Relevant Costs and Decision Making
Relevant Costs and Decision Making
4.16
A. The fixed overhead cost will be the same regardless of which method Regina Corp goes. Based on the analysis of Yoklic, they will incur the additional cost of $6 per unit by purchasing the subassemblies versus manufacturing them.
B. The $50,000 that is saved by eliminating the fixed overhead reduces the cost for outsourcing. This will give Yoklic an overall $20,000 savings for 5,000 units by purchasing externally versus manufacturing internally. C. In this solution to part (c), it is assumed that the fixed overhead will be incurred regardless of what decision is made by the entity. Therefore, based on the above analysis Yoklic will incur an additional cost of $16 per unit if the subassemblies are manufactured versus purchasing them from a vendor.
4.18 A. The manager needs to decide if it is worth only making a revenue of $12 per 100 units by only producing the 100 or to make the 1000 units and have extra. With making just the 100, the extra expense for the special plastic covers make the commission go from $7 per 100 cones to $12 per 100 cones. This helps cut the costs because the direct labor of the store attendant and rent are not included because they are making the cones during slack periods and do not require additional time for employees.
Manufacturing costs (for 1000 units)
Manufacturing costs (for 100 units)
Cost of ingredients - Direct material
530
53
Store attendant - Direct labor
300
Rent - Fixed Costs
600
Cost to manufacture
1430
53
Special Plastic cover (.05 @ Each)
5
Revenue (1000 cones @ 1.50 each)
1500
150
Commission
70
12
B. The quantitative information that is relevant for this decision is the 100 cones and 100 required special plastic covers for each cone. The fixed cost of store attendant labor and rent are not applied since the making of cones is done during the slack period. The company does not have to pay additional time requirement for making the extra 100.
4.16
A. The fixed overhead cost will be the same regardless of which method Regina Corp goes. Based on the analysis of Yoklic, they will incur the additional cost of $6 per unit by purchasing the subassemblies versus manufacturing them.
B. The $50,000 that is saved by eliminating the fixed overhead reduces the cost for outsourcing. This will give Yoklic an overall $20,000 savings for 5,000 units by purchasing externally versus manufacturing internally. C. In this solution to part (c), it is assumed that the fixed overhead will be incurred regardless of what decision is made by the entity. Therefore, based on the above analysis Yoklic will incur an additional cost of $16 per unit if the subassemblies are manufactured versus purchasing them from a vendor.
4.18 A. The manager needs to decide if it is worth only making a revenue of $12 per 100 units by only producing the 100 or to make the 1000 units and have extra. With making just the 100, the extra expense for the special plastic covers make the commission go from $7 per 100 cones to $12 per 100 cones. This helps cut the costs because the direct labor of the store attendant and rent are not included because they are making the cones during slack periods and do not require additional time for employees.
Manufacturing costs (for 1000 units)
Manufacturing costs (for 100 units)
Cost of ingredients - Direct material
530
53
Store attendant - Direct labor
300
Rent - Fixed Costs
600
Cost to manufacture
1430
53
Special Plastic cover (.05 @ Each)
5
Revenue (1000 cones @ 1.50 each)
1500
150
Commission
70
12
B. The quantitative information that is relevant for this decision is the 100 cones and 100 required special plastic covers for each cone. The fixed cost of store attendant labor and rent are not applied since the making of cones is done during the slack period. The company does not have to pay additional time requirement for making the extra 100.