Question
Part 1: Make or Buy (Outsourcing) V & T Faces, Inc., is a makeup company. They currently produce small plastic containers used to provide samples
Part 1: Make or Buy (Outsourcing)
V & T Faces, Inc., is a makeup company. They currently produce small plastic containers used to provide samples of the products. Management is interested in outsourcing the production of the plastic containers to a reputable manufacturing company that can supply the containers for $0.04 each. V & T Faces, Inc., incurs the following monthly production costs to produce 1,000,000 plastic containers internally:
Required:
Perform differential analysis. Assume keeping all product lines is Alternative 1 and dropping the blush product line is Alternative 2.
- Which alternative is best? Explain.
- Summarize the result of dropping the blush product.
- Assume the space available from dropping the blush product line can be used by the eye shadow product line, resulting in increased revenues for eye shadow of $12,000 and increased variable costs for eye shadow of $4,000. No additional direct fixed costs would be incurred, and 80 percent of allocated fixed costs would be assigned to eye shadow and 20 percent assigned to foundation.
- Should the company drop the blush product line and use the freed-up space to expand the eye shadow product line? Alternative 1 assumes all product lines are kept and Alternative 2 assumes the blush product line is dropped with a corresponding expansion of the eye shadow product line.
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