oston Exemcutive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs: Cost per Unit Variable costs: Direct material $960 Direct labor 640 Variable overhead 290 Total variable costs $1,890 Fixed costs: Depreciation of equipment $490 Depreciation of building 190 Supervisors salaries 300
Boston Exemcutive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs:
| Cost per Unit | |
| Variable costs: | |
| Direct material | $960 |
| Direct labor | 640 |
| Variable overhead | 290 |
| Total variable costs | $1,890 |
| Fixed costs: | |
| $490 | |
| Depreciation of building | 190 |
| Supervisors salaries | 300 |
| Total fixed costs | $980 |
| Total cost | $2,870 |
The company received an offer from Elite Mini-Bars to produce the insets for $2,090 per unit and supply 900 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.
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 |
|
| Variable Costs | |||
| Direct material | $fill in the blank 1 | $fill in the blank 2 | $fill in the blank 3 |
| Direct labor | fill in the blank 4 | fill in the blank 5 | fill in the blank 6 |
| Variable overhead | fill in the blank 7 | fill in the blank 8 | fill in the blank 9 |
| $fill in the blank 10 | $fill in the blank 11 | $fill in the blank 12 | |
| Fixed Costs | |||
| Equipment depreciation | $fill in the blank 13 | $fill in the blank 14 | $fill in the blank 15 |
| Building depreciation | fill in the blank 16 | fill in the blank 17 | fill in the blank 18 |
| Supervisor salaries | fill in the blank 19 | fill in the blank 20 | fill in the blank 21 |
| $fill in the blank 22 | $fill in the blank 23 | $fill in the blank 24 | |
| Other Cost Savings | |||
| Leased space | $fill in the blank 25 | $fill in the blank 26 | $fill in the blank 27 |
| Cost of buying bar inserts | fill in the blank 28 | fill in the blank 29 | fill in the blank 30 |
| $fill in the blank 31 | $fill in the blank 32 | $fill in the blank 33 | |
| Total cost | $fill in the blank 34 | $fill in the blank 35 | $fill in the blank 36 |
B. Should the company make or buy the mini-bar insert?
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