Alpha Company currently manufactures a component part, a wristband, for its main product, a wearable fitness tracker.
Question:
Alpha Company currently manufactures a component part, a wristband, for its main product, a wearable fitness tracker. The costs per unit of the wrist band are as follows:
Direct materials | $ 1.50 |
Direct labor | 15.00 |
Variable overhead | 8.00 |
Average fixed overhead | 32.00 |
Total | $56.50 |
Beta Corp has contacted Alpha with an offer to supply 5,000 wristbands for $40.00 each. Alpha would eliminate $100,000 of fixed overhead if it accepts the proposal.
Task 1:
| A | B |
1 | What are the relevant costs per unit to make the wrist bands? | |
2 | What are the relevant costs per unit to purchase the wristbands from Beta? | |
3 | Should Alpha make or buy the wristbands? |
|
4 | If Alpha buys the wristbands, how will Alpha's profit change? If the answer is negative, please indicate with a minus sign. |
Task 2;
| A | B |
| Units | |
1 | At what volume of wristband production would Alpha be indifferent to making or buying the wristbands? |
Expert Answer:
Task 1 A The relevant costs per unit to make the wristbands are Direct materials 150 Direct labor 15... View the full answer
