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Structuring a Make-or-Buy Problem Coed Scents, a national producer of young adult perfumes and colognes, needs to determine if it would be cheaper to produce 100,000 bottles of its most popular perfume, Two AM, for sale in its college town shops or to purchase them from an outside supplier for $25 each. Cost information on internal production includes the following: Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. Required: 1. What are the alternatives for Coed Scents? 2. List the relevant cost(s) of internal production and of external purchase. 3. Which alternative is more cost effective and by how much? 4. Now assume that Coed Scents’ internal audit team learned through a special data analytics project that intellectual property theft is a significant threat for outsourced production. The team estimates that if Coed Scents outsources its production, it will need to spend $350,000 to manage intellectual property theft of its Two AM brand by competitors operating in the country where the outsourced production occurs. Which alternative is more cost effective and by how much?

BuyFind

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773
BuyFind

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773

Solutions

Chapter
Section
Chapter 8, Problem 26BEB
Textbook Problem

Structuring a Make-or-Buy Problem

Coed Scents, a national producer of young adult perfumes and colognes, needs to determine if it would be cheaper to produce 100,000 bottles of its most popular perfume, Two AM, for sale in its college town shops or to purchase them from an outside supplier for $25 each. Cost information on internal production includes the following:

Chapter 8, Problem 26BEB, Structuring a Make-or-Buy Problem Coed Scents, a national producer of young adult perfumes and

Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price.

Required:

  1. 1. What are the alternatives for Coed Scents?
  2. 2. List the relevant cost(s) of internal production and of external purchase.
  3. 3. Which alternative is more cost effective and by how much?
  4. 4. Now assume that Coed Scents’ internal audit team learned through a special data analytics project that intellectual property theft is a significant threat for outsourced production. The team estimates that if Coed Scents outsources its production, it will need to spend $350,000 to manage intellectual property theft of its Two AM brand by competitors operating in the country where the outsourced production occurs. Which alternative is more cost effective and by how much?

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Chapter 8 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making
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