A. Calculate the differential cost of mini-bar insert. If an amount box does not require an entry, leave it blank. Cost of Making Cost of Buying Differential Cost 1,000 Bar Inserts 1,000 Bar Inserts (Savings) Variable Costs Direct material Direct labor Variable overhead Fixed Costs Equipment depreciation Building depreciation Supervisor salaries Other Cost Savings Leased space %24 Cost of buying bar inserts Total cost B. Should the company make or buy the mini-bar insert? %24 %24
Boston Exemcutive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs:
| Cost per Unit | |
| Variable costs: | |
| Direct material | $950 |
| Direct labor | 650 |
| Variable overhead | 290 |
| Total variable costs | $1,890 |
| Fixed costs: | |
| $490 | |
| Depreciation of building | 210 |
| Supervisors salaries | 300 |
| Total fixed costs | $1,000 |
| Total cost | $2,890 |
The company received an offer from Elite Mini-Bars to produce the insets for $2,090 per unit and supply 1,000 mini-bars for the coming year’s estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the company’s total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased.
The specialized equipment cannot be used and has no market value. However, the space occupied by the mini-bar production can be used by a different production group that will lease it for $55,000 per year.
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