iPad 10:41 AM 60% D Chapter 7 Project: Incremen × .4 Augsburg Moodle: Log in to
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iPad 10:41 AM 60% D Chapter 7 Project: Incremen × .4 Augsburg Moodle: Log in to × C ezto.mheducation.com/hm.tpx?-0.92377526292762 Mohave Corp, is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in weram to produce 8,600 units per year for S9 ? 0ach. Nohave has the folowing information about the cost producing tote bags Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per unit 9.50 Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 60 percent of the foxed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags Required: 1. Compute the difference in cost between making and buying the umbrella tote bag avors Making ?. Should Mohave buy the tote bags or oontinue to make them? Make Buy 3-a. Suppose that the space Mohave currently uses to make the bags could be ubilized by a new peoduct line that would generate $12,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag avors Buying 3-b. Does this change your recommendation to Mohave? No References eBook & Resources Worksheet Learning Objective: 07-02 Define and identify relevantExplanation / Answer
1 Per unit Total Make Buy Make Buy Direct materials 5 43000 Direct labor 2 17200 Variable manufacturing overhead 1 8600 Fixed manufacturing overhead traceable 0.6 5160 Purchase cost 9 77400 Total 73960 77400 Differnce cost $3440 favors making (77400-73960) 2 Make 3 Make Buy Total cost 73960 77400 Opportunity cost 12000 Total relevant cost 85960 77400 Differnce cost $8560 favors buying (77400-85960) 3b Yes
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