Sunshine State Fruit Company sells premium-quality oranges and other citrus fruits by mail order. Protecting the fruit
Question:
Sunshine State Fruit Company sells premium-quality oranges and other citrus fruits by mail order. Protecting the fruit during shipping is important, so the company has designed & produces shipping boxes. The annual cost to make 80,000 boxes is:
Material | $112,000 |
Labour | 20,000 |
Indirect manufacturing costs %u2013 variable | 16,000 |
Indirect manufacturing costs %u2013 fixed | 60,000 |
Total | 208,000 |
Therefore, the box Cost per box averages = $2.60
Suppose Weyerhaeuser submits a bid to supply Sunshine State with boxes for $2.10 per box. Sunshine must give Weyerhaeuser the box design specifications, and the boxes will be made according to those specs.
Question 1
How much, if any, would Sunshine State save by buying the boxes from Weyerhaeuser?
Question 2
What subjective factors should affect Sunshine%u2018s decision about whether to make or buy the boxes?
Question 3
Suppose all the fixed costs represent depreciation on equipment that was purchased for $600,000 and is just about at the end of its 10-year life. New replacement equipment will cost $800,000 and is also expected to last 10 years. In this case, how much, if any, would Sunshine save by buying the boxes from Weyerhaeuser?
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Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu