Outsourcing

Dough, Re$,$ Mi Inc. sells many different types of cookie dough. The company is deciding whether to continue making its own dough or to outsource. If the company outsources, they will eliminate all of the variable overhead and $30\%$ of the fixed manufacturing overhead, but will incur shipping costs.

Use the information below to determine whether Dough, Re$,$ Mi Inc. should outsource or not.

Data

Sales price

Direct materials

Direct labor

Variable manufacturing overhead

Fixed manufacturing overhead $($ MOH :

Avoidable fixed MOH

Unavoidable fixed MOH

Sales commissions

Advertising costs

Purchase price of outsourced product

Shipping costs of outsourced product

Costs per unit $q,$

$q,$ any cost not relevant to the decision.

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Manufacture

$\frac{n}{a}$

n$/$a

n$/$a

n$/$a

$\frac{n}{a}$

$\frac{n}{a}$

$\frac{n}{a}$

$\frac{n}{a}$

$\frac{n}{a}$

$\frac{n}{a}$

$\frac{n}{a}$

$\frac{n}{a}$

n$/$a

$\frac{n}{a}$

If Dough, Re$,$ Mi outsources, what would its incremental profit $($loss$)$ per unit equal?

If Dough, Re$,$ Mi outsources, what would its incremental profit $($loss$)$ given the expected units above?

Should Dough, Re$,$ Mi Inc. manufacture or outsource its dough? $$

Product Line Elimination

Quiet Feet Inc, produces three different types of shoes. Complete the below contribution margin income statement for each product line.

Allocate total fixed costs to each shoe type based on units as a percent of total units $($i$.$e$.$ use units sold as the cost driver$).$

What product line $($if any$)$ should Quiet Fee$$ Inc. stop producing?

Dropdown lists:

Yes

No

Manufacture

Outsource

None

Boots

Sneakers

Sandals

Boots & Sneakers

Boots & Sandals

Product Line Elimination

Quiet Feet Inc, produces three different types of shoes. Complete the below contribution margin income statement for each product line.

Allocate total fixed costs to each shoe type based on units as a percent of total units $($i$.$e$.$ use units sold as the cost driver$).$

Dropdown lists:

Yes

No

Manufacture

Outsource

None

Boots

Sneakers

Sandals

Boots & Sneakers

Boots & Sandals

$$