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You are a financial manager for Zoom Corp., which manufactures bicycles. In the most recent fiscal year, Zoom manufactured and sold 20,000 bicycles. Wheels, seats,
You are a financial manager for Zoom Corp., which manufactures bicycles. In the most recent fiscal year, | |||||
Zoom manufactured and sold 20,000 bicycles. Wheels, seats, and brake calipers are three components of | |||||
the bicycles currently manufactured by Zoom. Three different vendors have proposed to provide those | |||||
components to Zoom, and quoted prices (including shipping) for their delivery. Your task is to determine | |||||
which, if any, of these proposals should be accepted. | |||||
Prepare a make vs. buy incremental analysis for each possible course of action in an Excel worksheet. Your | |||||
grade will be based on the correctness of your answers, as well as the use of Excel. That is, where possible, | |||||
you should use formulas to get your answers, rather than keyed-in values. See your instructor for help with | |||||
Excel basics if you need it. | |||||
In a Word document, prepare a memo stating which of the proposals you suggest accepting, as well as the | |||||
basis for your conclusions. Also identify any nonfinancial factors you should consider before accepting any | |||||
of the outsourcing proposals. | |||||
Attach both files to the Canvas assignment space by the time of the second exam. | |||||
Below is cost data for Zoom's production of wheels, seats, and calipers. Outside suppliers have offered to | |||||
provide wheels for $6.93, seats for $8.22, and calipers for $2.45 per piece. Both wheels and seats are branded | |||||
with the Zoom logo, and that logo will need to be added at the Zoom factory at a cost of $0.50 each for any | |||||
of these components that are outsourced. For all three components, 75% of the fixed costs are avoidable, and | |||||
will be eliminated if the component's production is outsourced. In addition, seats and calipers are both | |||||
produced out of the same small factory space. If both seats and calipers were outsourced, Zoom could lease | |||||
the space out and increase net income by $6,000 per year, while eliminating all fixed costs for the two | |||||
components. | |||||
Wheels | Seats | Calipers | |||
Cost category | |||||
Direct materials | $141,000 | $53,500 | $89,000 | ||
Direct labor | 94,000 | 72,500 | 43,000 | ||
Variable overhead | 21,000 | 14,000 | 16,000 | ||
Fixed overhead | 58,000 | 40,200 | 30,200 | ||
Total cost | $314,000 | $180,200 | $178,200 | ||
Units produced | 40,000 | 20,000 | 80,000 | ||
Cost per unit | $7.85 | $9.01 | $2.23 | ||
Hints: Prepare incremental analyses for each component separately. Make wheels vs. buy wheels, etc. Since | |||||
there are additional implications to outsourcing both seats and calipers, do a make vs. buy analysis assuming | |||||
both are outsourced. A correct solution, then, will likely have at least four incremental analyses. | |||||
You may use the second tab of this workbook to prepare your solutions, or create a new file. Since you will be | |||||
attaching this file to the Canvas assignment page, there are no file naming conventions you need to observe. |
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