Question

benson electronics currently produces the shipping

Exercise 13-13 Outsourcing decision affected by opportunity costs LO 13-3 Benson Electronics currently produces the shipping containers it uses to deliver the electronics products itsells. The monthly cost of producing 9,300 containers follows: Unit-level materials Unit-level labor Unit-level overhead Product-level costs" Allocated facility-level costs $ 6,000 6,200 3,600 8,100 26,300 *One-third of these costs can be avoided by purchasing the containers Russo Container Company has offered to sell comparable containers to Benson for $2.60 each Required a. Calculate the total relevant cost. Should Benson continue to make the containers b. Benson could lease the space it currently uses in the manufacturing process. If leasing would produce $12,300 per month, calculate the total avoidable costs. Should Benson continue to make the containers? Answer is complete but not entirely correct. 24,180 Total relevant cost Should Benson continue to make the containers? Total avoidable cost Should Benson continue to make the containers? 36 2003

Answer 1

Solution a. Computation of Relevant Cost Unit level Material Unit level Labour Unit level Overhead Product level Costs Total Relevant Cost $ $ $ 6,000 6,200 3,600 8,100 23,900 * Allocated facilty-level costs are not relevant costs Cost of Comparable containers ($2.60 x 9300) (a) $ Cost of Manufacturing (b) $ Saving in Manufacturing (a - b) $ 24,180 23,900 280 Benson should continue to Make the containers Solution b. Computation of Avoidable cost Unit level Material Unit level Labour Unit level Overhead Product level Costs ( 8100 x 1/3) Total Avoidable cost 6,000 6,200 3,600 2,700 18,500 $ Avoidable cost $ Add: Leasing of Space $ Benefit from not making container $ Less: Cost of Purchasing container $ Net Benefit from not making containers $ 18,500 12,300 30,800 24,180 6,620 Therefore, Benson should Not continue to make the containers

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