Question
The XYZ Corporation makes inexpensive plastic insulated coolers. Their best selling model is the 48 quart cooler. The following cost structure is associated with the
The XYZ Corporation makes inexpensive plastic insulated coolers. Their best selling model is the 48 quart cooler. The following cost structure is associated with the manufacturing of the 48 quart coolers: Total Units Produced 175,000 Total Direct Materials $900,000 Total Direct Labor $800,000 Total Variable Overhead $600,000 Total Allocated Fixed Overhead $450,000 The ABC Cooler Company offers to make the 48 quart coolers for XYZ Corporation for $26.00 each. If the offer is accepted that allocated fixed overhead will be re-allocated to other divisions, meaning the costs will still be incurred. What are the total costs associated with manufacturing the 48 quart coolers at XYZ? What are the total costs associated with buying the 48 quart coolers from ABC? Based on cost of products, what decision should XYZ make regarding the manufacturing of the 48 quart coolers? Explain this decision.
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