1.A guitar manufacturer is considering eliminating its electric guitar division

Question

1.A guitar manufacturer is considering eliminating its electric guitar division because its $91,430 expenses are higher than its $85,000 sales. The company reports the following expenses for this division.

2. elb Company currently manufactures 45,500 units per year of a key component for its manufacturing process. Variable costs are $5.15 per unit, fixed costs related to making this component are $85,000 per year, and allocated fixed costs are $83,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.50 per unit.

Calculate the total incremental cost of making 45,500 and buying 45,500 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier? (Round "purchase price per unit" answer to 2 decimal places.)

  

Avoidable
Expenses Unavoidable
Expenses Cost of goods sold $ 62,500 Direct expenses 11,650 $ 2,050 Indirect expenses 800 1,650 Service department costs 9,800 2,980

Explanation / Answer

Sales 85000 Cost 91430 Loss -6430 Avoidable Unavoidable COGS 62500 Direct Expenses 11650 2050 Indirect Expenses 800 1650 Service Cost 9800 2980 84750 6680 Production 45500 Variable Cost 5.15 234325 (45500*5,15) Fixed Cost 85000 Allocated 83500 402825 Variable if Buys 3.5 159250 (45500*3,5) Unavoidable cost 6680 Fixed Cost 83500 249430 Saving in Buying 153395 (402825-249430)

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