Question

Part 2. Using our previous example about Gabriela & Co. Management is considering producing a part it needs (#2) or using a part produced by Alec Enterprises. Gabriela & Co. has the following manufacturing costs for 150,000 units of Part #2: DM DL Mixed Overhead VOH FOH Total $28,000 18,500 29,000 (FC $9,000 + VC $20,000)* 15,000 30,000 $120,500 Mixed OH consists of material handling and setup costs. Gabriela & Co. produces the 150,000 units in 100 batches of 1,500 units each. * Total material handling and setup costs equal fixed clerical costs of $9,000 (to support material handling and setup) plus variable setup costs of $200 per batch ($200 x 100 batches = $20,000). Total Mixed Overhead $9,000+ $20,000 = $29,000. a. What is the current cost per unit for Part #2? Show your computation. (Worth 1 pt.) b. Gabriela & Co. anticipates that next year the 150,000 units of Part #2 expected to be sold will be manufactured in 150 batches of 1,000 units each. Mixed Overhead Variable setup costs per batch are expected to decrease to $100. There is no effect on the fixed clerical costs to support material handling and setup costs in the Mixed Overhead. Gabriela & Co. plan to continue to produce 150,000 next year at the same variable manufacturing costs per unit as this year. Fixed costs are expected to remain the same as this year. Alec Enterprises offers to sell the same part to Gabriela & Co. for $0.55. Should Gabriela & Co. continue to manufacture the part or buy it from Alex Enterprises? Show all your computations. (Worth 3.5 pts.)

Answer 1

The answers for those a, b, c and d are given below
la). Calculation of current cost per unit: AM - 28000 DL = 18500 mixed OH - 29000 VOH • 1 SOOD Fol . 30000 Total cost → 120500 * Current cost pu units Toted cost no.of units psduced - 120,500 150000 -0.8033 per unit: (6) cost for next year Notes- * mixed OH = 150 batchesx 100 = 15000 Hired cost AM L 28000 = 18500 = 15000 + 9000 Mixed DH - 24000* - 24000 VOH = 15000 = 30000 FOH 15 SDO Total cost - cost per unit 115,500 150000 = 0.77 per unit Scanned with CamScanner PITO

Buy from Alex Enterprises is good. because Alex offer $0.55 per unit. But to purchase Gabriela & co. it takes $0.11 per unit which is more than $0.55. * so, purchase from Alex enterprices is a better one. (c) If freed clerical salaries are not inccured the cost is AM AL = 28000 = 18500 mired oH = 15000 [24000-9000] VOH = 15000 = 30000 FOH Total cost => 1,06,500 106,500 cost per unit = 150000 0.77 per unit * Buy the part t2 toom Alex enterprices is currect option because to produce it takes $0.71 but to buy it is only $0.55. So, buying opetion is prefferable. Scanned with CamScanner

(d) 2 3 make tor part and do not 1 . Buy 2. Buy part +2 pas Krysta's. * The operating income is : $18000 is $0.11 per unit * but the cost to production to buy the cost is= $0.55 * the saving of cost - (0.91 -0.55) = 0.16 pu unit Total saving = 15DODO Xo16 = 24000 .: The opexting income cost saving is more than for production of part #3. ::. So, 'option - 2 is preferred. Scanned with CamScanner