Question

need help with both questions please

The Camel Company produces 11,100 units of item Roto 454 annually at a total cost of $234,000. Direct materials Direct labor Variable overhead Fixed overhead Total $ 31,000 66,000 56,000 81,000 $234,000 The Yukon Company has offered to supply 11,100 units of Roto 454 per year for $16 per unit. If Camel accepts the offer, $4 per unit of the fixed overhead would be saved. In addition, some of Camel's facilities could be rented to a third party for $16,100 per year. What are the relevant costs for the "make" alternative?

Answer 1

What are the relevant costs for the make alternative? Answer: Particulars Direct Materials Direct Labor Variable Overhead Fixed Overhead Rent Loss Total Relevant Cost $ 31,000.00 $ 66,000.00 $ 56,000.00 $ 44,400.00 $ 16,100.00 $213,500.00 Explanation: 1. Relevant costs for make alternative will include costs that are to be incurred for making, opportunity costs and avoidable costs. 2. Here direct materials, direct labor and variable overheads are costs that are directly incurred to make the roto 454. 3. Fixed overheads that are avoidable are the only relevant cost as they will not be incurred if the make deision is not implemented. Here $4 will be avoided if make decision has not been made and hence $4X 11,100 units will be relevant costs. 4. Rent loss of $16,100 will be an loss of opportunity if we decide to make roto 454 and hence it is relevant costs.

At what price would camel be indifferent to Yukon's offer? Answer: Particulars Relevant Cost Cost Per Unit Direct Materials $ 25,200.00 $ 2.00 Direct Labor $ 69,300.00 $ 5.50 Variable Overhead $ 56,700.00 $ 4.50 Fixed Overhead $ 50,400.00 $ 4.00 Rent Loss 35,280.00 $ 2.80 Total $ 236,880.00 $18.80 At the price of $18.80 the camel company will be in a position where he is indifferent at both the options as the price to make is equal to the buying price from outside. Explanation: 1. Relevant costs for make alternative will include costs that are be incurred for making, opportunity costs and avoidable costs. 2. Here direct materials, direct labor and variable overheads are costs that are directly incurred to make the roto 454. 3. Fixed overheads that are avoidable are the only relevant cost as they will not be incurred if the make deision is not implemented. Here $4 will be avoided if make decision has not been made and hence $4X 12,600 units will be relevant costs. 4. Rent loss of $35,280 will be an loss of opportunity if we decide to make roto 454 and hence it is relevant costs. Please give thumbsup button if this solution helped. If you need any further explanation, kindly request in the comment section, glad to be helpful.