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Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 24,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.29. The unit cost is: Direct materials $0.86 Direct labor 0.28 Variable overhead 0.09 Fixed overhead 2.65 Total unit cost $3.88 Required: 1. What are the alternatives for Basu Company? Make the part in house or buy the part externally 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. Direct materials, direct labor and variable overhead List the relevant cost(s) of external purchase. Purchase price 3. Which alternative is more cost effective and by how much? Making the part in house by s 3.88 4. What if $19,560 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much? Buying the part from the external supplier by $ 1.29

Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 24,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.29. The unit cost is: Direct materials $0.86 Direct labor 0.28 Variable overhead 0.09 Fixed overhead 2.65 Total unit cost $3.88 Required: 1. What are the alternatives for Basu Company? Make the part in house or buy the part externally 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. Direct materials, direct labor and variable overhead List the relevant cost(s) of external purchase. Purchase price 3. Which alternative is more cost effective and by how much? Making the part in house by s 3.88 4. What if $19,560 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much? Buying the part from the external supplier by $ 1.29

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter8: Tactical Decision-making And Relevant Analysis
Section: Chapter Questions
Problem 64P: Sell or Process Further, Basic Analysis Shenista Inc. produces four products (Alpha, Beta, Gamma,...
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ON THE SECOND PHOTO, ONLY (3.88 & 1.29) ARE INCORRECT

Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 24,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.29. The unit cost is: Direct materials $0.86 Direct labor 0.28 Variable overhead 0.09 Fixed overhead 2.65 Total unit cost $3.88 Required: 1. What are the alternatives for Basu Company? Make the part in house or buy the part externally 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. Direct materials, direct labor and variable overhead List the relevant cost(s) of external purchase. Purchase price 3. Which alternative is more cost effective and by how much? Making the part in house by $ 3.88 4. What if $19,560 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much? Buying the part from the external supplier by $ 1.29
Transcribed Image Text:Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 24,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.29. The unit cost is: Direct materials $0.86 Direct labor 0.28 Variable overhead 0.09 Fixed overhead 2.65 Total unit cost $3.88 Required: 1. What are the alternatives for Basu Company? Make the part in house or buy the part externally 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. Direct materials, direct labor and variable overhead List the relevant cost(s) of external purchase. Purchase price 3. Which alternative is more cost effective and by how much? Making the part in house by $ 3.88 4. What if $19,560 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much? Buying the part from the external supplier by $ 1.29
Sell at Split-Off or Process Further Decision, Alternatives, Relevant Costs Betram Chemicals Company processes a number of chemical compounds used in producing industrial cleaning products. One compound is decomposed into two chemicals: anderine and dofinol. The cost of processing one batch of compound is $76,500, and the result is 5,900 gallons of anderine and 7,900 gallons of dofinol. Betram Chemicals can sell the anderine at split-off for $9.00 per gallon and the dofinol for $6.00 per gallon. Alternatively, the anderine can be processed further at a cost of $8.10 per gallon (of anderine) into cermine. It takes 3 gallons of anderine for every gallon of cermine. A gallon of cermine sells for $60. Required: 1. Which alternative is more cost effective and by how much? NOTE: Do NOT round interim calculations and, if required, round your answer to the nearest dollar. Process it further ✓ by $ 17,110 2. What if the production of anderine into cermine required additional purchasing and quality inspection activity? Every 450 gallons of anderine that undergo further processing require 17 more purchase orders at $9 each and 17 more quality inspection hours at $26 each. Which alternative would be better and by how much? NOTE: Round interim calculations and your final answer to the nearest cent. Process it further ✓by 9,309 X
Transcribed Image Text:Sell at Split-Off or Process Further Decision, Alternatives, Relevant Costs Betram Chemicals Company processes a number of chemical compounds used in producing industrial cleaning products. One compound is decomposed into two chemicals: anderine and dofinol. The cost of processing one batch of compound is $76,500, and the result is 5,900 gallons of anderine and 7,900 gallons of dofinol. Betram Chemicals can sell the anderine at split-off for $9.00 per gallon and the dofinol for $6.00 per gallon. Alternatively, the anderine can be processed further at a cost of $8.10 per gallon (of anderine) into cermine. It takes 3 gallons of anderine for every gallon of cermine. A gallon of cermine sells for $60. Required: 1. Which alternative is more cost effective and by how much? NOTE: Do NOT round interim calculations and, if required, round your answer to the nearest dollar. Process it further ✓ by $ 17,110 2. What if the production of anderine into cermine required additional purchasing and quality inspection activity? Every 450 gallons of anderine that undergo further processing require 17 more purchase orders at $9 each and 17 more quality inspection hours at $26 each. Which alternative would be better and by how much? NOTE: Round interim calculations and your final answer to the nearest cent. Process it further ✓by 9,309 X
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