For question 2, why do the batch costs equal to $2000/20*16? I knew they origina

Question

For question 2, why do the batch costs equal to $2000/20*16? I knew they originally produced 20 batches and then changed to 16 batches, but where does the $2000 come from? And what does it mean(what is the price stand for?) Thank you Best Gardening Ltd produces mowers. This year's expected production is 10,000 units. Currently, Best Gardening makes the grass catcher bags for its mowers. Best Gardening's management accountant reports the following costs for making the 10,000 grass catcher bags per year Cost perCosts for unit 10,000 units S100,000 50,000 25,000 2,000 2,000 20,000 10,000 S209,000 Direct materials Direct manufacturing labour Variable manufacturing overhead Inspection, set-up, materials handlin 10.00 5.00 2.50 r and utilities) reciation sewing machine Supervisor's sala Allocated fixed costs of plant administration Total costs Best Gardening has received an offer from an outside vendor to supply any number of grass catcher bags Best Gardening requires at S21.50 per bag. The following additional information is available: a) Inspection, set-up and materials-handling costs vary with the number of batches in which the catcher bags are produced. Best Gardening produces catcher bags in batch sizes of 500 units. Best Gardening will produce the 10,000 units in 20 batches. b) Best Gardening uses the sewing machine to make the catcher bags. If Best Gardening buys all of its catcher bags from the outside vendor, Best Gardening does not need the sewing machine and the machine would be sold for $10,000. In addition, if Best Gardening does not continue producing catcher bags, the supervisor's salary is avoidable. Questions 1. Assume that if Best Gardening purchases the catcher bags from the outside vendor, the facilities where the catcher bags are currently made will be used to upgrade the mowers by adding edge cutters. As a consequence, the selling price of mowers will be increased by $50. The variable cost per unit of the upgrade would be $45, and additional tooling costs of $40,000 would be incurred. On the basis of financial considerations alone, should Best Gardening make or buy the catcher bags, assuming that 10,000 mowers are produced (and sold)? Why? Use comparative analysis in your answer 2. The sales manager at Best Gardening is concerned that the estimate of 10,000 units may be too high and believes that only 8,000 units will be sold. Production will be cut back, freeing up work Gardening buys the catcher bags or makes them in-house. At this lower output, Best gardening will produce the catcher bags in 16 batches of 500 units each. On the basis of financial considerations alone, should Best Gardening purchase t outside vendor? Show your calculations. space. This space can be used to add the edge cutters whether Best he catcher bags from the 3. The management accountant of Best Gardening said "variable costs are always relevant, and fixed costs are always irrelevant" Do you agree? Why?

Explanation / Answer

Answer: Inspection setup and material handling cost is given 2000. This is for 10,000 units and in terms of batches it is for 20 batches. So per batch cost would be $2000/20=$100per batch.

Now we have 16 batches. Cost for 16 batches= 16*$100=$1600

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