$E$65 =C54*$E$65 Fixed overhead - - =0 =I60 Total costs 3,750 3,750 =SUM(E68:E71) =SUM(G68:G71) Expected change in operating income $ 1,500 $ 1,500 =SUM(E66,-E72) =SUM(G66,-G72) Should Pete accept the order? Yes Yes Product Line Elimination Quiet Feet Inc. produces three different types of shoes. Complete the below contribution margin income statement for each product line. Allocate total fixed costs to each shoe type based on units as a percent of total units (i.e. use units sold as the cost driver). Boots Sneakers Sandals Total Relevant? Boots Sneakers Sales (units) 6,000 15,000 4,000 25,000 Price $ 5.00 $ 25.00 $ 50.00 Sales revenue $ 30,000 $ 375,000 $ 200,000 $ 605,000 =C82*C83 =E82*E83 Variable costs 36,000 315,000 120,000 471,000 Contribution margin (6,000) 60,000 80,000 134,000 Yes =SUM(C85,-C86) =SUM(E85,-E86) Fixed costs (all allocated) - - - - No =$I88*(C82/$I82) =$I88*(E82/$I82) Operating income $ (6,000) $ 60,000 $ 80,000 $ 134,000 =SUM(C87,-C88) =SUM(E87,-E88) What is operating income if Quiet Feet Inc. stopped selling Boots? $ 140,000 =SUM(I89,-C87) What is operating income if Quiet Feet Inc. stopped selling Sneakers? 74,000 =SUM(I89,-E87) What is operating income if Quiet Feet Inc. stopped selling Sandals? 54,000 =SUM(I89,-G87) What product line (if any) should Quiet Feet Inc. stop producing? Boots