3. [The following information applies to the questions displayed below. Mel\'s M

Question

3.

[The following information applies to the questions displayed below. Mel's Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel's kitchen and adjoining meeting room operate at 70 percent of capacity. Mel's purchases the cookies for $0.90 each but is considering making them instead. Mel's can bake each cookie for $0.35 for materials, $015 for direct labor, and $0.43 for overhead without increasing its capacity. The $0.43 for overhead includes an allocation of $0.37 per cookie for fixed overhead. However, total fixed overhead for the company would not increase if Mel's makes thecookies. Mel himself has come to you for advice. "It would cost me $0.93 to make the cookies, but only $0.90 to buy. Should I continue buying them?" Materials and labor are variable costs, but variable overhead would be only $0.22 per cookie. Two cookies are put into every lunch.

Explanation / Answer

Req A: SCHEDULE TO SHOW THE DIFFERENTIAL COST PER COOKIE STATUS ALTERNATIVE DIFFERENCE QUO MAKE (BUY-MAKE) Cost to buy 9000 9000 material 3500 -3500 labour 1500 -1500 Variable Overheads 600 -600 Total cost 9000 5600 3400 hence, the buying cost is higher by $3400 Note: Allocated variable OH is a sunk cost shall not be considered for decision making. Req b: No, Mell shall not continue to buy. Req 2-a Total cost of Buying: Buying cost 9000 Less: Contribution margin 3700 Total cost of Buying: 5300 Total cost of manufacturing material 3500 labour 1500 Variable Overheads 600 Total cost of manufacturing 5600 Req b: YES, Mell shall continue buying the product.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.