Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company's normal volume of 6,000 units per month are shown in the following table. Unit manufacturing costs Variable materials $ 57 Variable labor 82 Variable overhead 32 Fixed overhead 67 Total unit manufacturing costs $ 238 Unit marketing costs Variable 32 Fixed 77 Total unit marketing costs 109 Total unit costs $ 347 Unless otherwise stated, assume that no connection exists between the situation described in each question; each is independent. Unless otherwise stated, assume a regular selling price of $384 per unit. Ignore income taxes and other costs that are not mentioned in the table or in the question itself. Required: f-1. A proposal is received from an outside contractor who will make and ship 2,000 stoves per month directly to Davis’s customers as orders are received from Davis’s sales force. Davis’s fixed marketing costs would be unaffected, but its variable marketing costs would be cut by 15 percent for these 2,000 units produced by the contractor. The idle facilities would be used to produce 1,600 modified stoves per month for use in extreme climates. These modified stoves could be sold for $457 each, while the costs of production would be $282 per unit variable manufacturing expense. Variable marketing costs would be $57 per unit. Fixed marketing and manufacturing costs would be unchanged whether the original 6,000 regular stoves were manufactured or the mix of 4,000 regular stoves plus 1,600 modified stoves were produced. What in-house unit cost should be used to compare with the quotation received from the outside contractor? Assume the payment to the outside contractor is $222. f-2. Should the proposal be accepted for a price of $222 per unit to the outside contractor?
Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company's normal volume of 6,000 units per month are shown in the following table.
| Unit |
||||||
| Variable materials | $ | 57 | ||||
| Variable labor | 82 | |||||
| Variable overhead | 32 | |||||
| Fixed overhead | 67 | |||||
| Total unit manufacturing costs | $ | 238 | ||||
| Unit marketing costs | ||||||
| Variable | 32 | |||||
| Fixed | 77 | |||||
| Total unit marketing costs | 109 | |||||
| Total unit costs | $ | 347 | ||||
Unless otherwise stated, assume that no connection exists between the situation described in each question; each is independent. Unless otherwise stated, assume a regular selling price of $384 per unit. Ignore income taxes and other costs that are not mentioned in the table or in the question itself.
Required:
f-1. A proposal is received from an outside contractor who will make and ship 2,000 stoves per month directly to Davis’s customers as orders are received from Davis’s sales force. Davis’s fixed marketing costs would be unaffected, but its variable marketing costs would be cut by 15 percent for these 2,000 units produced by the contractor. The idle facilities would be used to produce 1,600 modified stoves per month for use in extreme climates. These modified stoves could be sold for $457 each, while the costs of production would be $282 per unit variable manufacturing expense. Variable marketing costs would be $57 per unit. Fixed marketing and manufacturing costs would be unchanged whether the original 6,000 regular stoves were manufactured or the mix of 4,000 regular stoves plus 1,600 modified stoves were produced. What in-house unit cost should be used to compare with the quotation received from the outside contractor? Assume the payment to the outside contractor is $222.
f-2. Should the proposal be accepted for a price of $222 per unit to the outside contractor?
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