EXERCISE 13-7 Make or Buy a Component [LO3] Han Products manufactures 30,000 units of part S-6 each year for use on its production line Atk: level of activity, the cost per unit for part S-6 is as follows: Direct materials $ 3.60 ... 10.00 Direct labor. .. Variable manufacturing overhead. Fixed manufacturing overhead. 2.40 .... . 9.00 ..... .... Total cost per part.. . . . . $25.00 An outside supplier has offered to sell 30,000 units of part S-6 each year to Han Products for $21 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $80,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required: Prepare computations showing how much profits will increase or decrease if the outside supplier's offer is accepted.

EXERCISE 13-7 Make or Buy a Component [LO3] Han Products manufactures 30,000 units of part S-6 each year for use on its production line Atk: level of activity, the cost per unit for part S-6 is as follows: Direct materials $ 3.60 ... 10.00 Direct labor. .. Variable manufacturing overhead. Fixed manufacturing overhead. 2.40 .... . 9.00 ..... .... Total cost per part.. . . . . $25.00 An outside supplier has offered to sell 30,000 units of part S-6 each year to Han Products for $21 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $80,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required: Prepare computations showing how much profits will increase or decrease if the outside supplier's offer is accepted.

Accounting (Text Only)

26th Edition

ISBN:9781285743615

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter21: Cost Behavior And Cost-volume-profit Analysis

Section: Chapter Questions

Problem 21.4CP: Variable costs and activity bases in decision making The owner of Warwick Printing, a printing...

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Break-even analysis Somerset Inc. has finished a new video game, Snowboard Challenge. Management is now considering its marketing strategies. The following information is available: Anticipated sales price per unit 80 Variable cost per unit 35 Anticipated volume 1,000,000 units Production costs 20,000,000 Anticipated advertising 15,000,000 The cost of the video game, packaging, and copying costs. Two managers, James Hamilton and Thomas Seymour, had the following discussion of ways to increase the profitability of this new offering: James: I think we need to think of some way to increase our profitability Do you have any ideas? Thomas: Well, I think the best strategy would be to become aggressive on price. James: How aggressive? Thomas: If we drop the price to 60 per unit and maintain our advertising budget at 15,000,000, I think we will generate total sales of 2.000,000 units. James: I think thats the wrong way to go. Youre giving too much up on price. Instead, I think we need to follow an aggressive advertising strategy Thomas: How aggressive? James: If we increase our advertising to a total of 25,000,000, we should be able to increase sales volume to 1,400.000 units without any change in price. Thomas: I dont think thats reasonable. Well never cover the increased advertising costs. Which strategy is best: Do nothing? Follow the advice of Thomas Seymour? Or follow James Hamiltons strategy?
Break-even analysis Somerset Inc. has finished a new video game, Snowboard Challenge. Management is now considering its marketing strategies. The following information is available: Anticipated vales price per unit................ 80 Variable cost per unit......................... 35 Anticipated volume........................... 1,000,000 units Production costs.............................. 20,000,000 Anticipated advertising........................ 15,000,000 Two managers, James Hamilton and Thomas Seymour, had the following discussion of ways to increase the profitability of this new offering: James: I think we need to think of some way to increase our profitability. Do you have any ideas? Thomas: Well. I think the best strategy would be to become aggressive on price. James: How aggressive? James: lf we drop the price to 60 per unit and maintain our advertising budget at 15,000,000. I think we will generate total sales of 2,000,000 units. James: I think that's the wrong way to go. You're giving up too much on price. Instead, I think we need to follow an aggressive advertising strategy. Thomas: How aggressive? James: If we increase our advertising to a total of 25,000,000, we should be able to increase sales volume to 1,400,000 units without any change in price. Thomas: l dont think that's reasonable. We'll never cover the increased advertising costs. Which strategy is best: Do nothing, follow the advice of Thomas Seymour, orb follow James Hamilton's strategy?
Variable costs and activity bases in decision making The owner of Warwick Printing, a printing company, is planning direct labor needs for the upcoming year. The owner has provided you with the following information for next year's plans: One Color Two Color Three Color Four Color Total Number of banners 212 274 616 698 1,800 Each color on the banner must be printed one at a time. Thus, for example, a four color banner will need to be run through the printing operation four separate times. The total production volume last year was 800 banners, as follows: One Color Two Color Three Color Total Number of banners 180 240 380 800 As you can see, the four-color banner is a new product offering for the upcoming year. The owner believes that the expected 1,000-unit increase in volume from last year means that direct labor expenses should increase by 125% (1,000 800). What do you think?
Question 10.4 Big Machines Corp. has two divisions. Division Y manufactures components that can be sold in the external market place or transferred to Division Z for further processing. The following data relate to Division Y's component product. Variable manufacturing costs/unit $925 Fixed costs/unit at capacity $275 Selling price/unit $1,800 The capacity of the plant is 2,500 units per year. Division Z has offered to purchase 350 units from Division Y at a price of $1,600/unit, which is the market price of the component. The manager of Division Y has refused this offer stating that it would only return a rate of 25.00%, when the divisional target return on sales is 28.00%. The Division Y manager also states that additional fixed costs of $195,000 would be required to produce the 350 units. The corporate required rate of return is 18% of assets and the existing asset base in Division Y is $2,500,000. Required: How many units must Division Y sell in order…
Exercise 13-11 (Algo) Make or Buy Decision [LO13-3] Han Products manufactures 35,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials $ 3.90 Direct labor 12.00 Variable manufacturing overhead 2.10 Fixed manufacturing overhead 9.00 Total cost per part $ 27.00 An outside supplier has offered to sell 35,000 units of part S-6 each year to Han Products for $23 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $85,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier’s offer?