Question

Freeman Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 10,000 containers follows.
Unit-level materials ............ $ 6,000
Unit-level labor ............. 6,600
Unit-level overhead ............. 4,200
Product-level costs* ............ 10,800
Allocated facility-level costs ....... 26,400
*One-third of these costs can be avoided by purchasing the containers.
Baxi Container Company has offered to sell comparable containers to Freeman for $2.50 each.

Required
a. Should Freeman continue to make the containers? Support your answer with appropriate computations.
b. Freeman could lease the space it currently uses in the manufacturing process. If leasing would produce $8,000 per month, would your answer to Requirement a be different? Explain.



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  • CreatedFebruary 07, 2014
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