Quirch Inc. manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 4,200 units of product PQ107 for Valters for a price of $150,000. If Quirch does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: Cost per Unit Direct materials $54 Direct labor 34 Variable overhead 17 In addition to the above costs, if Quirch produces part PQ107, it would have a retooling and design cost of $17,100. The relevant costs of producing 4,200 units of product PQ107 internally are:

Quirch Inc. manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 4,200 units of product PQ107 for Valters for a price of $150,000. If Quirch does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: Cost per Unit Direct materials $54 Direct labor 34 Variable overhead 17 In addition to the above costs, if Quirch produces part PQ107, it would have a retooling and design cost of $17,100. The relevant costs of producing 4,200 units of product PQ107 internally are:

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 7EB: Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has...

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Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?
Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,600 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sell the track assembly for 66 per unit. Brees is currently using a traditional, unit-based costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows: Prior to making a decision, the companys CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the study revealed the following: 3 setups1,160 each (The setups would be avoided, and total spending could be reduced by 1,160 per setup.) One half-time inspector is needed. The company already uses part-time inspectors hired through a temporary employment agency. The yearly cost of the part-time inspectors for the track assembly operation is 12,300 and could be totally avoided if the part were purchased. Engineering work: 470 hours, 45/hour. (Although the work decreases by 470 hours, the engineer assigned to the track assembly line also spends time on other products, and there would be no reduction in his salary.) 75 fewer material moves at 30 per move. Required: 1. Ignore the special study, and determine whether the track assembly should be produced internally or purchased from the supplier. 2. Now, using the special study data, repeat the analysis. 3. Discuss the qualitative factors that would affect the decision, including strategic implications. 4. After reviewing the special study, the controller made the following remark: This study ignores the additional activity demands that purchasing would cause. For example, although the demand for inspecting the part on the production floor decreases, we may need to inspect the incoming parts in the receiving area. Will we actually save any inspection costs? Is the controller right?
Wings Incorporated manufactures machine parts for aircraft engines. The CEO, Chucky Valters, was considering an offer from a subcontractor that would provide 2,400 units of product PQ107 for Valters for a price of $150,000. If Wings does not purchase these parts from the subcontractor it must produce them in-house with the following unit costs: Direct materials Direct labor Variable overhead Cost per Unit $31 19 8 In addition to the above costs, if Wings produces part PQ107, it would have a retooling and design cost of $9,800. The relevant costs of producing 2,400 units of product PQ107 internally are:
Kuat Drive Inc. manufactures machine parts for Star Destroyer engines. CEO Adhi Mundy is considering an offer from a subcontractor to provide 2,000 units of product R2D2 for $120,000. If Kuat Drive does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs: Cost per unit ($) Direct Materials 28 Direct Labor 18 Variable Overhead 16 Allocated Fixed Overhead 4 Questions: What is the relevant cost to make the product internally? What is the estimated increase or decrease in short-term operating profit of producing the product internally versus purchasing the product from a supplier? Which alternative is more attractive to Kuat Drive Inc, make or buy the machine parts? What strategic considerations likely bear on this make vs buy decision? (at least 2 considerations)
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Terry Inc. manufactures machine parts for aircraft engines. CEO Bucky Walters is considering an offer from a subcontractor to provide 2,000 units of product OP89 for $120,000. If Terry does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs: Cost per unit ($) Direct Materials 28 Direct Labor 18 Variable Overhead 16 Allocated Fixed Overhead 4 Required3. Which alternative is more attractive to Terry Inc, make or buy the machine parts?4. What strategic considerations likely bear on this make vs buy decision? (at least 2 considerations)
Bramble Company manufactures widgets. Blossom Company has approached Bramble with a proposal to sell the company widgets at a price of $60500 for 100,000 units. Bramble is currently making these components in its own factory. The following costs are associated with this part of the process when 100,000 units are produced: Direct material $22700 Direct labour 23000 Manufacturing overhead 29000 Total $74700 The manufacturing overhead consists of $12300 of costs that will be eliminated if the components are no longer produced by Bramble. From Bramble’s point of view, how much is the incremental cost or savings if the widgets are bought instead of made? $14200 incremental savings $2500 incremental savings $2500 incremental cost $14200 incremental cost
Waterway Company manufactures widgets. Carla Vista Company has approached Waterway with a proposal to sell the company widgets at a price of $60100 for 100,000 units. Waterway is currently making these components in its own factory. The following costs are associated with this part of the process when 100,000 units are produced: Direct material $22700 Direct labour 21600 Manufacturing overhead 30500 Total $74800 The manufacturing overhead consists of $12600 of costs that will be eliminated if the components are no longer produced by Waterway. From Waterway's point of view, how much is the incremental cost or savings if the widgets are bought instead of made? O $14700 incremental cost O $14700 incremental savings O $3200 incremental savings O $3200 incremental cost
Riders, Ltd. is a manufacturer that produces motorized scooters. Currently, it is producing the motor used to power the scooter, but is considering buying the motor from an outside supplier. The manufacturing costs for Riders to make 20,000 motors are as follows: Cost per motor Direct material $28.50 Direct labor $13.25 Overhead $18.00 An outside supplier offers to supply Riders with all the motors it needs at $55.00 per unit. If Riders buys the motors from the supplier, it will still incur 80% of its overhead costs. Based on the above information, the financial advantage (disadvantage) of buying the 20,000 motors from the outside supplier is: a. ($265,000) b. None of the other answers are correct c. $95,000 d. ($193,000) e. $23,000
Snow Ride manufactures snowboards. Its cost of making 1,900 bindings is as follows: Direct materials $ 17,590 Direct laabor 3,200 Variable overhead 2,080 Fixed overhead 6,300 Total manufacturing cost for 1,900 bindings $ 29,170 Suppose Livingston will sell bindings to Snow Ride for $13 each. Snow Ride would pay $3 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.50 per binding. Requirments: 1. Snow Ride's accountants predict that purchasing the bindings from livingston will enable the company to avoid $2,100 of fixed overhead. Prepare an analysis to show whether Snow Ride should make or buy the bindings. 2. The facilities freed by purchasing bindings from…