P26-4A Afloat. Inc., manufactures swim fins. Cost data for producing 2,000 pairs of fins each year are
Question:
P26-4A Afloat. Inc., manufactures swim fins. Cost data for producing 2,000 pairs of fins each year are as follows: Direct materials. Direct labor Variable overhead Fixed overhead Total manufacturing costs. $21,000 15,000 5,600 38,400 $80,000 Suppose SwimTime will sell Afloat the fins for $35 per pair. Afloat would pay $1.80 per pair to transport the fins to its warehouse. Required 1. Afloat's accountants predict that purchasing the fins from SwimTime will enable the company to avoid $12,000 of fixed overhead. Prepare an analysis to show whether Afloat should make or buy the fins. 2. Assume that the Afloat facilities freed up by the purchase of the fins from Swim Time can be used to manufacture swim masks. The masks will contribute $35,000 to profit. Total fixed costs will be the same as if Afloat used the plant to make fins. Prepare an analysis to show which alternative makes the best use of Afloat's facilities:
(a) make fins.
(b) buy fins and leave facilities idle, or
(c) buy fins and make masks.
Step by Step Answer:
Accounting
ISBN: 9780130906991
5th Edition
Authors: Charles T. Horngren, Walter T. Harrison, Linda S. Bamber, Betsy Willis, Becky Jones