The following information apples to the questions displeyed below $0.60 each but

Question

The following information apples to the questions displeyed below $0.60 each but is without increesing its capecity. The $0.45 for overhead includes ho make the cookies, but only $0.60 to buy. Should I continse buying them" Materials and lebor ane costs, but veriable overheed would be only 1S per cookie. Two cookies are put into every lunch 20.00 points Required: PEir osts per este. (Round your answers to 2 decimal places. Select option "higher" er keeping Status Quo as the base. Select "none" if thare is no sredue to show the dheti wer. 0.00 S0.00

Explanation / Answer

Cost of buying = 10000 boxes * 2 Cookies * 0.60 per cookie= 12000

Materials cost = 20,000 cookies * 0.20 = 4000

Labour cost = 20000 * 0.15 = 3000

Variable overhead = 20000 * 0.15 = 3000

Fixed overhead is irrelevant, since it is an allocation from other departments and it is not specifically incurred for making of cookies.

Question - 2

Here, the available spare capacity is put into utilization for earning $ 3000. As such, if we want to make the product, this earning opportunity will be lost. Thus it becomes an implict or Opportunity cost to be included in the cost of making.

Thus cost of making = Material cost of 4000 + Labor cost of 3000 + variable overhead cost of 3000 + Opportunity cost of 3000. and thus total cost = 13000

In this revised situation, as the cost of buying is lower than cost of making, the company should buy the cookies

Status Quo Alternative          Difference (Buy) (Make)           (Buy - Make) Cost to buy 12000 0 12000 Higher Direct material 0 4000 4000 Lower Direct Labor 0 3000 3000 Lower Variable overhead 0 3000 3000 Lower Total costs 12000 10000 2000 Higher

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