Question
Golfers, Inc. (GI) manufactures golf-related equipment including golf balls. This years expected production of golf balls is 100,000 packs (each consisting of four golf balls).
Golfers, Inc. (GI) manufactures golf-related equipment including golf balls. This years expected production of golf balls is 100,000 packs (each consisting of four golf balls). Cost data are as follows:
Per Pack | 100,000 Packs | |||
Product costs directly traceable to balls: | ||||
Direct materials | $ | 2.50 | $ | 250,000 |
Direct labour | 1.20 | 120,000 | ||
Variable manufacturing overhead | 0.15 | 15,000 | ||
Fixed manufacturing overhead | 60,000 | |||
General allocated overhead | 34,000 | |||
$ | 479,000 | |||
The full cost of one pack of golf balls is $4.79. GI has received an offer from an outside supplier to supply any desired quantity of balls at a price of $5.85 per pack of four golf balls. The cost accounting department has provided the following information:
- The direct fixed manufacturing overhead is the cost of leasing the machine that stamps out the balls. The machine can produce a maximum of 500,000 balls per year. If the balls are bought, the machine will no longer be needed.
- No other costs will be affected.
Required:
1. Prepare an analysis showing whether GI would be better off making or buying the balls at a projected volume of 100,000 packs (400,000 golf balls). (Round "Per Unit" answers to 2 decimal places.)
2-a. At what volume would GI be indifferent between making and buying? (Do not round intermediate calculations and round your final answer to nearest whole number.)
2-b. What does the indifference point indicate? (Do not round intermediate calculations and round your final answers to nearest whole number.)
3. Select the quantitative and/or qualitative factors that GI should consider before making the final decision. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)
check all that apply
- Possibility of interruptions in supply.unanswered
- Current price and changes in price.unanswered
- Alternative use for facilities freed upunanswered
- Ability to maintain quality of tennis balls.unanswered
- Any labour or production issues that may happen.unanswered
- Change in management structure.unanswered
- Climatic conditions in area where plant is situated.
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