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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:

  1. 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.
  2. 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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