I would like to know if I am on the right track with the solution for number 3.
3 | Suppose that if the motors were purchased, Fresnos could use the freed capacity to launch a new product. The segment margin of the new product would be $99,380 per year. Calculate the total benefit or detriment to continue making the motor if you consider the additional margin from the new product. Would this impact your decision in part 2? | | |
| | | | | | | | | | | Make | Buy |
| | | | Make | | Buy | | | | Direct material | 128700 | |
| | Total Cost per part 1: | | $ 462,600 | | $ 457,600 | | | | Direct labor | 157300 | |
| | Opportunity Cost: | | $ 99,380 | | $ 94,380 | | | | Variable overhead | 42900 | |
| | Total Cost: | | $ 363,220 | | $ 368,220.00 | | | | Fixed overhead Traceable (85800*40%) | 34320 | |
| | | | | | | | | | Opportunity cost | 99380 | |
| Total Benefit to Buy = | | $ 5,000 | | | | | | Purchase cost (14300*32) | | 457600 |
| | | | | | | | | | Total relevant cost | 462600 | 457600 |
Make or Buy a Component [LO10-3] Fresnos manufactures a variety of yard tools. The company currently produces all of the necessary parts for its tools, including the motors. An outside supplier has offered to sell one type of motor to Fresnos, for a cost of $32 per unit; Fresnos currently makes 14,300 of the motors each year and the supplier can sell this same quantity of motors to Fresnos. To evaluate this offer, Fresnos has gathered the following information relating their current cost of producing this specific motor: Total at 14,300 units per year per unit Direct Material:s Direct Labor Variable Manu. Overhead Fixed Manu. Overhead, traceable* Fixed Manu. Overhead, all Total Cost 128,700 157,300 42,900 85,800 185,900 600,600 9 11 $ 13 $ 42 locate The traceable Fixed Manufacturin Overhead is made of 40% supervisory salaries and 60% depreciation of special equipment (no resale value). These supervisor positions will go away if Fresnos no longer makes these motors 1 Assuming that the company has no alternative use for the facilities that are now being used to produce the motors, compute the differential cost of making and buying the motors. Calculate the total benefit or detriment to continue making the motor Given Total Differential Costs make Cost per unit buy $ 32.00 Purchase Price Direct Material:s Direct Labor Variable Manu. Overhead Fixed Manu. Overhead, traceable* Fixed Manu. Overhead, allocted Total Cost 9.00 $ 3.00 $ $ 13.00 13 9.00 11.00 3.00 6.00 13.00 42.00 11.00 $ 3.60 6.00 see j24 $42.00 48.60 Per Unit benefit to make - Total benefit to make - 6.60 $ 94,380 Frerna, manufacturer variety ofyard toolr. The company currently producer all of the necorary Paru Far ir toal, includinq the motorr. An outridorupplier har offered to,oll one typo of motor to Frerna, Far rtof $32 per unit; Frarnar errently maker 14,300 afthe motorha adtherupplier canelltirrameantity af rnar. Toelte thir offer Frathered the follouinainformation relatintheir current Tatal at 14,300 unitr per year DireetMaterialr 11 157,300 eManu. Ovorhead FixedMan.Overhoad,treabl The tracoablo Fixed Manufacturin Overhoad ir made of 40Xzupervirary,alarior and 60% depreciation of ,poeial quipment(na rerale value). Thororupervirar parition, uill qauay if Frornar halanqor rmaker there 1 Arruminathatthecompyharna altertive urefar the facilitier that aueina urodto praduceth& motarr, camputeth& differential cart af makina andbuyinatho matarr. Calulatethe total benefit ar dotriment to continuemakinathe motor $9.00 $11.00 $3.00 $6.00 eManu. Ovorhead FixedMan.Overhoad,treabl Por Unit benofit to mak