1. Bookpubs Inc. operates a bookbinding division. Management is considering whether to outsource the bookbinding for...

 

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1. Bookpubs Inc. operates a bookbinding division. Management is considering whether to outsource the bookbinding for $25 per book or continue to do the book binding internally. The current internal binding costs average $26.50. That includes $4,000 of fixed overhead for the 1,000 books currently bound internally. (In other words, costs are $22.50 per book for everything other than fixed overhead and $4.00 per unit for fixed overhead.) However, 75% of the overhead can be avoided if the binding is outsourced. A. By how much will net income change if Bookpubs outsources the binding for 1,000 books? B. Should they outsource the binding? C. What qualitative factors should Bookpubs consider? 2. Chargex expects to produce 40,000 units and incur the following costs at that production level: Direct materials $50,000 40,000 20,000 100,000 10,000 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative costs Fixed selling and administrative costs 30,000 At production above 40,000 units, Chargex must rent additional production facilities at a cost of $15,200. Recently, another company asked Chargex to produce a special order of 10,000 units. No selling or administrative costs will be incurred on the special order. Calculate the minimum sales price that Chargex should accept for the total special order of 10,000 units. 1. Bookpubs Inc. operates a bookbinding division. Management is considering whether to outsource the bookbinding for $25 per book or continue to do the book binding internally. The current internal binding costs average $26.50. That includes $4,000 of fixed overhead for the 1,000 books currently bound internally. (In other words, costs are $22.50 per book for everything other than fixed overhead and $4.00 per unit for fixed overhead.) However, 75% of the overhead can be avoided if the binding is outsourced. A. By how much will net income change if Bookpubs outsources the binding for 1,000 books? B. Should they outsource the binding? C. What qualitative factors should Bookpubs consider? 2. Chargex expects to produce 40,000 units and incur the following costs at that production level: Direct materials $50,000 40,000 20,000 100,000 10,000 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative costs Fixed selling and administrative costs 30,000 At production above 40,000 units, Chargex must rent additional production facilities at a cost of $15,200. Recently, another company asked Chargex to produce a special order of 10,000 units. No selling or administrative costs will be incurred on the special order. Calculate the minimum sales price that Chargex should accept for the total special order of 10,000 units.

Answer rating: 100% (QA)

Answer 1 A Statement of Incremental Profit if Binding is Outsourced Cost of Binding 1000 Books x 25 ... View the full answer