xC My Account I Chegg.com x ? eztomheducation.comhm.tpx pps 1 Hawkes Learning Bl
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xC My Account I Chegg.com x ? eztomheducation.comhm.tpx pps 1 Hawkes Learning Blackboard Learn Welcome myutig Cnemark Theatres- G Work in lapan Ga me remaining: 14527 Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its 8,400 units per year for $7.00 each Mohave has the following information about the cost of producing tote bags: products. The company has received a bid from a supplier in Vietnam to Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 1.50 5750 Total cost per unit Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 60 percent of the fxed 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 umbrela tote bag 143 PM A4/15/2018 O Type here to searchExplanation / Answer
1.
Cost of making = Total cost per unit * Number of units = $7.50 per unit * 8,400 units = $63,000
Cost of buying = Purchase cost + Unavoidable fixed overhead = ($7 * 8,400 units) + ($1.50*8,400 units * 60%) = $58,800 + $7,560 = $66,360
Hence, Differential cost of making versus buying = $63,000 - $66,360 = -$3,360
2.
Mohave should continue making the bag because making cost is less than the buying cost.
3a.
Cost of buying = Purchase cost + Unavoidable fixed overhead - Income from alternative use of space
Cost of buying = $58,800 + $7,560 - $12,000 = $54,360
Hence, Differential cost of making versus buying = $63,000 - $54,360 = $8,640
3b.
Now, Mohave should buy the bags from outside supplier.
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