Jackie Cafe has produced 4,800 units of Sandwich per month, which is not the com
ID: 2572601 • Letter: J
Question
Jackie Cafe has produced 4,800 units of Sandwich per month, which is not the company's primary function. The following is cost information related to Sandwich manufacturing. Now, CEO of Jackie Cafe, Hannah, is considering outsourcing all of sandwich manufacturing. Sandwich manufacture, BASTA, offers to Jackie Cafe to sell Sandwich for $8 per units.
Direct materials
12,000
Direct Labor
8,000
Variable manufacturing Overhead
9,000
Fixed manufacturing Overhead
16,000
Total manufacturing cost
45,000
Number of products
4,800
Requirement 1 (1.5 points): If none of fixed costs are avoidable, is it reasonable to accept BASTA's offer? Support your answer.
Requirement 2 (1.5 points): If some of fixed costs ($12,000) are avoidable by outsourcing, is it reasonable to accept BASTA's offer? Support your answer.
Requirement 3 (2 points): If Jackie Cafe can use its idle facilities to manufacture another product that will contribute $5,000 to operating income, is it reasonable to accept BASTA's offer? Support your answer ($12,000 of Fixed costs are avoidable).
Direct materials
12,000
Direct Labor
8,000
Variable manufacturing Overhead
9,000
Fixed manufacturing Overhead
16,000
Total manufacturing cost
45,000
Number of products
4,800
Jackie Cafe has produced 4,800 units of Sandwich per month, which is not the company's primary function. The following is cost information related to Sandwich manufacturing. Now, CEO of Jackie Cafe, Hannah, is considering outsourcing all of sandwich manufacturing Sandwich manufacture, BASTA, offers to Jackie Cafe to sell Sandwich for $8 per units Direct materials Direct Labor Variable manufacturing Overhead Fixed manufacturing Overhead Total manufacturing cost Number of products 12,000 8,000 9,000 16,000 45,000 4,800 Requirement 1 (1.5 points): If none of fixed costs are avoidable, is it reasonable to accept BASTA's offer? Support your answer. Requirement 2 (1.5 points): If some of fixed costs ($12,000) are avoidable by outsourcing, is it reasonable to accept BASTA's offer? Support your answer Requirement 3 (2 points): If Jackie Cafe can use its idle facilities to manufacture another product that will contribute S5,000 to operating income, is it reasonable to accept BASTA's offer? Support your answer ($12,000 of Fixed costs are avoidable)Explanation / Answer
Req1: Cost of bbuying the Sadwich (4800 units@ 8) 38400 Cost of manufacturing : Direct material 12000 Direct labour' 8000 variable manufacturing expense 9000 Avoidable fixed manufacturing cost 0 29000 Hence, cost of manufacturing is less than buying the sandwich , BASTA's offer must not be accepted. Req 2: Cost of Buying the Sandwich (4800 units @8) 38400 Cost of manufacturing: Direct material 12000 Direct labour' 8000 variable manufacturing expense 9000 Avoidable fixed manufacturing cost 12000 41000 Hence, cost of manufacturing is more than buying the sandwich , BASTA's offer must be accepted. Req 3: Net cost of buying the sandwich: 33400 Cost of buying the sandwich(4800 units@8) 38400 Less: Contribution earned from idle capacity 5000 Cost of manufacturing: Direct material 12000 Direct labour' 8000 variable manufacturing expense 9000 Avoidable fixed manufacturing cost 12000 41000 Hence, cost of manufacturing is more than buying the sandwich , BASTA's offer must be accepted.
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