Golfers, Inc. (GI) manufactures golf related equipment including golf balls. This year?s expected production of golf balls is 100,000 packs (each consisting of four golf balls). Cost data are as follows:

The full cost of one pack of golf balls is $2.12. GI has received an offer from an outside supplier to supply any desired quantity of balls at a price of $1.80 per pack of four golf balls. The cost accounting department has provided the following information:

a. The direct fixed manufacturing overhead is the cost of leasing the machine that stamps out the balls. The machine can produce a maximum of 500,000 balls per year. If the balls are bought, the machine will no longer be needed.

b. No other costs will be affected.

Required:

1. Prepare an analysis showing whether GI would be better off making or buying the balls at a projected volume of 100,000 packs (400,000 golf balls).

2. At what volume would GI be indifferent between making and buying? What does the indifference point indicate?

3. List other quantitative and/or qualitative factors that GI should consider before making the final decision.

Transcribed Image Text:

Per Pack 100,000 Packs Product costs directly traceable to balls: $1.00 $100,000 Direct materials Direct labour 0.40 50,000 Variable manufacturing overhead 0.25 25,000 Fixed manufacturing overhead 12,000 General allocated overhead 35,000 $212,000