MyLab Accounting with Pearson eText -- Access Card -- for Horngren's Accounting, The Financial Chapters (My Accounting Lab)
11th Edition
ISBN: 9780133877502
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 25, Problem E25.18E
Making outsourcing decisions
Eclipse Systems manufactures an optical switch that it uses in its final product. The switch has the following
Direct Materials $ 11.00 Direct Labor 4.50 Variable Overhead 6.00 Fixed Overhead 8.00 Manufacturing Product Cost $ 29.50
Another company has offered to sell Eclipse Systems the switch for $20.00 per unit. If Eclipse Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.
Prepare an outsourcing analysis to determine whether Eclipse Systems should make or buy the switch.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Making outsourcing decisions
Cool Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:
Another company has offered to sell Cool Systems the switch for $15.00 per unit. If Cool Systems buys the switch from the outside supplier, the idle manufacturing facilities cannot be used for any other purpose, yet none of the fixed costs are avoidable.</p><p>Prepare an outsourcing analysis to determine whether Cool Systems should make or buy the switch.
Making outsourcing decisions
Cold Sports manufactures snowboards. Its cost of making 2,000 bindings is as follows:
Suppose Topnotch will sell bindings to Cold Sports for $15 each. Cold Sports would pay $3 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.50 per binding.
Requirements
Cold Sports’s accountants predict that purchasing the bindings from Topnotch will enable the company to avoid $2,300 of fixed overhead. Prepare an analysis to show whether Cold Sports should make or buy the bindings.
The facilities freed by purchasing bindings from Topnotch can be used to manufacture another product that will contribute $3,100 to profit. Total fixed costs will be the same as if Cold Sports had produced the bindings. Show which alternative makes the best use of Cold Sports’s facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product.
Eyescape
Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell
Eyescape
Systems the switch for
$14.50
per unit. None of
Eyescape's
fixed costs are avoidable.
1(Click
the icon to view the outsourcing decision.)
Eyescape
Systems needs
78,000
optical switches. By outsourcing them,
Eyescape
Systems can use its idle facilities to manufacture another product that will contribute
$224,000
to operating income.
Read the
requirements2.
Requirement 1. Identify the expected net costs that
Eyescape
Systems will incur to acquire
78,000
switches under three alternative plans.
Outsource switches
Facilities
Make new
Switch costs
Make
Idle
product
Variable costs:
Direct materials
Direct labor
Variable manufacturing overhead
Purchase cost
Expected profit contribution from the other product…
Chapter 25 Solutions
MyLab Accounting with Pearson eText -- Access Card -- for Horngren's Accounting, The Financial Chapters (My Accounting Lab)
Ch. 25 - Prob. 1QCCh. 25 - Prob. 2QCCh. 25 - Which of the following costs are irrelevant to...Ch. 25 - Prob. 4QCCh. 25 - Prob. 5QCCh. 25 - 6. When companies are price-setters, their...Ch. 25 - Prob. 7QCCh. 25 - Prob. 8QCCh. 25 - Prob. 9QCCh. 25 - Prob. 10QC
Ch. 25 - Prob. 1RQCh. 25 - Prob. 2RQCh. 25 - Prob. 3RQCh. 25 - Prob. 4RQCh. 25 - Prob. 5RQCh. 25 - What is differential analysis?Ch. 25 - Prob. 7RQCh. 25 - Prob. 8RQCh. 25 - Prob. 9RQCh. 25 - Prob. 10RQCh. 25 - Prob. 11RQCh. 25 - Prob. 12RQCh. 25 - Prob. 13RQCh. 25 - Prob. 14RQCh. 25 - Prob. 15RQCh. 25 - Prob. 16RQCh. 25 - Prob. 17RQCh. 25 - Prob. 18RQCh. 25 - Prob. 19RQCh. 25 - Prob. 20RQCh. 25 - Prob. 21RQCh. 25 - Prob. 22RQCh. 25 - Prob. 23RQCh. 25 - Prob. 24RQCh. 25 - Prob. 25RQCh. 25 - Prob. 26RQCh. 25 - Prob. S25.1SECh. 25 - Prob. S25.2SECh. 25 - Prob. S25.3SECh. 25 - Prob. S25.4SECh. 25 - Prob. S25.5SECh. 25 - Prob. S25.6SECh. 25 - Prob. S25.7SECh. 25 - Prob. S25.8SECh. 25 - Prob. E25.9ECh. 25 - Prob. E25.10ECh. 25 - Prob. E25.11ECh. 25 - Prob. E25.12ECh. 25 - Prob. E25.13ECh. 25 - Prob. E25.14ECh. 25 - Prob. E25.15ECh. 25 - Prob. E25.16ECh. 25 - Prob. E25.17ECh. 25 - Making outsourcing decisions Eclipse Systems...Ch. 25 - Prob. E25.19ECh. 25 - Prob. E25.20ECh. 25 - Prob. P25.21APGACh. 25 - Prob. P25.22APGACh. 25 - Making Decisions a product decisions Members of...Ch. 25 - Prob. P25.24APGACh. 25 - Prob. P25.25APGACh. 25 - Prob. P25.26APGACh. 25 - Prob. P25.27BPGBCh. 25 - Prob. P25.28BPGBCh. 25 - Prob. P25.29BPGBCh. 25 - Prob. P25.30BPGBCh. 25 - Making outsourcing decisions Winter Sports...Ch. 25 - Prob. P25.32BPGBCh. 25 - Prob. P25.33CPCh. 25 - Prob. 25.1EI
