Blossom Pets has recently started to manufacture talking toy pets. The cost structure to manufacture 10,800 of these toy pets is as follows:

Direct materials ($33 per pet)		$356,400
Direct labour ($30 per pet)		324,000
Variable overhead ($9 per pet)		97,200
Allocated fixed overhead ($21 per pet)		226,800
Total		$1,004,400

Blossom Pets is approached by Bridgeport Inc., which offers to make the toy pets for $85 per unit. Using incremental analysis, determine whether Blossom Pets should accept this offer under each of the following independent assumptions:

incremental analysis. Assume that $129,600 of the fixed overhead cost (in making 10,800 of the toy pets) is avoidable. (Enter savings with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)

Cost		Make		Buy		Cost (Saving)
select an item Direct materialsDirect labourPurchase priceNet income / (loss)Variable overheadSalesFixed overhead		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item Variable overheadSalesDirect materialsDirect labourFixed overheadNet income / (loss)Purchase price		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Net income / (loss)Direct materialsVariable overheadPurchase priceDirect labourFixed overheadSales		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Direct materialsDirect labourFixed overheadPurchase priceNet income / (loss)Variable overheadSales		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Direct labourNet income / (loss)Direct materialsFixed overheadVariable overheadSalesPurchase price		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total annual cost		$enter a total amount		$enter a total amount		$enter a total amount

Should Blossom Pets continue to make the pets or buy the pets?

Blossom Pets should select an option buycontinue to make the pets.

Question Part Score

--/7

incremental analysis. Assume that none of the fixed overhead is avoidable. However, if the pets are purchased from Bridgeport, Blossom Pets can use the released productive resources to generate additional income of $214,500. (Enter savings with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)

Cost		Make		Buy		Cost (Saving)
select an item Purchase price, Variable overhead, Net income,Sales, Direct materials, Direct labour, Fixed overhead		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item Direct materialsSalesFixed overheadDirect labourNet incomePurchase priceVariable overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Direct labourPurchase priceVariable overheadSalesDirect materialsFixed overheadNet income		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Variable overheadDirect labourNet incomePurchase priceDirect materialsFixed overheadSales		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Direct labourDirect materialsVariable overheadFixed overheadSalesPurchase priceNet income		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total annual cost		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part
select between addition and deduction LessAdd:Opportunity cost		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total cost		$enter a total amount		$enter a total amount		$enter a total amount

Should Blossom Pets continue to make the pets or buy the pets?

Blossom Pets should select an option buy, continue to make the pets.