O ezto.mheducation.com C M Inbox (1,780) - ggiannelli@umass.edu - U... G 390CC Presentation - Google Slides Course Hero M Question 12 - Chapter 21 - Connect Start Page + Chapter 21 i Saved Help Save & Exit Submit Check my work 12 Problem 21.3A (Static) Make or Buy Decision (LO21-1, LO21-2, LO21-3, LO21-4) 0.24 Parsons Plumbing & Heating manufactures thermostats that it uses in several of its products. Management is considering whether to points continue manufacturing the thermostats or to buy them from an outside source. The following information is available. 1. The company needs 80,000 thermostats per year. Thermostats can be purchased from an outside supplier at a cost of $6 per unit. 2. The cost of manufacturing thermostats is $7.50 per unit, computed as follows. eBook Direct materials $ 156 , 000 Print Direct labor 132, 000 Manufacturing overhead: n Variable 168, 000 Fixed 144 , 000 References Total manufacturing costs $ 600, 000 Cost per unit ($600, 000 + 80,000 units) $ 7 . 50 3. Discontinuing the manufacture of the thermostats will eliminate all of the direct materials and direct labor costs but will eliminate only 60 percent of the variable overhead costs. 4. If the thermostats are purchased from an outside source, certain machinery used in the production process would no longer have to be leased. Accordingly, $9,200 of fixed overhead costs could be avoided. No other reductions will result from discontinuing production of the thermostats. Required: a-1. Prepare a schedule to determine the incremental cost or benefit of buying thermostats from the outside supplier. a-2. On the basis of this schedule, would you recommend that the company manufacture thermostats or buy them from the outside source? Assume that if thermostats are purchased from the outside source, the factory space previously used to produce thermostats can be used to manufacture an additional 6,000 heat-flow regulators per year. These regulators have an estimated contribution margin of $18 nor unit The manufacture of the additional heat-flow renulators would have no effect on fived overhead Mc Graw Hilll = eztomheducationcom 0' l 0 l 5] Chapter21 Saved Help Save& Exit Submit w 1 2 only 60 percent of the variable overhead costs. 4. If the thermostats are purchased from an outside source, certain machinery used in the production process would no longer have to be leased. Accordingly, $9,200 of fixed overhead costs could be avoided. No other reductions will result from discontinuing production of the thermostats. 0.24 \"\"5 Required: a-1. Prepare a schedule to determine the incremental cost or benet of buying thermostats from the outside supplier. a-2. On the basis of this schedule, would you recommend that the company manufacture thermostats or buy them from the outside El source? eBOOk Assume that If thermostats are purchased from the outside source, the factory space prevlously used to produce thermostats can be _ used to manufacture an additional 6,000 heat-flow regulators per year. These regulators have an estimated contribution margin of $18 U per unit. The manufacture of the additional heatow regulators would have no effect on fixed overhead. b-1. Prepare a schedule showing the incremental cost or benefit of buying thermostats from the outside source and using the factory W' space to produce additional heat-ow regulators. References b2. Would this new assumption change your recommendation as to whether to make or buy thermostats? Complete this question by entering your answers In the tabs below. Req A1 Req AZ Reg 32 Prepare a schedule showing the Incremental cost or benet of buying thermostats from the ouslde source and uslng the factory space to produce additional heat-ow regulators. Effect of Alternative Use of Factory Space: Incremental benet (cost) of buying thermostats from an outside source Add: Contribution margin of alternative use of factory space Incremental (cost) benet of buying thermostats from an outside source and using factory space to to produce additional heat ow regulators. Mt: Grew ( Prev 12 of 12 Hill Next