Auntie E’s reports the following costs to make 17.5 oz. Lemonade: Auntie E’s Cos
ID: 2436809 • Letter: A
Question
Auntie E’s reports the following costs to make 17.5 oz. Lemonade:
Auntie E’s
Cost of Making 17.5 Ounce Bottles
Total Cost for
1,000,000 Bottles
Cost per Bottle
Direct materials
$ 85,000
$.085
Direct labor
30,000
.030
Variable factory overhead
60,000
.060
Fixed factory overhead
85,000
.085
Total costs
$ 260,000
$ .26
Johnson Manufacturing offers to sell Auntie E the bottles for $.25. The capacity now used to make bottles will become idle if the company purchases the bottles and one supervisor with a fixed cost salary of $60,000 would be eliminated if the bottles are purchased. Complete a costs to make vs.buy the 17.5 oz. bottles excel sheet. Should Auntie E make or buy the bottles?
2. If Auntie E can use the released facilities in another manufacturing activity that makes a contribution to profits of $75,000 or can rent out the facilities released for $55,000. Prepare a schedule that compares the four alternative courses of action:
1. Make
2. Buy and leave facilities idle
3. Buy and use facilities for other activities
4. Buy and rent out facilities
Which alternative would yield the lowest net cost?
Auntie E’s
Cost of Making 17.5 Ounce Bottles
Total Cost for
1,000,000 Bottles
Cost per Bottle
Direct materials
$ 85,000
$.085
Direct labor
30,000
.030
Variable factory overhead
60,000
.060
Fixed factory overhead
85,000
.085
Total costs
$ 260,000
$ .26
Explanation / Answer
Part-1
Auntie E Should make the bottle.
Part-2
Option 4: Purchase the bottle and Rent out the facility will give lowest net cost.
Make Vs Buy Cost of Purchase of bottle 250000 Less: Saving Variable cost of make Bottle 175000 Less: Saving in Fixed Cost 60000 Excess Cost incurred due to Buy Bottle 15000Related Questions
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