Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Florida Kitchens produces high - end cooking ranges. The costs to manufacture and market the ranges at the company s volume of 3 , 0

Florida Kitchens produces high-end cooking ranges. The costs to manufacture and market the ranges at the companys volume of 3,000 units per quarter are shown in the following table:
Unit manufacturing costs
Variable costs $ 1,590
Fixed overhead 750
Total unit manufacturing costs $ 2,340
Unit nonmanufacturing costs
Variable 510
Fixed 870
Total unit nonmanufacturing costs 1,380
Total unit costs $ 3,720
The company has the capacity to produce 3,000 units per quarter and always operates at full capacity. The ranges sell for $4,375 per unit.
Required:
a. Florida Kitchens receives a proposal from an outside contractor, Burns Electric, who will manufacture 1,200 of the 3,000 ranges per quarter and ship them directly to Floridas customers as orders are received from the sales office at Florida. Florida would provide the materials for the ranges, but Burns would assemble, box, and ship the ranges. The variable manufacturing costs would be reduced by 40 percent for the 1,200 ranges assembled by Burns. Floridas fixed nonmanufacturing costs would be unaffected, but its variable nonmanufacturing costs would be cut by 60 percent for these 1,200 units produced by Burns. The Florida plant would operate at 60 percent of its normal level, and total fixed manufacturing costs would be cut by 20 percent.
a-1. What in-house unit cost should be compared with the quotation received from Burns Electric? Assume the payment to the outside contractor is $870.
a-2. Should the proposal be accepted for a price (that is, payment to the contractor) of $870 per unit?
b. Assume the same facts as in requirement (a) but assume that the idle facilities would be used to produce 320 specialty ranges per quarter. These ranges could be sold for $19,500 each, while the costs of production would be $13,400 per unit variable manufacturing cost. Variable marketing costs would be $475 per unit. Fixed nonmanufacturing and manufacturing costs would be unchanged whether the original 3,000 regular ranges were manufactured or the mix of 1,800 regular ranges plus 320 specialty ranges was produced.
b-1. Considering this opportunity to use the freed-up space, what is the maximum purchase price per unit that Florida Kitchens should be willing to pay the Burns Electric to assemble regular ranges?
b-2. Should the Burns' proposal of $870 per unit be accepted?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

a1 The inhouse unit cost that should be compared with the quotation received from Burns Electric is ... 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_2

Step: 3

blur-text-image_3

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

Fundamentals Of Cost Accounting

Authors: William Lanen

7th Edition

1264100841, 9781264100842

More Books

Students also viewed these Accounting questions

Question

What are the three methods of allocating service department costs?

Answered: 1 week ago