Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

What is the maximum amount MI should pay for the bowl from an independent supplier to be no worse off financially? ew Only Your account

What is the maximum amount MI should pay for the bowl from an independent supplier to be no worse off financially?

image text in transcribed
ew Only Your account beorellana @usrca.e x v fx A B C D E F G H J K L M N O P icVay Industries (MI) produces ice cream supplies including bowls, scoops and shake makers. MI made $605,000 of pre-tax profit last year. an Hernandez, the controller, compiled the following information. Bowls Scoops Shake Makers TOTAL Units Manufactured and sold 2,000,000 500,000 100,000 DM per unit $0.50 $1.25 $5.00 DL per unit $0.10 $0.50 $4.00 VMOH per unit $0.15 $0.25 $5.00 FMOH per unit (based on curren $0.40 $0.50 $5.00 Total Cost per unit $1.15 $2.50 $19.00 Selling Price $2.00 $4.00 $25.00 Gross Profit per Unit $0.85 $1.50 $6.00 16 17 Total Sales $4,000,000 $2,000,000 $2,500,000 $8,500,000 18 Total COGS $2,300,000 $1,250,000 $1,900,000 $5,450,000 19 Total Gross Profit $1,700,000 $750,000 $600,000 $3,050,000 20 Total Variable (selling) costs (300000) (100000) (125000) (525000) 21 SG&A Fixed Costs-Direct (400000) (200000) (100000) (700000) 22 SG&A Fixed Costs-Common (680000) (300000) (240000) (1220000) 23 Pre-Tax Profit $320,000 $150,000 $135,000 $605,000 24 25 Part 1: If bowls are discontinued 26 Question 1: What will happen to the Pre-tax profit if Bowls are discontinued. If the bowls are discontinued or outsourced, fixed manufacturing overhead costs of $366,500 to lease machinery related to bowls production (direct FMOH) could be eliminated. Also, assume that direct fixed SG&A expenses relate directly to the bowls line and could be completely eliminated if the bowls product line is dropped or outsourced. 30 Part 2: If Bowls are outsourced + 31 McVay Industries (MI) is looking for ways to improve profitability and are considering outsourcing production of bowls. 32 If the bowls are outsourced, fixed manufacturing overhead costs of $366,500 to lease machinery related to bowls production (direct FMOH) could be eliminated. 33 Assume that direct fixed SG&A expenses relate directly to the bowls line and could be completely eliminated if the bowls product line is dropped or outsourced. Additionally, if the bowls are outsourced, the company would have excess capacity and could produce and sell additional 20,000 scoops 35 (for the same selling price of $4 per scoop), and additional 10,000 shake makers (for the same selling price of $25 per shake maker). Excess capacity means no additional fixed costs will be required. Question 2: What is the maximum amount MI should pay for the bowl from an independent supplier (price per unit) to be no worse off financially? Show your work. Round your answer to two decimals

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction to Managerial Accounting

Authors: Peter C. Brewer, Ray H Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan

4th Canadian edition

978-1259103261

More Books

Students also viewed these Accounting questions

Question

Annoyance about a statement that has been made by somebody

Answered: 1 week ago

Question

Self-confidence

Answered: 1 week ago