16.
Syanton manufactures a particular computer component. Manufacturing cost per
units are
as follows:
Direct materials
P 50
Direct labor
500
Variable overhead
250
Fixed overhead
400
Total manufacturing costs
P1,200
Fredix, Inc. has contracted Syanton with an offer to sell 10,000 of the component
for P1,100 per unit. If Syant
on accepts the proposals, P2,500,000 of the fixed
overhead will be eliminated. Should Syanton make or buy the component and
why?
A.
Buy due to savings of P1,000,000.
B.
Make due to savings of P500,000.
C.
Buy due to savings of P2,500,000.
D.
Make due to savings of P3
,000,000.
(rpcpa)
16.
D
?
Should Syanton make or buy a component part?
The total unit variable costs of production (which includes direct materials, direct
labor, and variable overhead) is P800 (P50 + P500 + P250). Below is the
relevant costs
analysis:
Make
Buy
Purchase costs (10,000 x P1,100)
P11,000,000
Variable mfg. Costs (10,000 x P800)
P 8,000,000
Avoidable fixed overhead
2,500,000
Total relevant costs
P10,500,000
11,000,000
Less: Cost to
make
10,500,000
Net advantage of making
P 500,000
17.
The Blade Division of Dan Corporation produces hardened steel blades. One
-
third
of the Blade Division’s output is sold to the Lawn Products Division of Dana, the
remainder is
sold to outside customers. The Blade Division’s estimated sales and
standard cost data for the fiscal year ending June 30, 2006, are as follows:
Lawn Products
Outsiders
Sales
P15,000
P40,000
Variable costs
(10,000)
(20,000)
Fixed costs
( 3,000)
( 6,000)
Gross margin
P 2,000
P14,000
Unit sales
10,000
20,000
The Lawn Products Division has an opportunity to purchase 10,000 identical quality
blades from an outside supplier at a cost of P1.25 per unit on a continuing basis.
Assume that the Blade Division cannot sell any additional products to outside
customers. Should Dana allow its Lawn Products Division to purchase the blades
from the outside supplier, and why?
[Link], because buying the blades would save Dana Company P500.
[Link], because making the blades would save Dana Company P1,500.
[Link], because buying the blades would save Dana Company P2,500.
[Link], because making the blades would save Dana Company P2,500.
(aicpa)
17.
D
?
Should Dan allow its Lawn Products Division to purch
ase the blades from the
outside supplier and why?
The unit variable cost to make is P1.00 (i.e., P10,000 / 10,000 units). The outside
supplier is offering to sell at P1.25. It would be advantages not to allow Lawn
Products Division to buy blades from a
n outside supplier and save P2,500, as
follows:
Relevant cost to make (10,000 units x P1.00)
P10,000
-
Relevant cost to buy (10,000 x P1.25)
12,500
Advantage of making the blades
P 2,500
18.
The following standard costs pertain to a component par
t manufactured by Atoy
Company:
Direct materials
P 2
Direct labor
5
Factory overhead
20
Standard cost per unit
P 27
Factory overhead is applied at P1 per standard machine hour. Fixed capacity cost
is 60% of applied factory overhea
d, and is not affected by any “make or buy” decision. It would cost P25 per unit to buy the part from
an outside supplier. In the decision to “make or buy”, what is the total relevant unit manufacturing cost to
be considered?
A.
P 2
C. P18
B.
P15
D. P27
(aicpa)
18.
B
?
Total relevant cost of manufacturing.
In make or buy decisions, the relevant costs of manufacturing includes variable
production costs, avoidable fixed costs, and all other incremental cost of
manufacturing. Giv
en the data in this problem, the relevant cost of manufacturing
is P15 computed as follows:
Direct materials
P2
Direct labor
5
Variable overhead (P20 x 40%)
8
Relevant manufacturing unit cost
P15