Soal 7 Decision Making

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­­­­Problem 1 – Make or Buy Decision
The Step Son Company manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2014 and the expected costs in 2015:

Current Costs in 2014
Expected Costs in 2015
Variables Manufacturing Costs

DM Per Unit $ 180 $ 170
DML per Unit $ 50 $ 45
Variable MOH per Batch $ 1,600 $ 1,500

Fixed Manufacturing Cost

Fixed MOH that can be avoided if CMCBs are not made $ 320,000 $ 320,000
Fixed MOH that can 't be avoided even if CMCBs are not made
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Madison industries offered to sell the reworked machinery to Johnson as special order for $68,400. Johnson agreed to pay the price when it takes delivery in two months. The additional identifiable costs to rework for the machinery to Johnson’s specifications are as follows:
Direct Material 16,200
Direct Labor 4,200

A second alternative available to Madison’s management is to convert the special machinery to the standard model, which sells for $60,000. The additional identifiable costs for this conversion are as follows:
Direct Material 8,800
Direct Labor 3,300

All cost information above doesn’t include the overhead and operating cost yet.

A third alternative for Madison Industries is to sell the machine as is for price of $ 40,000. However, the potential buyer of the unmodified machine does not want it for 60 days. This buyer has offered a $7,000 down payment, with the remainder due upon delivery. No commission will be paid on this

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