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Zena Technology sells arc computer printers for $55 per unit. Unit product costs are: A special order to purchase 15,000 arc printers has recently been received from another company and Zena has idle capacity to fill the order. Zena will incur an additional $2 per printer for additional labor costs due to a slight modification the buyer wants made to the original product. One-third of the manufacturing overhead costs is fixed and will be incurred no matter how many units are produced. When negotiating the price, what is the minimum selling price that Zena should accept for this special order?arrow_forwardOat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?arrow_forwardRolertyme Company manufactures roller skates. With the exception of the rollers, all parts of the skates are produced internally. Neeta Booth, president of Rolertyme, has decided to make the rollers instead of buying them from external suppliers. The company needs 100,000 sets per year (currently it pays 1.90 per set of rollers). The rollers can be produced using an available area within the plant. However, equipment for production of the rollers would need to be leased (30,000 per year lease payment). Additionally, it would cost 0.50 per machine hour for power, oil, and other operating expenses. The equipment will provide 60,000 machine hours per year. Direct material costs will average 0.75 per set, and direct labor will average 0.25 per set. Since only one type of roller would be produced, no additional demands would be made on the setup activity. Other overhead activities (besides machining and setups), however, would be affected. The companys cost management system provides the following information about the current status of the overhead activities that would be affected. (The supply and demand figures do not include the effect of roller production on these activities.) The lumpy quantity indicates how much capacity must be purchased should any expansion of activity supply be needed. The purchase price is the cost of acquiring the capacity represented by the lumpy quantity. This price also represents the cost of current spending on existing activity supply (for each block of activity). Production of rollers would place the following demands on the overhead activities: Producing the rollers also means that the purchase of outside rollers will cease. Thus, purchase orders associated with the outside acquisition of rollers will drop by 5,000. Similarly, the moves for the handling of incoming orders will decrease by 200. The company has not inspected the rollers purchased from outside suppliers. Required: 1. Classify all resources associated with the production of rollers as flexible resources and committed resources. Label each committed resource as a short- or long-term commitment. How should we describe the cost behavior of these short- and long-term resource commitments? Explain. 2. Calculate the total annual resource spending (for all activities except for setups) that the company will incur after production of the rollers begins. Break this cost into fixed and variable activity costs. In calculating these figures, assume that the company will spend no more than necessary. What is the effect on resource spending caused by production of the rollers? 3. Refer to Requirement 2. For each activity, break down the cost of activity supplied into the cost of activity output and the cost of unused activity.arrow_forward
- Concord Corporation manufactures widgets. Bowden Company has approached Concord with a proposal to sell the company widgets at a price of $88000 for 100000 units. The following costs are associated with Concord's production process when 100000 units are produced: Direct material Direct labor Manufacturing overhead Total $ 33000 29500 48500 $111000 Manufacturing overhead of $12150 of costs will be eliminated if the components are no longer produced by Concord. What is the incremental cost or savings to Concord if the widgets are bought instead of made? $23000 incremental savings $13350 incremental cost $10850 incremental savings $23000 incremental costarrow_forwardJTA Corp must decide whether to make or buy some of its components for the appliances it produces. The cost of producing 166,000 electrical cords for its appliances are as follows Direct materials 90,000 Direct Labor 32,000 Variable overhead 19,100 Fixed overhead 24,900 Instead of making the electrical cords at an average cost per unit of 10, the Company has an opportunity to buy the cords at 0 90 per unit. If the Company purchases the cords, all vanable costs are eliminated. What is the total relevant cost per unit in deciding either to buy or produce the component?arrow_forwardMohave 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 8,900 units per year for $7.50 each. Mohave the following information about the cost of producing tote bags: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit 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. Compute the difference in cost between making and buying the umbrella tote bag. 2. Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them? 3-a. Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $12,000 in…arrow_forward
