Chapter 4 As Sign In or Sign Up ChegSign ln or Sign Up | Cheg. Mel\'s Meals 2 Go

Question

Chapter 4 As Sign In or Sign Up ChegSign ln or Sign Up | Cheg. Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annualy. Mel's kitchen and adjoining meeting room operate at 70 percent of capacity. Mef purchases the cookies for $0.84 each but is considering making them instead. Mel's can bake each cookle for $0.26 for materials, $0.21 for direct labor, and $0.57 for overhead withou increasing its capecity. The $0.57 for overhead includes an allocation of $0.36 per cookie for fixed overhead. However, total fixed overhead for the company would not increase if Mel's makes Mel himself has come to you for advice,. t would cost me $1.04 to make the cookies, but only S0 84 to buy. Should i continue buying them?" Materials and labor are variable coss buf veriobe overheed would be only $0.21 per cookie. Two cookies are put into every lunch value 0.75 points Requlred information Mel suddenly finds an opportunity to sell boxed dinners. The new opportunity would require the use of the 30 percent unused capacity. The contribution margih from me dinners woutd amount to $3,600 annually Required: a. if Mel decides to sell dinners, what are the total costs for both making and buying the cookies? Total cost of making cookies Total cost of buying cookies24 000 b. Should Mel continue to buy the cookies? Yes

Explanation / Answer

Req A: Cost of Making cookies: material (20,000 cookies@ 0.26) 5200 Labourr (20000 cookies @ 0.21) 4200 variable OH (20000 cookies @ 0.21) 4200 Total cost of making 13600 Cost of Buying the cookies: Suppliers cost (20000 cookies @0.84) 16800 Less: Contribution margin received -3600 Net cost of Buying the cookies 13200 Total cost of making the cookies 13600 Total cost f buying the cookies 13200 ReqB: Yes, MEL should continue to buy the cookies

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