CoCo currently makes 5,206 suitcases a year. CoCo manufactures all of the components of the suitcase. The
Question:
CoCo currently makes 5,206 suitcases a year. CoCo manufactures all of the components of the suitcase. The company is debating on whether it should continue to make the wheels of the suitcases or buy it from a supplier. Below is information regarding the costs to make a set of wheels for the suitcases.
Direct materials: $ 2.1
Direct labor: $ .50
Variable OH: $ .10
Fixed OH: $ 1.80
An outside supplier has provided the purchase price of $5 total for the wheels for the suitcase. If the company accepts this, the company could utilize the production space to make another product which would increase their contribution margin by $20,000 a year. The company determined that 75% of fixed overhead is related to common overhead and will continue if the wheels are bought.
What is the total annual advantage/disadvantage of buying the wheels? (Put a - sign in front of your number if it is a disadvantage. Round to the nearest dollar.)
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw