Company makes decorative wedding cakes. The company is considering buying the ca

Question

Company makes decorative wedding cakes. The company is considering buying the cakes rather than gbuying he cakes rather han Fixed costs are primarily the deprec a on n baking them, which will allow it to concentrate on decorating The company averages 100 wedding cakes per year and incurs the following costs from baking wedding cakes ?(Click the icon to view the costs ) i en equ pr ent such as ovens an mic rs. Tapaz e pe sto retain the equipment. Topaz can buy the cakes for $27 11. Should Topaz make the cakes or buy them? Why? 12. If Topaz decides to buy the cakes, what are some qualitative factors that Topaz should also consider? 11. Should Topaz make the cakes or buy them? Why? (For the Diference column, use a minus sign or parentheses only when the cost of outsourding exceeds the cost of making the cakes in-house) Make Outsource Cake costs cakes cakes make-outsource) Variable costs. Direct materials Direct labor Variable manufacturing overhead Purchase cost Total differential cost of cakes Enter any number in the edit nields and then continue to the next question

Explanation / Answer

Ans. All amounts are in $

2700

Ans 11. If Topaz company is making only 100 cakes then total cost of making will be $2750 but if company decides to buy the cake from outside then cost will be $2700 ($27*100units), So in this case company should buy the cake.

Ans 12. If Topaz decides to buy cakes from outside then it should consider that $1050 are fixed expenses which will not be increase if company increases the production of cakes then it will start gaining on making the cakes by own.

So, if company makes cakes of more than 105 units then it should go for making the cakes inhouse

Cake Cost Make cakes Buy cakes Difference(Make - Outsource) Direct Materials 550 Direct Labours 850 Variable manufacturing overhead 300 Purchase cost

2700

Total cost 1700 2700 -1000

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