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

$\backslash$table$[[,$Units,Per unit,$],[$Sales price,per unit,,$5,450,$$$,97\mathrm{.}00],[$Direct materials,per unit,,,,$21\mathrm{.}00],[$Direct labor,per unit,,,,$18\mathrm{.}00],[$Variable manufacturing overhead,per unit,,,,$14\mathrm{.}00],[$Fixed manufacturing overhead $(MOH)$ :$,$per month,$-,,,24\mathrm{.}00],[$Avoidable fixed MOH,per month,.,,,$],[$Unavoidable fixed MOH,per month,,,,$],[$Sales commissions,per unit,,,,$3\mathrm{.}00],[$Advertising costs,per month,,,,$1\mathrm{.}80],[$Purchase price of outsourced product,per unit,,,,$65\mathrm{.}00],[$Shipping costs of outsourced product,per unit,,,,$1\mathrm{.}00]]$

Relevant?

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Incremental analysis

Variable costs

Direct materials

Direct labor

Variable manufacturing overhead

Purchase price

Shipping costs

Sales commissions

Total variable costs

Fixed costs

Fixed manufacturing overhead

Advertising

Total fixed costs

Incremental cost

Costs per unit

Manufacture Outsource

Enter $"=0"$ in the cell for any cost not relevant to the decision.

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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?

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