Question

- CASE 12-32 Make or Buy Decisions; Volume Trade-Off Decisions LO12-1, L012-3, L012-5 TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an

Answer 1

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Tufstuff Inc.
Answer 5	Purchase Drums	Manufacture Drums	Manufacture Bike Frames	Note
Sell price	149.00	149.00	239.00	See A
Less: Variable costs
Purchase Price	138.00
Direct Material		52.10	99.40
Direct Labor		3.60	28.80
Manufacturing overhead		1.35	1.90
Selling & Admin	0.75	0.75	1.30
Total Variable costs	138.75	57.80	131.40	B
Contribution per unit	10.25	91.20	107.60	C=A-B
Answer 6	Manufacture Drums	Manufacture Bike Frames	Note
Contribution per unit	91.20	107.60	See C
Welding hour per unit	0.40	0.50	See D
Contribution per Welding hour	228.00	215.20	E=C/D

Workings for Answer 7

Contribution per Welding hour of Drums is higher than Bike Frames. So entire welding hours should be used for Drums and remaining demand of drums should be fulfilled by buying it from outside supplier.

Calculation of fixed costs	Drums	Note
Annual production	5,000.00	F
Manufacturing overhead	4.50
Less: Variable Manufacturing overhead	1.35
Fixed Manufacturing overhead per unit	3.15	G
Total Fixed Manufacturing overhead	15,750.00	H=F*G
Selling & Admin	29.80
Less: Selling & Admin	0.75
Fixed Selling & Admin per unit	29.05	I
Total Fixed Selling & Admin	145,250.00	J=F*I
Current Net Income	Amount $
Drums sold	5,000.00	See F
Margin per drum	59.00	K
Current Net Income	295,000.00	L=F*K

Revised Net Income	Purchase Drums	Manufacture Drums	Total	Note
Units sold	1,000.00	5,000.00		M
Contribution per unit	10.25	91.20		C
Total Contribution	10,250.00	456,000.00	466,250.00	N=M*C
Less: Fixed costs
Total Fixed Manufacturing overhead			15,750.00	See H
Total Fixed Selling & Admin			145,250.00	See J
Total Fixed costs			161,000.00	O=H+J
Revised Net Income	10,250.00	456,000.00	305,250.00	P=N-O
Increase in net income			10,250.00	Q=P=L