- Nelly Technology manufactures a particular computer component. Currently, the costs per unit are asfollows:Direct material P 50Direct labor 500Variable overhead 250Fixed overhead 400Fur Inc. has obtained Nelly with a offer to sell 10,000 units of the component for P1,100 per unit. IfNelly accepts the proposal, P2,500,000 of the fixed overhead will be eliminated. Should Nelly makeor buy the component?arrow_forwardBaird Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows. $ 6,500 6,400 4,100 9,600 27,900 Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Baird for $2.60 each. Required a. Calculate the total relevant cost. Should Baird continue to make the containers? b. Baird could lease the space it currently uses in the manufacturing process. If leasing would produce $11,200 per month, calculate the total avoidable costs. Should Baird continue to make the containers? a. Total relevant cost Should Baird continue to make the containers? b. Total avoidable cost Should Baird continue to make the containers?arrow_forwardSilven Industries, which manufactures and sells a highly successful line of summer lotions and insect repellents, has decided to diversify in order to stabilize sales throughout the year. A natural area for the company to consider is the production of winter lotions and creams to prevent dry and chapped skin. After considerable research, a winter products line has been developed. However, Silven's president has decided to introduce only one of the new products for this coming winter. If the product is a success, further expansion in future years will be initiated. The product selected (called Chap-Off) is a lip balm that will be sold in a lipstick-type tube. The product will be sold to wholesalers in boxes of 24 tubes for $13 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $96,000 charge for fixed manufacturing overhead will be absorbed by the product under the company's absorption costing system.…arrow_forward
- 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 8.200 units per year for $9.50 each Mohave the following information about the cost of producing tote bags: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 60 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. Compute the difference in cost between making and buying the umbrella tote bag 2. Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them? 3-0. Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $10,000 in annual…arrow_forwardMohave 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 8,100 units per year for $8.50 each. Mohave the following information about the cost of producing tote bags: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $ 4.00 2.00 1.00 2.00 $9.00 Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while 60 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. Compute the difference in cost between making and buying the umbrella tote bag. 2. Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them? 3-a. Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that…arrow_forwardWindu Enterprises uses a manufacturing process that is very labor intensive to manufacture its multicolored laser vegetable slicers. Windu is considering a change to a more automated manufacturing process. The cost structure information for Windu's options are listed below. Windu sells its only product for $25 per unit. Costs Fixed Manufacturing Costs Variable Manufacturing Cost per unit Current Method $180,000 $15 Automated Method $240,000 $13 Required. 1. Compute the breakeven points for both production methods 2. Compute the point of indifference for these two production methods (i.e. at what number of units of production will income be equal for both methods?) 3. Calculate the Operating Leverage Factor for both methods at the point of indifference + 4. If Windu's management intends to produce and sell 35,000 units, which production method should they use? 5. By how much per unit (nearest $.01) would the current method's variable cost need to decrease in order for management to be…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Incremental Analysis - Sell or Process Further; Author: Melissa Shirah;https://www.youtube.com/watch?v=7D6QnBt5KPk;License: Standard Youtube License