Curtis Corporation is beginning to manufacture Mighty Mint, a new mouthwash in a

Question

Curtis Corporation is beginning to manufacture Mighty Mint, a new mouthwash in a small spray container. The product will be sold to wholesalers and large drugstore chains in packages of 30 containers of each $20 per package. Management allocates $225,000 of fixed manufacturing overhead costs to Mighty Mint. The manufacturing cost per package of 30 containers for expected production of 200,000 packages is as follows: The company has contacted a number of packaging suppliers to determine whether it is better to buy or manufacture the spray containers. The lowest quote for the containers is $1.85 per 30 unite. It is estimated that purchasing the containers from a supplier will save 10 percent materials. By purchasing the spray containers, the company will not have to lease additional manufacturing space that is estimated to cost $ 17,00 per year. If the containers are purchased, one supervisory position can be eliminated. Salary plus benefits for this position are $80,000 per year. What is the incremental cost (benefit) of buying the containers as opposed to making them?

Explanation / Answer

Curtis Corporation Incremental cost benefit analysis   Suppose the expected purchase is 200000 packages from outside supplier Units purchased              200,000 Details Per Unit Total Amt $ Saving In Direct Material @10%                     0.80                160,000 Saving In direct labor @20%                     1.00                200,000 Saving in variable Overhead@15%                     0.19                  37,500 Saving in Lease expense                  17,000 Saving in Supervisor salary                  80,000 Net Benefit in a year $            494,500

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