Use the following to answer questions 5 and 6. 5.) GOGO Golf Carts currently pro

Question

Use the following to answer questions 5 and 6.

5.) GOGO Golf Carts currently produces its own electric engines. The company has calculated the following costs for making these electric engines:

Unit-level material and labor                                             $67.20 per engine

Batch-level costs                                                              $25,000/year

Salary of supervisor for engine production                        $67,200/year

Facility level depreciation of manufacturing equip              $12,000/year

Annual company wide facility-level utilities                        $1,500/year

A supplier has offered to sell the electric engines to GOGO at a price of $88 each. GOGO needs 5,000 engines a year.

Relevant costs related to this outsourcing decision are:

$441,700

$440,200

$428,200

$361,000

6.)   Which of the following is true?

a. GOGO should continue producing the engines for a cost savings of $104,000.

b. GOGO should buy the engines from the outside supplier for a cost savings of $104,000.

c. GOGO should buy the engines from an outside supplier for a cost savings of $11,800.

d. GOGO should continue producing the engines for a cost savings of $11,800.

$441,700

$440,200

$428,200

$361,000

Explanation / Answer

Make Buy Unit-level material and labor 336000 Batch-level costs   25000 Salary of supervisor 67200 Purchase cost 440000 Total cost 428200 440000 5 Relevant costs related to this outsourcing decision = $428200 6 GOGO should continue producing the engines for a cost savings of $11,800(440000-428200)

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