Relevant Cost and Decision Making
4.16
Make or buy Yoklic Corporation currently manufactures a
subassembly for its main product. The costs per unit are as follows:
Regina Corp has contacted Yoklic with an offer to sell it 5,000
subassemblies for $55.00 each.
REQUIRED:
Should Yoklic make or buy the subassemblies? Create a schedule that
shows the total quantitative differences between the two alternatives.
The accountant decided to investigate the fixed costs to determine
whether any incremental changes would occur if the subassembly
were no longer manufactured. The accountant believes that Yoklic
will eliminate $50,000 of fixed overhead if it accepts the proposal.
Does this new information change the decision? Show your
calculations.
Ignore the information in part (B). Now suppose Yoklic could use the
capacity released under the buy alternative to make a different
subassembly that it currently purchases from a vendor for $20. The
manufacturing engineer believes that the company can use the
existing equipment to manufacture the subassembly for $13 each
(direct materials, direct labor, and variable overhead). The firm uses
about 5,000 of these subassemblies. Create a schedule that shows the
difference between the two alternatives.
4.18
Special order The Cone Head House sells ice cream cones in a variety
of flavors. Data for a recent week appear here:
The Cone Head’s manager received a call from a university student
club requesting a bid on 100 cones to be picked up in three days. The
cones could be produced in advance by the store attendant during
slack periods and then stored in the freezer. Each cone requires a
special plastic cover that costs $0.05.
REQUIRED: