Benson Electronics currently produces the shipping containers it uses to deliver the electronics products it sells....
Benson Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,000 containers follows:
| Unit-level materials | $ | 5,400 | |
| Unit-level labor | 6,300 | ||
| Unit-level overhead | 3,300 | ||
| Product-level costs* | 12,000 | ||
| Allocated facility-level costs | 26,900 | ||
*One-third of these costs can be avoided by purchasing the containers.
Russo Container Company has offered to sell comparable containers to Benson for $2.70 each.
Required
-
Calculate the total relevant cost. Should Benson continue to make the containers?
-
Benson could lease the space it currently uses in the manufacturing process. If leasing would produce $11,400 per month, calculate the total avoidable costs. Should Benson continue to make the containers?
|
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Homework Answers
a. Relevant cost = 5400+6300+3300+12000**1/3 = $19000
Relevant cost per unit = 19000/9000 = $2.11 per unit
Benson should continue to make the container.
B. Total avoidable cost = 12000*1/3 + 11400 = $15400
Relevant cost = 5400+6300+3300+12000*1/3+11400 = $30400
Relevant cost per unit = 30400/9000 = $3.38 per unit
Benson should not continue to make the container.
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Benson Electronics currently produces the shipping containers it
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one of which is a skin cream designed to reduce the signs of aging.
Benson produces a relatively small amount (18,000 units) of the
cream and is considering the purchase of the product from an
outside supplier for $4.80 each. If Benson purchases from the
outside supplier, it would continue to sell and distribute the
cream under its own brand name. Benson’s accountant constructed the
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