Assignment
Question 1
Assume that a firm has prepared the following cost estimates for the manufacture of a sub assembly component based on an annual production of 8,000 units.
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Per Unit
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Total
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Direct materials
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$5
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$40,000
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Direct labor
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$4
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$32,000
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|
Variable factory overhead applied
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$4
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$32,000
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|
Fixed factory over head applied (150% of direct labor cost)
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$6
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$48,000
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|
Total Cost
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$19
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$152,000
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The supplier has offered to provide the subassembly at a price of $16 each. Two-thirds of fixed factory overhead, which represents executive salaries, rent, depreciation, and taxes, continue regardless of the decision. Should the company buy or make the product?
Superior written essays will mention and explain the following elements when responding to the assignment question:
• Provide a solution and recommended decision.
• Provide a narrative about the approach to the problem.
Question 2
Assume that a company with 200,000 unit capacity is currently producing and selling only 180,000 units of product each year at a regular price of $4. If the variable cost per unit is $2 and the annual fixed cost is $180,000, the income statement looks like:
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Per Unit
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Sales (180,000 units)
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$720,000
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$4.00
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Less: Variable cost (180,000 units)
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$360,000
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$2.00
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Contribution Margin
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$360,000
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$2.00
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Fixed Cost
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$180,000
|
$1.00
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|
Net Income
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$180,000
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$1.00
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The company has just received an order that calls for 20,000 units @ $2.20, for a total of $44,000. The acceptance of this order will not affect regular sales. Should the company accept this offer? Explain by using the cost data provided.
Would your answer be different if the special order was for 23,000 units.
Write answer of 2 pages.