Question

10 >> SIM You are a financial manager for Zoom Corp., which manufactures bicycles. In the most recent fiscal year, Zoom manufactured and sold 20,000 bicycles. Wheels, seats, and brake calipers are three components of the bicycles currently manufactured by Zoom. Three different vendors have proposed to provide those components to Zoom, and quoted prices (including shipping) for their delivery. Your task is to determine which, if any, of these proposals should be accepted. Prepare a make vs. buy incremental analysis for each possible course of action in an Excel worksheet. Your grade will be based on the correctness of your answers, as well as the use of Excel. That is, where possible, you should use formulas to get your answers, rather than keyed-in values. See your instructor for help with Excel basics if you need it. In a Word document, prepare a memo stating which of the proposals you suggest accepting, as well as the basis for your conclusions. Also identify any nonfinancial factors you should consider before accepting any of the outsourcing proposals. Attach both files to the Canvas assignment space by the due date of November 6th 22 >> Below is cost data for Zoom's production of wheels, seats, and calipers. Outside suppliers have offered to provide wheels for $7.33, seats for $8.30, and calipers for $2.42 per piece. Both wheels and seats are branded with the Zoom logo, and that logo will need to be added at the Zoom factory at a cost of $0.50 each for any of these components that are outsourced. For all three components, 75% of the fixed costs are avoidable, and will be eliminated if the component's production is outsourced. In addition, seats and calipers are both produced out of the same small factory space. If both seats and calipers were outsourced, Zoom could lease the space out and increase net income by $20,000 per year, while eliminating all fixed costs for the two components. SI Wheels Seats Calipers Cost category Direct materials Direct labor Variable overhead Fixed overhead Total cost Your solution $141,000 94,000 21,000 62,200 $318,200 $55,500 70,500 14,000 40,200 $180,200 $90,500 41,500 16,000 32,600 $180,600 Instructions

Answer 1

INCREMENTAL ANALYSIS

	MANUFACTURING
		WHEELS (In $)	SEATS (In $)	CALIPERS (In $)
	DIRECT MATERIALS	141,000.00	55,500.00	90,500.00
	DIRECT LABOUR	94,000.00	70,500.00	41,500.00
	VARIABLE OVERHEAD	21,000.00	14,000.00	16,000.00
	FIXED OVERHEAD	62,200.00	40,200.00	32,600.00
	TOTAL COST	318,200.00	180,200.00	180,600.00
	TOTAL PRODUCTION COST FOR 20000 BICYCLES	679,000.00
	OUTSOURCING	AMOUNT IN $
	20000 UNITS OF WHEELS @ 7.33 PER UNIT	146,600.00
	20000 UNITS OF SEATS @ 8.30 PER UNIT	166,000.00
	20000 UNITS OF WHEELS @ 2.42 PER UNIT	48,400.00
	LOGO [email protected] PER BICYCLE	10,000.00
	fixed cost @ 25% of (62200)	15,550.00
	(Fixed cost for Seats & calipers Eliminated)
	Total Cost for 20000 Bicycles	386,550.00
	Revenue from Factory Lease	20,000.00

MEMO

I Suggest to accept Outsourcing of Wheels, Seats & calipers for the following reasons:

1. Financial Factors:

1. Less cost than Production
2. Elimination of Fixed cost for seats & Calipers Division
3. Reduction to 25% fixed cost to Wheels Division
4. Additional Revenue of $ 20000 per year by leasing Small factory

2. Non financial Factors:

1. Less Management Control
2. Less Labour Problems
3. Better Administration
4. More Concentration in sales