Mohave Corporation is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,700 units per year for $10.00 each. Mohave the following information about the cost of producing tote bags: Direct materials $ 6.00 Direct labor 2.00 Variable manufacturing overhead 1.00 Fixed manufacturing overhead 1.50 Total cost per unit $ 10.50 Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 70 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags. Required: 1) Based on the incremental analysis, should Mohave buy the tote bags or continue making them? 2) Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $12,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag. (IS IT FAVOURS BUYING OR FAVOURS MAKING) 3) Does this change your recommendation to Mohave? 4) Compute the difference in cost between making and buying the umbrella tote bag.
Mohave Corporation is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,700 units per year for $10.00 each. Mohave the following information about the cost of producing tote bags: Direct materials $ 6.00 Direct labor 2.00 Variable manufacturing overhead 1.00 Fixed manufacturing overhead 1.50 Total cost per unit $ 10.50 Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 70 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags. Required: 1) Based on the incremental analysis, should Mohave buy the tote bags or continue making them? 2) Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $12,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag. (IS IT FAVOURS BUYING OR FAVOURS MAKING) 3) Does this change your recommendation to Mohave? 4) Compute the difference in cost between making and buying the umbrella tote bag.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter8: Inventories: Special Valuation Issues
Section: Chapter Questions
Problem 3RE: Blue Corporation uses the FIFO cost flow assumption. Presented below is information related to Blues...
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Mohave Corporation is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,700 units per year for $10.00 each. Mohave the following information about the cost of producing tote bags:
| Direct materials | $ 6.00 |
|---|---|
| Direct labor | 2.00 |
| Variable manufacturing |
1.00 |
| Fixed manufacturing overhead | 1.50 |
| Total cost per unit | $ 10.50 |
Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 70 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags.
Required:
1) Based on the incremental analysis, should Mohave buy the tote bags or continue making them?
2) Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $12,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag. (IS IT FAVOURS BUYING OR FAVOURS MAKING)
3) Does this change your recommendation to Mohave?
4) Compute the difference in cost between making and buying the umbrella tote bag.
Transcribed Image Text:eBook
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Req 1
Req 2
Req 3A
Req 3B
Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate
$12,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag.
Differential Cost of Making Versus Buying
< Req 2
Req 3B >
Transcribed Image Text:eBook
Print
References
Req 1
Req 2
Req 3A
Req 3B
Compute the difference in cost between making and buying the umbrella tote bag.
Differential Cost of Making Versus Buying
< Req 1
Req 2 >
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