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Project Description:

1. ruiz products manufactures and sells to local wholesalers approximately 400,000 packages per year of its products at $6.00 per package. the company’s annual costs for the production and sale of this quantity are indicated below.
direct materials . . . . . . . . . . . . . . . . $ 576,000
direct labor . . . . . . . . . . . . . . . . . . . 144,000
overhead . . . . . . . . . . . . . . . . . . . . . 320,000
selling expenses . . . . . . . . . . . . . . . . 150,000
administrative expenses . . . . . . . . . 100,000
total costs and expenses. . . . . . . . . $1,290,000
a new out-of state wholesaler has offered to buy 50,000 packages for $5.20 each. these packages would be marketed under the wholesaler’s name and would not affect ruiz products’ sales through its normal channels. a study of the costs of this additional business reveals the following:

direct materials costs are 100% variable.
per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at 1½ times the usual labor rate.
25% of the normal annual overhead costs are fixed at any production level from 350,000 to 500,000 units. the remaining 75% of the annual overhead cost is variable with volume.
accepting the new business would involve no additional selling expenses.
accepting the new business would increase administrative expenses by a $5,000 fixed amount.
instruction: a. prepare a three- column comparative income statement that shows the following columns:

current annual operating income

annual operating income from proposed new business

total annual operating income from normal business and proposed new business

2. anderson company currently produces component “a” for its sole product. the current cost per unit to manufacture the required 50,000 units of “a” follows.
direct materials . . . . . . . . . . . $ 5.00
direct labor . . . . . . . . . . . . . . 8.00
overhead . . . . . . . . . . . . . . . . 9.00
total cost per unit. . . . . . . . . $22.00
direct materials and direct labor are 100% variable.
overhead is 80% fixed.
an outside supplier has offered to supply the 50,000 units of afor $18.00 per unit.
instruction
a. determine whether the company should make or buy “a”.
b. what factors besides cost must management consider when deciding whether to make or buy “a”?
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Project Stats:

Price Type: Fixed

Project Budget: $15 to $20
Completed
Total Proposals: 3
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