Question

nch LCD monitor. The cing the LCD monitor Jenson Monitors Ltd., a manufacturer of computer monitors, currently produces a 19-inch i company's accounting department has reported the following annual costs of producing the internally: Jenson Monitors Annual Production Costs for 19-inch LCD Monitor Per Unit Direct materials $25 Direct labor Variable overhead Production supervisor's salary Depreciation of LCD manufacturing equipment Allocated fixed overhead Total cost 10,000 Units $250,000 $140,000 $110,000 $70,000 $40,000 $90,000 $700,000 $70 An external supplier has offered to provide Jenson Monitors 10,000 units of the same LCD monitor per ve at a price of $45 each. Also consider the following information: The LCD manufacturing equipment has no salvage value and has no other use aside from producing the 19-inch LCD monitors. It cannot be sold. The fixed overhead costs allocated to the LCD monitors are common to all items produced in the factory The production supervisor will take over duties in another department if the monitors are purchased from the external supplier. If this is the case, his annual salary will drop to $65,000. Should the company continue manufacturing the monitors internally or begin purchasing them from the external supplier? Jenson Monitors Make or Buy Analysis Production Per Unit Cost Per Unit Differential Costs Make Buy Total Differential Costs (10,000 Units) Make Buy

Answer 1

Answer is given below

Jensen Monitors Make Vs Buy Analysis Production cost per unit Direct Material Direct Labor Variable factory Overhead Production supervisor salary Depreciation on LCD Manufacturing equipment Allocated Fixed overhead External purchase cost Total Cost Per Unit Differential Costs Per unit Per unit $25.00 $14.00 $11.00 $7.00 $6.50 $4.00 $4.00 $9.00 $9.00 $45.00 $70.00 $64.50 Total Differential Costs (10,000 Units) Total cost Total cost $250,000 $140,000 $110,000 $70,000 $65,000 $40,000 $40,000 $90,000 $90,000 $450,000 $700,000 $645,000 $0 Company should purchase the LCD monitors externally from suppliers