MANAGERIAL ACCT FOR MANAGERS LL\AC
MANAGERIAL ACCT FOR MANAGERS LL\AC
5th Edition
ISBN: 9781265872298
Author: Noreen
Publisher: MCG
Question
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Chapter 6, Problem 6.28P

1.

To determine

Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.

The financial advantage or disadvantage of purchasing drums from outside if the company needs 60,000 drums per year.

1.

Expert Solution
Check Mark

Answer to Problem 6.28P

The financial advantage is $36000 if the drums are purchased from outside supplier

Explanation of Solution

    Differential Cost per DTotal Differential Cost 60000 drums
    Make $ BuyMake Buy
    Outside supplier’s price181,080,000
    Direct material 10.35621000
    Direct labor4.20252000
    Variable overhead 1.0563000
    supervision0.7545000
    Equipment rental2.25135000
    Total cost18.60181160001,080,000

Financial advantage:

  financialadvantage=DifferentialcostofmakingDifferentialcostofbuying=$4,116,000$1,080,000=$36,000

Therefore, financial advantage is $36000 if the drums are purchased from outside supplier

Given that making new equipment reduces direct labor and variable overhead cost by 30% so it is taken as 70% ( 100%30% )

Equipment rental is $135000 per year here we need per drum cost so

  Equipmentcostperdrum=135,00060,000=$2.25

2.

To determine

Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.

The financial advantage or disadvantage of purchasing drums from outside if the company needs 75,000 drums per year.

2.

Expert Solution
Check Mark

Answer to Problem 6.28P

The financial advantage is $0 if the drums are purchased from outside supplier

Explanation of Solution

    Differential Cost per DTotal Differential Cost 60000 drums
    Make $ BuyMake Buy
    Outside supplier’s price181,350,000
    Direct material 10.35776250
    Direct labor4.20315000
    Variable overhead 1.0578750
    supervision0.7545000
    Equipment rental2.25135000
    Total cost18.601813500001350000

Financial advantage:

  financialadvantage=DifferentialcostofmakingDifferentialcostofbuying=$1,350,000$1,350,000=$0

Therefore, financial advantage is $0 if the drums are purchased from outside supplier

Equipment rental is $135000 per year here we need per drum cost so

  Equipmentcostperdrum=135,00075,000=$1.80

Supervision cost also declined with increase drums.

3.

To determine

Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.

The financial advantage or disadvantage of purchasing drums from outside if the company needs 90,000 drums per year

3.

Expert Solution
Check Mark

Answer to Problem 6.28P

The financial advantage is $36000 if the drums are purchased from outside supplier

Explanation of Solution

    Differential Cost per DTotal Differential Cost 60000 drums
    Make $ Buy $Make $`Buy $
    Outside supplier’s price181,620,000
    Direct material 10.35931,500
    Direct labor4.20378,000
    Variable overhead 1.0594,500
    supervision0.7545,000
    Equipment rental2.25135,000
    Total cost18.60181,584,0001,620,000

Financial advantage:

  financialadvantage=DifferentialcostofmakingDifferentialcostofbuying=$1,620,000$1,584,000=$36,000

Therefore, financial advantage is $36000 if the drums are purchased from outside supplier

Equipment rental is $135000 per year here we need per drum cost so

  Equipmentcostperdrum=135,00090,000=$1.50

Supervision cost also declined with increase drums.

4.

To determine

Introduction: The difference in costs between the variable alternative is used to calculate financial advantage and disadvantage.

The factors recommended for the company before making a decision.

4.

Expert Solution
Check Mark

Answer to Problem 6.28P

The factors are given below.

Explanation of Solution

The other factors that need to be considered by the firm before decision making are:

  1. Requirement of the quality of material and the quality supplied by the supplier
  2. Quantity of the drums produced in the future
  3. Cost of material and labor in future.
  4. Rely on single supplier by the company.
  5. Supplier capability of delivering the material on time.

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