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istory Bookmarks People Window Help O M Inbox (134)-x Bookshelf-el xDHwS.Chapterx C Chegg StudyX Oezto.mheducation.com/hm.tpx ps Apple Il Netflix G Google w https://webauth. D CHEMICAL D State Farm FCU 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 Vietnam to produce 9,500 units per year for $10.00 each. Mohave has the following information about the cost of producing tote bags: Direct materials Direct labor Variable manufacturing overheac Fixed manufacturing overhead 2.00 Total cost per unit $11.00 Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 75 percent of the fixed 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 Differential Cost of Making Versus 2. Should Mohave buy the tote bags or continue to make them? Buy O Make 3-a. Suppose that the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $6,000 in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag. Differential Cost of Making Versus Buying 18 MacBook Air

Explanation / Answer

1) Differential cost :

DIfferencial cost = (95000-90250) = 4750

2) Company should make the tote bags.

3) Differential cost :

DIfferencial cost = (95000-96250) = 1250

4) Company should Buy the tote bags.

Make Buy Direct material 57000 Direct labour 19000 Variable manufacturing overhead 9500 Fixed manufacturing overhead 4750 Purchase cost 95000 Total 90250 95000

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