Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Make or Buy Walsh Corporation currently makes the nylon mooring cover for its main product, a fiberglass boat designed for tournament bass fishing. The costs

Make or Buy Walsh Corporation currently makes the nylon mooring cover for its main product, a fiberglass boat designed for tournament bass fishing. The costs of producing the 2,000 covers needed each year follow:

Nylon fabric $320,000
Wood battens 64,000
Brass fittings 32,000
Direct labor 128,000
Variable manufacturing overhead 96,000
Fixed manufacturing overhead 170,000

Calvin Company, a specialty fabricator of synthetic materials, can make the needed covers of comparable quality for $290 each, F.O.B. shipping point. Walsh would furnish its own trademark insignia at a unit cost of $20. Transportation in would be $15 per unit, paid by Walsh Corporation.

Walshs chief accountant has prepared a cost analysis that shows that only 30% of fixed overhead could be avoided if the covers are purchased. The covers have been made in a remote section of Walshs factory building, using equipment for which no alternate use is apparent in the foreseeable future.

a. Prepare a differential analysis showing whether or not you would recommend that the mooring covers be purchased from Calvin Company.

If appropriate, use a negative sign with your answer to represent a net disadvantage answer. Do not use negative signs with any other answers.

Make or Buy Differential Analysis
Cost to purchasecovers: Answer
Costs avoided by purchasingcovers:
Direct materials Answer
Direct labor Answer
Variable manufacturing overhead Answer
Fixed manufacturing overhead Answer Answer
Net advantage (disadvantage)to purchase alternative Answer

b. Assuming that the production capacity released by purchasing the covers could be devoted to a subcontracting job for another company that netted a contribution margin of $64,000, what maximum purchase price could Walsh pay for the covers?

Round answer to two decimal places, if applicable.

$Answer

Step by Step Solution

There are 3 Steps involved in it

Step: 1

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

Step: 3

blur-text-image

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

Auditing Principles

Authors: Nformi Eugene Tawe

1st Edition

3330651032, 978-3330651036

More Books

Students also viewed these Accounting questions