Relevant Costs Complete Problem 14-48 on pages 623-624 of Managerial Accounting: Creating Value in a Dynamic Business Environment and present your responses in an Excel spreadsheet. 
Hilton: Managerial Accounting: Cleating Value in a Dynamic Business Environment. Eighth Edition 14. Decision Making: Relevant Costs and Benefits Text ~The McGraw-Hill Companies. 2009 Chapter 14 Decision Making: Relevant Cosls and Benefits 623 (CMA, adapted) CbefGourrnc.t. Inc. has assembled the following data penaining to its two most popular products. Blender Direct ma1Cf1al ............................................................................................ Direct labor ...,.. .. .. ....... .. .. ........................................ ......... .. ........................ Manufacturing overhead @ $48 per machine hour ....... ........................ ........ Cost if PIJ'chascd from an outside supplier ................................................... Anooal demand (oots) ................................................................................ Food Processor $16 $33 12 48 60 20,000 27 96 Problem 14-46 Production Decisions; Umited Capacity (LO 5,6) 1 Unil cost savings II manufactured. blender- $12 114 28,000 Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $30. Management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Required: 1. If 50,000 machine hours arc avai lable, and management desires to follow an optimal strategy. how many units of each product should the firm manufacture? How many units of each product should be purchased? 2. With all other things constant, if management is able to reduce the direct material for a food processor to S 18 per unit, how many units of each product should be manufactured? Purchased? 3. Build a .rprtad.~lrut: Construct an Excel spreadsheet to solve requirement ( I) above. Show how the soluti on will change if the following infommion changes: the unit cost if purchased from an outside supplier is $66 for the blender and $ 120 for the food processor. (CMA, adapted) Dentech. Inc. uses I 0 units of pan RM67 each month in the production of dentistry equipment. The cost of manufacturing one unit of RM67 is the following: Direct material ............................................................................... $ 3,000 Material handling (20% of direct-material rosQ ................................ 600 Direct labor ................................................................................. . 24,000 Manufacturing overhead (150% of direct labor) ............................... 36.000 Total manufactl.ring cost ............................................................ $63,600 Material handling represents the direct variable costs of the Receiving Depanment that arc applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Den tech's annual manufacturing overhead budget is onethird variable and two-thirds fixed. Scott Supply, one ofDcntech's reliable vendors, has offered to supply pan number RM67 at a unit price of $45,000. Problem 14-47 Outsource a Component; Relevant Costs, Opportunity Costs, and Quality Control (lO 3,4,5) 1V ariable manufacturing overhead. $12,000 2. lnCI'ease 10 monthly cost or acquuing part RM67 if purchased, $144,000 Required: 1. lf Dentecl1 purchases the RM67 units from Scott. the capacity Dcntech used to manufacture these pans would be idle. Should Dcntech decide to purchase the pans from Scott, the unit cost of RM67 would increase (or decrease) by what amount? 2. Assume Den tech is able to rent out all its idle capacity for $75,000 per month. lf Dcntech decides to purchase the 10 units from Scott Supply. Dcntech's monthly cost for RM67 would increase (or decrease) by whutamount? 3. Assume that Dcntech does not wish to commit to a rental agreement but could use its idl e capacity to manufacture another product that would contribute $ 156.000 per month. ff Dcntech's management elects to manufacture RM67 in order to maintain quality control. what is the net amount of Den tech's cost from us ing the space to manufacture pan RM67? (CMA. adapted) Cincinn ati Flow Technology (CFT) has purchased 10,000 pumps annually from Kobec. Inc. Because the price keeps inCI'Cllsing and reached $ 102.00 per un.itlast year, Cfo'T's management has asked for an estimate of the cost of manufacturing the pump in CFT's facilities. CFT makes stampings and casti ngs and has little experience with products requiring assembly. Problem 14-48 Make or Buy (lO 4, 5) I ..:l l Hilton: Managerial I 14. Decision Making: Accounting: Creating Value Relevant Costs and in a Dynamic Business Benefits Environment. Eighth Edition 624 Chapter 14 ~The McGraw-Hill Companies, 2009 Text Decision Making: Relevant Costs and Benefits The engineering. manufacturing. and accounting departments have prepared a report for management which includes the following estimate for an assembly run of 10.000 pumps. Additional production employees would be hired to manufacture the pumps but no additional equipment, space. or supervi sion would be needed. The report states that total costs for tO,OOO units arc estimated at $ 1,435,500 or $143.55 per unit. The current purchase price is $102.00 per unit, so the report recommends continued purchase of the product Components (outside purchases) ............................................................................................................... $ 180,000 Assembly labor ........................................................................................................................................ 450,000 675,000 Manufacturing overhead' .......................................................................................................................... General and administrative overtlea
