Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Coram Audio makes wireless headphones. Each pair of headphones comes with a travel case. Since its founding, Coram has manufactured its own travel cases. Recently,

Coram Audio makes wireless headphones. Each pair of headphones comes with a travel case. Since its founding, Coram has manufactured its own travel cases. Recently, Holmur Travel Gear (HTG), a local outfitter that manufactures and sells backpacks, tent cases, and so on, contacted Coram and proposed that they produce the headphone travel cases. Based on management experience, Coram's cost per travel case is as follows (based on annual production of 40,800 units).

Direct materials $ 10.00
Direct labor 21.20
Variable overhead 6.40
Fixed overhead 4.70
Total $ 42.30

HTG has offered to sell the case to Coram for $39 each. The total order would amount to 40,800 travel cases per year. Coram's management decides that they will make the switch to HTG cases if Coram can save at least $12,400 per year. Accepting the offer would eliminate annual fixed overhead of $77,520.

Required:

a. Prepare a schedule that shows the total differential costs.

Prepare a schedule that shows the total differential costs.(Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

Status Quo Alternative Difference
HTG's offer
Materials
Labor
Variable overhead
Fixed overhead applied
Total costs

b. Should Coram continue to make the travel cases or buy them from HTG?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Process Audits And 6 Sigma Excellence To Mitigate Risk And Improve Business Performance

Authors: Mr Indulis Laimonis Svikis

1st Edition

B09M5FPYR4, 979-8769768996

More Books

Students also viewed these Accounting questions