Exercise 5A: Produce or buy an item The company BB Inc. manufactures part X for its...

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Exercise 5A: Produce or buy an item The company BB Inc. manufactures part X for its annual production. The following table presents information on production costs at a certain level. Production Level Direct Materials Direct Labor Variable Manufacturing overhead costs Fixed Manufacturing overhead costs Total cost per unit 30,000 units $7.20 $10.50 $4.80 $15.00 $37.50 BB Inc. received an offer to purchase 30,000 units of the already manufactured part for $35.25 per unit. There are fixed indirect costs of $9 per unit that would be maintained even if the same units were purchased. However, purchasing the piece would allow BB Inc. to rent the production area for $200,000 annually. Required: Prepare a report comparing both alternatives and reflecting how much the profit would increase or decrease if you decide to buy the part. It must include all computations performed. Exercise 5B: Consider accepting a special order to produce The ROAR company manufactures a single product that it sells for $17.00 each unit. The cost of each unit produced at a monthly production level of 10,000 units is: Direct Materials Direct Labor Variable Manufacturing overhead cost Fixed manufacturing overhead cost Fixed administrative expenses $2.75 $3.25 $.75 $4.50 $2.25 The total monthly production capacity is 12,000 units. A special order for 2,000 units was received at a purchase price of $14.00 per unit. Regular sales will not be affected by this order. Required: 1. How much will the monthly profit increase or decrease if ROAR accepts the special order? Please note that accepting the order will not affect fixed costs. 2. Suppose the company has 600 units of an older model of this item that were unsold last year. To have the units, the company has to sell them at a reduced price through normal sales channels. Identifies the unit cost that is relevant for determining the minimum price at which these units can be available. Explain why you consider that to be the relevant cost. Exercise 5C: Utility of a restricted resource The School Pack company manufactures school bags with a very resistant plastic bottom. It has three models that are the best sellers. The following table offers you information about these models. Sale Price per Unit Mod A $110 Mod B $150 Variable cost per unit $30 ocessing time in the plastic machine for each unit nount of plastic per unit 3 mins $60 4 mins Mod C $87.50 $27.50 1 min pounds) 4 lbs 5 lbs 3 lbs The constrained resource is the processing time on the machine. 1. Determine the model with the highest and lowest performance in the use of processing time as a restricted resource. 2. Determine the model with the highest and lowest performance in the use of plastic if this is the restricted resource. 3. Determine the model that has the highest contribution margin. Did this model turn out to be the highest performing in the previous answers? If it wasn't, explain why. Exercise 5D: Payback period A company dedicated to the sale of solid wood for the manufacture of cabinets and wooden furniture is considering investing in a wood shaping machine that will produce the following cash flows in the coming years. The investment will be made in two years as indicated below. Year 1 2 3 4 5 6 7 8 9 10 Investment $28,500 $6,000 Cash Flow $1,500 $3,000 $6,000 $6,750 $9,000 $7,500 $6,000 $4,500 $3,750 $3,750 1. Determine the recovery period of the investment. 2. Indicate whether this method is an appropriate tool to determine whether the company should make the investment or not and why. Exercise 5A: Produce or buy an item The company BB Inc. manufactures part X for its annual production. The following table presents information on production costs at a certain level. Production Level Direct Materials Direct Labor Variable Manufacturing overhead costs Fixed Manufacturing overhead costs Total cost per unit 30,000 units $7.20 $10.50 $4.80 $15.00 $37.50 BB Inc. received an offer to purchase 30,000 units of the already manufactured part for $35.25 per unit. There are fixed indirect costs of $9 per unit that would be maintained even if the same units were purchased. However, purchasing the piece would allow BB Inc. to rent the production area for $200,000 annually. Required: Prepare a report comparing both alternatives and reflecting how much the profit would increase or decrease if you decide to buy the part. It must include all computations performed. Exercise 5B: Consider accepting a special order to produce The ROAR company manufactures a single product that it sells for $17.00 each unit. The cost of each unit produced at a monthly production level of 10,000 units is: Direct Materials Direct Labor Variable Manufacturing overhead cost Fixed manufacturing overhead cost Fixed administrative expenses $2.75 $3.25 $.75 $4.50 $2.25 The total monthly production capacity is 12,000 units. A special order for 2,000 units was received at a purchase price of $14.00 per unit. Regular sales will not be affected by this order. Required: 1. How much will the monthly profit increase or decrease if ROAR accepts the special order? Please note that accepting the order will not affect fixed costs. 2. Suppose the company has 600 units of an older model of this item that were unsold last year. To have the units, the company has to sell them at a reduced price through normal sales channels. Identifies the unit cost that is relevant for determining the minimum price at which these units can be available. Explain why you consider that to be the relevant cost. Exercise 5C: Utility of a restricted resource The School Pack company manufactures school bags with a very resistant plastic bottom. It has three models that are the best sellers. The following table offers you information about these models. Sale Price per Unit Mod A $110 Mod B $150 Variable cost per unit $30 ocessing time in the plastic machine for each unit nount of plastic per unit 3 mins $60 4 mins Mod C $87.50 $27.50 1 min pounds) 4 lbs 5 lbs 3 lbs The constrained resource is the processing time on the machine. 1. Determine the model with the highest and lowest performance in the use of processing time as a restricted resource. 2. Determine the model with the highest and lowest performance in the use of plastic if this is the restricted resource. 3. Determine the model that has the highest contribution margin. Did this model turn out to be the highest performing in the previous answers? If it wasn't, explain why. Exercise 5D: Payback period A company dedicated to the sale of solid wood for the manufacture of cabinets and wooden furniture is considering investing in a wood shaping machine that will produce the following cash flows in the coming years. The investment will be made in two years as indicated below. Year 1 2 3 4 5 6 7 8 9 10 Investment $28,500 $6,000 Cash Flow $1,500 $3,000 $6,000 $6,750 $9,000 $7,500 $6,000 $4,500 $3,750 $3,750 1. Determine the recovery period of the investment. 2. Indicate whether this method is an appropriate tool to determine whether the company should make the investment or not and why.

Answer rating: 100% (QA)

5A Make or Buy Decision Make Option Selling price per unit 1700 Total variable cost per unit 775 275 325 075 Total fixed costs per unit 675 450 225 Mo... View the full answer