Refer to the preceding exercise. Suppose Vernon Nectars can use the released facilities in another manufacturing activity that makes a contribution to profits of $75,000 or can rent them out for $55,000. Prepare a schedule that compares the four alternative courses of action. Which alternative would yield the lowest net cost? 

Preceding exercise

Assume that Vernon Nectars reports the following costs to make 500-ml bottles for its Juice Cocktails: 

Another manufacturer offers to sell Vernon Nectars the bottles for $0.25. The capacity now used to make bottles will become idle if the company purchases the bottles. Further, one supervisor with a salary of $60,000, a fixed cost, would be eliminated if the bottles were purchased. Prepare a schedule that compares the costs to make and buy the 500-ml bottles. Should Vernon Nectars make or buy the bottles?

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Vernon Nectars Company Cost of Making 500- ml Bottles Total Cost for 1,000,000 Bottles Cost per Bottle $ 80,000 $0.080 Direct materials 0.030 Direct labour 30,000 Variable factory overhead 60,000 0.060 Fixed factory overhead 85,000 0.085 $255,000 $0.255 Total costs