Question

1-

Make or Buy
Eastside Company incurs a total cost of $123,000 in producing 10,000 units of a component needed in the assembly of its major product. The component can be purchased from an outside supplier for $10 per unit. A related cost study indicates that the total cost of the component includes fixed costs equal to 50% of the variable costs involved.

a. Should Eastside buy the component if it cannot otherwise use the released capacity? Present your answer in the form of differential analysis.

Use negative sign represent a net disadvantage answer; otherwise do not use negative signs with your answers.

Cost from outside supplier	Answer 0
Variable costs avoided by purchasing	Answer 0
Net advantage (disadvantage) to purchase alternative	Answer 0

b. What would be your answer to requirement (a) if the released capacity could be used in a project that would generate $45,000 of contribution margin?

Use negative sign represent a net disadvantage answer; otherwise do not use negative signs with your answers.

Cost from outside supplier	Answer 0
Variable costs avoided by purchasing	Answer 0
Contribution margin generated by new project	Answer 0
Net advantage (disadvantage) to purchase alternative	Answer 0

2-

Which of the following are reasons to continue an unprofitable business segment?

Select one:

( ) A. Potential loss of related business

( ) B. Lack of alternative source of part needed in production

( ) C. Fixed cost application to the segment that exceeds the level of the accounting loss

( ) D. All of the above

( ) E. None of the above

Answer 1

10000 Own Manufacturing No of Units Total Cost Variable Cost Fixed Cost $1,23,000 $82,000 $41,000 Purchase From Outside Supplier No of Units Cost Per unit Total Cost $10,000 $10 $1,00,000 Cost from outside supplier (10000*10) Variable Cost Avoided by purchasing Net advantage (disadvantage) to purchase alternative $1,00,000 $82,000 $18,000 Cost from outside supplier (10000*10) Variable Cost Avoided by purchasing Contribution margin generated by new project Net advantage (disadvantage) to purchase alternative $1,00,000 $82,000 $45,000 $27,000 Reason to continue an unprofitable business segment is Potential loss of related business,