13) Lakers Company manufactures a part for its production cycle. The annual cost
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13) Lakers Company manufactures a part for its production cycle. The annual costs per unit for 5,000 units of the part are as follows: muku bu Direct materials $3.00 Direct labor 5.00 Variable factory overhead 4.00 Fixed factory overhead (uudised 3,00 2 00 Total costs $14.00 15.00 The fixed factory overhead costs are unavoidable. Spalding Company has offered to sell 5,000 units of the same part to Lakers Company for $14 per unit. The facilities currently used for the part could be used to make 5,000 units annually of a new product that would contribute $5 a unit to fixed expenses. No additional fixed costs would be incurred with the new product. Lakers Company should A) make the part to save $3 per unit (B)) make the new product and buy the part to save $1 per unit C) make the part to save $1 per unit D) make the new product and buy the part to save $3 per unit 14) 14) 14) The key to determining the financial difference between two alternative courses of action is to identify the A) differential costs and revenues B) joint cost of one alternative C) joint cost of both alternatives D) opportunity cost of one alternative 15) - 15) BEE Company is considering the replacement of a machine that is presently used in production. Which of the following items are irrelevant to the replacement decision? A) original cost of the new machine B) disposal value of the old machine at time of replacement C) annual operating cost of the old machine D) original cost of old machine 16) Birch Company manufactures a part for its production cycle. The costs per unit for 5,000 units of the part are as follows: 16) Direct materials Direct labor Variable factory overhead od factory overhead I costs $3.00 5.00 4.00 4.00 $16.00 e fixed factory overhead costs are unavoidable. Spalding Company has offered to sell 5,000 units of the same part to Birch Company for $15 per unit. Assuming no other use for the facilities BirchExplanation / Answer
PU 13 Direct Material 3.00 Relevant Direct Labor 5.00 Relevant Variable Factory OH 4.00 Relevant Fixed Factory OH 2.00 Unavoidable Sunk Cost Total Cost 14.00 Decision to Make or Buy: Relevant Cost: Direct Material 3.00 Direct Labor 5.00 Variable Factory OH 4.00 Total Cost 12.00 Add: Opportunity Cost 5.00 (to make new product) Total Relevant Cost 17.00 External Supplier Cost 14.00 Net Loss in Making over Buying 3.00 Make the new product and buy the part to save 3 PU Answer is D 14 The key to determine the financial difference between two alternative course to to identify differential costs and revenue between alternatives This will lead to Incremental cost and revenue and will help in decision making Answer is A 15 Original Cost of Old Machine is not relevant, Since this cost has been already incurred and has no relavance in Replacement Decision Answer is D PU 16 Direct Material 3.00 Relevant Direct Labor 5.00 Relevant Variable Factory OH 4.00 Relevant Fixed Factory OH 4.00 Unavoidable Sunk Cost Total Cost 16.00 Decision to Make or Buy: Relevant Cost: Direct Material 3.00 Direct Labor 5.00 Variable Factory OH 4.00 Total Relevant Cost 12.00 External Supplier Cost 15.00 Net Loss in Buying over Making 3.00 Company should make the product in house
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