Question

The Solar Corporation manufacturers cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2017 and expected costs in 2018.

- I VY ACCOUNTINLUN TUNTIC WUN. UNTUPU 2 of 9 (0 complete) X 0 Data Table tures cellular modems It manufa odem. It reports the following cos tion.) costs) Current Costs in 2017 Expected Costs in 2018 otal expected manufacturing cos 160 $ Total Manufactu Costs of CM 165 Variable manufacturing costs Direct material cost per CMCB Direct manufacturing labor cost per CMCB Variable manufacturing cost per batch for setups, materials handling, and quality control Fixed manufacturing cost Fixed manufacturing overhead costs that can be avoided if CMCBS are not made 1,500 2,000 osts costs zing costs 270 000 240,000 Fixed manufacturing overhead costs of plant depreciation insurance, and administration that cannot be avoided even if CMCBs are not made 900.000 520,000 Print Done ields and then click Check Answer.

Solar manufactured 9,000 CMCBs in 2017 in 50 batches of 180 each. In 2018, Solar anticipates needing 4,000 CMCBs. the CMCBs would be produced in 40 batches of 100 each. The Marrow Corporation has approached Solar about supplying CMCBs to Solar in 2018 at $270 per CMCB on whatever delivery schedule Solar wants.

Answer 1

Requirement 1. Calculation of the Total Expected Manufacturing Cost per Unit Particulars Calculation Amount ($) per Unit Direct Materials 4,000 CMCBs @ $ 165 per Unit $ 6,60,000 165 Direct Labor 4,000 CMCBs @ $ 41 per Unit $ 1,64,000 $ Variable Manufacturing Cost 40 Batches @ $ 2,000 per Batch $ 80,000 $ 20 Total Variable Cost 9,04,000 226 41 A $ A Avoidable Fixed Cost Unavoidable Fixed Cost Total Fixed Cost Given Given 2,40,000 5,20,000 7,60,000 A 60 130 190 A $ Total Manufacturing Cost $904,000 + $ 760,000 $ 16,64,000 $ 416 Requirement 2 If the Units are to be purchased from the third party, then the cost considerations shall be as follows: Particulars Calculation Make Buy Purchase Cost 4,000 CMCBs @ $ 270 per Unit $ 10,80,000 Direct Materials Direct Labor Variable Manufacturing Cost Total Variable Cost 4,000 CMCBs @ $ 165 per Unit 4,000 CMCBs @ $ 41 per Unit 40 Batches @ $ 2,000 per Batch | $ $ $ 6,60,000 1,64,000 80,000 9,04,000 $ 10,80,000 Given $ Avoidable Fixed Cost Total Fixed Cost 2,40,000 2,40,000 $ Total Cost $ 904,000 + $ 240,000 $ 11,44,000 $ 10,80,000 If the CMCBs are purchased from outside, the Incremental savings will be $ 64,000 ($ 1,144,000 - $ 1,080,000). Therefore, it is advisable to purchase from Marrow.

A A Requirement 3 Particulars Amount ($) Savings in Purchasing CMCBs 64,000 Incremental Revenue 18,00,000 Incremental Costs -20,50,000 Total Incremental Cost -1,86,000 On the basis of financial considerations, Solar shall make the CMCBs instead of purchasing from Marrow as there is an incremental loss of $ 186,000.