Question

Adams Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,200 containers follows: Unit-level materials Unit-level labor Unit-level overhead Product-level costs Allocated facility-level costs $ 6,100 6,600 3,400 8.400 28,100 *One-third of these costs can be avoided by purchasing the containers Russo Container Company has offered to sell comparable containers to Adams for $2.60 each. Required a. Calculate the total relevant cost. Should Adams continue to make the containers? b. Adams could lease the space it currently uses in the manufacturing process. If leasing would produce $11,000 per month, calculate the total avoidable costs. Should Adams continue to make the containers? a Total relevant cost Should Adams continue to make the containers? b. To avoidable cost Should Adams continue to make the containers?

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

L L M N A B C D E F G H I K Answer 2 Parta) 3 Total Relevant cost = variable material cost+ variable direct labor cost + variable overheads +relevant fixed cost 4 = 6100+6600+3400+ (8400/3) 5 = $ 18900 7 Thus the total relevant cost $ 18900 9 Yes, adams should continue to make the containers, as relevant cost of making the container is less than its purchase cost of $ 23920(2.6*9200) 11 Part 2) 12 Total avoidable cost = product level costs*(1/3) 13 = 8400*(1/3) 14 = $ 2800 15 16 Thus the correct answer total avoidable cost = $ 2800 17 18 No, the adams should not continue to make the containers as the purchase cost will be less than making it, if adams receive lease rent of $ 11000