11. Red Flag, Inc. currently produces Kids Scooters for sales under its own logo. They are also making the wheels that are the part of the final product. The costs of producing 5,000 wheels are listed below. Unit-level materials $30,000 Unit-level labor 22,000 Unit-level overhead 4,000 Product-level costs 8,900 Facility-level costs 18,000 The company has recently received an offer from an outside supplier to sell the wheels for $12 per unit. The company is considering whether they should make or buy the wheels. The accounting department has determined that they can avoid 20% of the product-level costs if they buy, but none of the facility-level costs can be avoided. Required: A) What is the difference in cost between making and buying and what should the company do?

11. Red Flag, Inc. currently produces Kids Scooters for sales under its own logo. They are also making the wheels that are the part of the final product. The costs of producing 5,000 wheels are listed below Unit-level materials Unit-level labor Unit-level overhead Product-level costs Facility-level costs S30,000 22,000 4,000 8,900 18,000 The company has recently received an offer from an outside supplier to sell the wheels for $12 per unit. The company is considering whether they should make or buy the wheels. The accounting department has determined that they can avoid 20% of the product-level costs if they buy, but none of the facility-level costs can be avoided. Required: A) What is the difference in cost between making and buying and what should the company do? (S2,220, in favor of making the product) Red Flag further finds out that they can rent their manufacturing space to another company for $5,000 if they decide to buy from the outside supplier. What is the difference in cost between making and buying and what should the company do? (S2,780, in favor of buying the product and rent the space) B) 12. Floral Company manufactures and sells a single product called Gizmo. Operating at capacity, the company can produce and sell 30,000 Gizmo per year. Costs associated with this level of production and sales are given below: Unit Direct materials Direct labor Variable manufacturing overhead 6 Variable S&A expenses Fixed S&A expenses Total S35 The Gizmo normally sells for $45 each. A large retail chain has offered to purchase 5,000 Gizmo at a discounted S30 per unit. Fixed costs are not going to be affected by this special order, however, it will require the company to print their logo on Gizmo, which will incur extra $1 per unit of labor cost. What is the impact on profit, if the company accepts the special order? Should they accept or reject the special order? (Accept. Profit will increase by $25,000)