Rhino Corporation manufactures car wheels. One of the wheel components is Parts C746 which is manufactured...
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Rhino Corporation manufactures car wheels. One of the wheel components is Parts C746 which is manufactured by Rhino internally. Currently, Rhino's director is considering either to produce the parts internally, or to buy them from a vendor in town. For second quarter of 2022, Rhino plans to manufacture 20,800 units of part C746, to be produced in 260 batches (80 units per batch). The vendor set the price of Part C746 is $550 per unit. The equipment and facilities currently used to make Part C746 will become idle if Rhino purchases the parts. The table below lists manufacturing cost of wheel part C746, in first and second quarter of the year 2022: First Quarter Variable Manufacturing costs: Direct material cost per unit Direct manufacturing labor cost per unit Variable manufacturing cost per batch (material handling & setup) Fixed manufacturing cost: Fixed manufacturing overhead cost of manufacturing equipment & plant utilities & others (cannot be rented to outside party) Fixed manufacturing overhead costs that can be avoided $ 310 $ 70 $ 2,000 $1,100,000 $1,500,000 Second Quarter $ 320 $ 72 $ 2,100 $1,100,000 $1,500,000 Required: 1. Calculate the expected total manufacturing cost and manufacturing cost per unit of Part C746. (6%) 2. Calculate the cost of each alternative, to make or to buy Part C746. Give your suggestion to Rhino, based on financial considerations, should Rhino make Part C746 or buy them? (8%) 3. Mention 2 other factors that should be considered to make decisions in this case? (3%) 4. Define opportunity cost. Give an example of opportunity costs. (4%) 5. Are variable costs always relevant costs? Are fixed costs always irrelevant costs? Explain your arguments. (4%) Rhino Corporation manufactures car wheels. One of the wheel components is Parts C746 which is manufactured by Rhino internally. Currently, Rhino's director is considering either to produce the parts internally, or to buy them from a vendor in town. For second quarter of 2022, Rhino plans to manufacture 20,800 units of part C746, to be produced in 260 batches (80 units per batch). The vendor set the price of Part C746 is $550 per unit. The equipment and facilities currently used to make Part C746 will become idle if Rhino purchases the parts. The table below lists manufacturing cost of wheel part C746, in first and second quarter of the year 2022: First Quarter Variable Manufacturing costs: Direct material cost per unit Direct manufacturing labor cost per unit Variable manufacturing cost per batch (material handling & setup) Fixed manufacturing cost: Fixed manufacturing overhead cost of manufacturing equipment & plant utilities & others (cannot be rented to outside party) Fixed manufacturing overhead costs that can be avoided $ 310 $ 70 $ 2,000 $1,100,000 $1,500,000 Second Quarter $ 320 $ 72 $ 2,100 $1,100,000 $1,500,000 Required: 1. Calculate the expected total manufacturing cost and manufacturing cost per unit of Part C746. (6%) 2. Calculate the cost of each alternative, to make or to buy Part C746. Give your suggestion to Rhino, based on financial considerations, should Rhino make Part C746 or buy them? (8%) 3. Mention 2 other factors that should be considered to make decisions in this case? (3%) 4. Define opportunity cost. Give an example of opportunity costs. (4%) 5. Are variable costs always relevant costs? Are fixed costs always irrelevant costs? Explain your arguments. (4%)
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Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
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