Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,300 units per year for $10.00 each. Mohave has the following information about the cost of producing tote bags:
Direct materials | $ | 6.00 | |
Direct labor | 2.00 | ||
Variable manufacturing overhead | 1.00 | ||
Fixed manufacturing overhead | 1.50 | ||
Total cost per unit | $ | 10.50 | |
Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 60 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags.
Required:
1. Compute the difference in cost between making and buying the umbrella tote bag.
2. Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them?
3-a. Suppose that the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $10,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag.
3-b. Does this change your recommendation to Mohave?
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1) Differential cost :
make | Buy | |
Direct material | 49800 | |
Direct labor | 16600 | |
Variable overhead | 8300 | |
Fixed overhead (8300*1.5*40%) | 4980 | |
Purchase cost | 83000 | |
Total | 79680 | 83000 |
Differential cost = 79680-83000 = 3320
2) Make
3a) Differential cost :
make | Buy | |
Direct material | 49800 | |
Direct labor | 16600 | |
Variable overhead | 8300 | |
Fixed overhead (8300*1.5*40%) | 4980 | |
Opportunity cost | 10000 | |
Purchase cost | 83000 | |
Total | 89680 | 83000 |
Differential cost = 89680-83000 = 6680
3b) Buy
Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,300 units per year for $10.00 each. Mohave has the following information
Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,000 units per year for $7.50 each. Mohave has the following information about the cost of producing tote bags:Direct materials$3Direct labor 2Variable manufacturing overhead 1Fixed manufacturing overhead 2Total cost per unit$8Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 60 percent of the fixed overhead cost...
Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,700 units per year for $10.00 each. Mohave has the following information about the cost of producing tote bags: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $ 6.00 2.00 1.00 1.50 $10.50 Mohave has determined that all variable costs could be eliminated by...
Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 9,300 units per year for $7.00 each. Mohave has the following information about the cost of producing tote bags: points Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $4.00 1.00 1.00 2.00 $8.00 eBook Print References Mohave has determined that all variable costs could...
Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 9,400 units per year for $8.00 each. Mohave has the following information about the cost of producing tote bags: $5.ee 1.09 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags,...
Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,900 units per year for $7.50 each. Mohave has the following information about the cost of producing tote bags: Direct materials $4.00 Direct labor 1.00 Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit 1.00 2.00 $8.00 Mohave has determined that all variable costs could be eliminated by outsourcing...
Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 9,300 units per year for $7.00 each. Mohave has the following information about the cost of producing tote bags: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit $4.00 1.00 1.00 2.00 $8.00 Mohave has determined that all variable costs could be eliminated by outsourcing...
Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,300 units per year for $10.00 each. Mohave has the following information about the cost of producing tote bags Direct materials Direct labor Variable manufacturing overnead Fixed manufacturing overhead 1.50 $10.50 Total cost per unit Mohave has determined that all variable costs could be eliminated by autsourcing the tote bags,...
Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 75 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags Required: 1. Compute the difference in cost between making and buying the umbrella tote bag. 2. Based strictly on the incremental...
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