Hawley Company makes decorative wedding cakes. The company is considering buying the cakes rather than baking them, which will allow it to concentrate on decorating. The company averages 100 wedding cakes per year and incurs the following costs from baking wedding cakes: Direct Materials: 550%, Direct Labor:950%, Variable manufacturing overhead:150$, Fixed manufacturing overhead: 1,125$, Total manufacturing cost:2,775$, Number of cakes :100, Cost per cake:28$.

Fixed costs are primarily the depreciation on kitchen equipment such as ovens and mixers. Hawley expects to retain the equipment. Hawley can buy the cakes for 28$. 11. Should Hawley make the cakes or buy them? 12. If Hawley decides to buyt the cakes, what are some qualitative factors that Hawley should also consider?

11. Should Hawley make the cakes or buy them? Why?

Cake cost Make Cakes Outsource Cakes Difference (Make-Outsource)

Vairable cost:

Direct materials Blank Blank

Direct Labor Blank Blank Variable Manu overhead Blank Blank

Purchase Cost Blank Blank

Total Differential cost of cakes Blank Blank Blank

Hawley (Should, should not) continue to make the cakes. Outsourcing will (Decrease, increase) profits.

12. If Hawley decides to buy the cakes, what are some qualitative factors that hawley should also consider?

A.

Qualitative factors include considering sunk costs and manager's opinions.

B.

Qualitative factors include separating fixed and variable costs.

C.

Qualitative factors include quality and on-time delivery.

D.

Qualitative factors include contribution margins of the various products produced.