Question
Direct Materials: Total cost of producing 15,000 monitors- $1,830,000 Unit Cost- $122 Direct Labor: Total cost of producing 15,000 monitors- $1,005,000 Unit Cost- $67 Variable
Direct Materials: Total cost of producing 15,000 monitors- $1,830,000 Unit Cost- $122
Direct Labor: Total cost of producing 15,000 monitors- $1,005,000 Unit Cost- $67
Variable factory overhead: Total cost of producing 15,000 monitors- $435,000 Unit Cost- $29
Fixed manufacturing overhead: Total cost of producing 15,000 monitors- 375,000 Unit cost- $25
Fixed non-manufacturing overhead: Total cost of producing 15,000 monitors- $570,000 Unit cost- $38
Total cost of producing 15,000 monitors -$4,215,000
Total Unit Cost- $281
You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $40,600, but non-manufacturing costs would remain the same if monitors are bought.
Fill in the differential analysis.
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