Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ocean Products, Inc., currently manufactures its own surfboards for customers. Management is interested in outsourcing production of these surfboards to a reputable manufacturing company

  

Ocean Products, Inc., currently manufactures its own surfboards for customers. Management is interested in outsourcing production of these surfboards to a reputable manufacturing company that can supply the surfboards for $80 per unit. Ocean Products, Inc., incurs the following annual production costs to produce 10,000 surfboards internally. Variable production costs Direct materials Direct labor Manufacturing overhead Fixed production costs Factory building and equipment lease Factory insurance Production supervisor's salary Total production costs Per Unit $20 10 30 Total Annual Cost at 10,000 Units $200,000 100,000 300,000 70,000 50,000 100,000 $820,000 If production is outsourced, all variable production costs, factory building and equipment lease costs, and factory insurance costs will be eliminated. The production supervisor's salary cost will remain regardless of the decision to outsource or to produce internally because the supervisor recently signed a long-term contract with Ocean Products, Inc. Required: a. Perform differential analysis using the format presented in Figure 7.2 " Make-or-Buy Differential Analysis for Best Boards, Inc.". Assume making the surfboards internally is Alternative 1, and buying the surfboards from an outside manufacturer is Alternative 2. b. Which alternative is best? Explain. c. Summarize the result of outsourcing production using the format presented in Figure 7.3 "Summary of Differential Analysis for Best Boards, Inc.". d. Compare the format used in requirement a with that of requirement c. a. C. Variable production costs: Cost to buy from outside d. Fixed production costs: * $800,000 $80 per unit 10,000 units b. Total production costs (Make internally) Alternative 1 Result of Outsourcing Production $ 0 (Buy from outside) Alternative 2 E $800,000 = Differential Amount ($800,000) Alternative 1 is: Lower

Step by Step Solution

3.40 Rating (144 Votes )

There are 3 Steps involved in it

Step: 1

Answer a Variable Production Costs Cost to buy from outside Direct Material Direct Labor MOH Fixed P... 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

Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective

Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

9th Edition

1337614689, 1337614688, 9781337668262, 978-1337614689

More Books

Students also viewed these Accounting questions

Question

10.2 Explain how culture affects verbal language.

Answered: 1 week ago