Carvey Company manufactures a variety of ballpoint pens. The company has just re
ID: 2356993 • Letter: C
Question
Carvey Company manufactures a variety of ballpoint pens. The company has just received an offer from an outside supplier to provide the ink cartridge for the company?s pen line, at a price of $0.60 per dozen cartridges. The company is interested in this offer because its own production of cartridges is at capacity.
Carvey Company estimates that if the supplier?s offer were accepted, the direct labor and variable manufacturing overhead costs of the pen line would be reduced by 10% and the direct materials cost would be reduced by 20%.
Under present operations, Carvey Company manufactures all of its own pens from start to finish. The pens are sold through wholesalers at $4 per box. Each box contains one dozen pens. Fixed manufacturing overhead costs charged to the pen line total $30,000 each year. (The same equipment and facilities are used to produce several pen lines.) The present cost of producing one dozen pens (one box) is given below:
* Includes both variable and fixed manufacturing overhead, based on production of 100,000 boxes of pens each year.
Calculate the total variable cost of producing one box of pens? (If the ink cartridge are produced internally.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Calculate the total variable cost of producing one box of pens? (If the ink cartridge are purchased from the outside supplier.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Carvey Company manufactures a variety of ballpoint pens. The company has just received an offer from an outside supplier to provide the ink cartridge for the company?s pen line, at a price of $0.60 per dozen cartridges. The company is interested in this offer because its own production of cartridges is at capacity.
Carvey Company estimates that if the supplier?s offer were accepted, the direct labor and variable manufacturing overhead costs of the pen line would be reduced by 10% and the direct materials cost would be reduced by 20%.
Under present operations, Carvey Company manufactures all of its own pens from start to finish. The pens are sold through wholesalers at $4 per box. Each box contains one dozen pens. Fixed manufacturing overhead costs charged to the pen line total $30,000 each year. (The same equipment and facilities are used to produce several pen lines.) The present cost of producing one dozen pens (one box) is given below:
Explanation / Answer
Answers
Calculation of Variable manufacturing overhead
Manufacturing Overhead per unit
$ 0.60
Units on which above is based
100000
Total Manufacturing Overhead
$ 60,000.00 [100000 x 0.6]
Less: Fixed Overhead
$ 30,000.00
Variable manufacturing Overhead
$ 30,000.00 [60000 – 30000]
Variable Overhead per unit
$ 0.30 [ $30000 / 100000 units]
The total variable cost of producing one box of pens If the ink cartridge are produced internally.
Direct material
$ 1.30
Direct labor
$ 1.10
Variable manufacturing Overhead
$ 0.30 [calculated above]
Total variable cost of producing one box of pens
$ 2.70
The total variable cost of producing one box of pens If the ink cartridge are purchased from the outside supplier.
Direct material [1.30 – 20%]
$ 1.04
Direct labor [ 1.10 – 10%]
$ 0.99
Variable manufacturing Overhead [0.30 – 10%]
$ 0.27
Total variable cost of producing one box of pens
$ 2.30
Manufacturing Overhead per unit
$ 0.60
Units on which above is based
100000
Total Manufacturing Overhead
$ 60,000.00 [100000 x 0.6]
Less: Fixed Overhead
$ 30,000.00
Variable manufacturing Overhead
$ 30,000.00 [60000 – 30000]
Variable Overhead per unit
$ 0.30 [ $30000 / 100000 units]
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