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A Boston Exemcutive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs: Cost per Unit Variable costs: Direct material $950 Direct
A Boston Exemcutive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs: Cost per Unit Variable costs: Direct material $950 Direct labor 660 Variable overhead 290 Total variable costs $1,900 Fixed costs: Depreciation of equipment $500 Depreciation of building 200 Supervisors salaries 300 Total fixed costs $1,000 Total cost $2,900 The company received an offer from Elite Mini-Bars to produce the insets for $2,100 per unit and supply 1,100 mini-bars for the coming year's estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the company's total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased. The specialized equipment cannot be used and has no market value. However, the space occupied by the mini-bar production can be used by a different production group that will lease it for $56,000 per year. A. Calculate the differential cost of mini-bar insert. If an amount box does not require an entry, leave it blank. A. Calculate the differential cost of mini-bar insert. If an amount box does not require an entry, leave it blank. Cost of Making 1,100 Bar Inserts Cost of Buying 1,100 Bar Inserts Differential Cost (Savings) Variable Costs Direct material $ Direct labor Variable overhead Fixed Costs Equipment depreciation $ $ $ Building depreciation Supervisor salaries Other Cost Savings Leased space $ $ $ Cost of buying bar inserts $ Total cost
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