Mason Company makes portable charges for cell phones. Currently, Mason purchases 100,000 plastic housings a year from
Question:
Mason Company makes portable charges for cell phones. Currently, Mason purchases 100,000 plastic housings a year from an outside company for $1 each. One of Mason engineers suggested that the company make its plastic housings in-house. Estimated unit costs are as follows:
Direct materials 0.30
Direct labour 0.20
Variable overhead 0.15
Fixed overhead 0.40
*Fixed overhead of $0.40 per unit ($40,000/100,000 units) is comprised of $24,000 per year in equipment costs specifically traceable to the plastic housing line plus $16,000 per year in general overhead costs to be allocated to this line.
Required:
(A) If Mason makes the plastic housing in-house, will net income be higher or lower, and by how much?
(B) What is the highest price per unit that Mason would pay an outside company for the housings?
(C) Now assume that all of the fixed overhead is allocated fixed overhead and will not be affected by making the product in-house or purchasing it. If Mason makes the housing in-house, will net income be higher or lower, and by how much?
Business Statistics a decision making approach
ISBN: 978-0133021844
9th edition
Authors: David F. Groebner, Patrick W. Shannon, Phillip C. Fry