Tuscaloosa Company manufactures a hand-held computer. The company expects produc

Question

Tuscaloosa Company manufactures a hand-held computer. The company expects production of 7,000 units this year. Currently, Tuscaloosa produces the processor, which is a component of the computer. Tuscaloosa has received an offer from Auburn, Inc., to supply the processor If Tuscaloosa discontinues production of the processor, the company will be able to eliminate its product-level costs because no other products along the same line are produced by the company. However, due to its concern for quality, the company will have to inspect each processor made by Auburn. Various costs and items are described below: Required Using the drop menus, classify each cost item in the context of the outsourcing decision as: Relevant (Varies between alternatives), Relevant (Opportunity cost), Irrelevant (Unavoidable future cost) or Irrelevant (Sunk cost) (Note: A cost varies if the amount of the cost differs between the two alternatives: (1) continuing to make the processors or (2) purchasing the processors from Auburn.) Cost of purchasing the processors from Auburn V Choose... Relevant (Varies between alternatives) Irrelevant (Sunk cost) Relevant (Opportunity cost) Irrelevant (Unavoidable future cost) Income that can be earned from renting the idled facilities if Tuscaloosa no longer makes the proce Direct materials costs Direct labor costs Choose... Variable overhead costs Choose... Choose Cost of equipment used to make processors Fixed manufacturing overhead Inspection costs if processor is purchased from Auburn Processor Department Manager's Salary Depreciation on machinery used to make the processors Allocated corporate costs Choose... Choose.. Choose... Choose.. Choose...

Explanation / Answer

Cost of purchasing the processors from Auburn Relevant (Varies between alternatives) Income that can be earned from renting the idled facilities if Tuscaloosa no longer makes the processors Relevant (Opportunity cost) Direct material costs Relevant (Varies between alternatives) Direct labor costs Relevant (Varies between alternatives) Variable overhead costs Relevant (Varies between alternatives) Cost of equipment used to make processors Irrelevant (Sunk cost) Fixed manufacturing overhead Irrelevant (Unavoidable future cost) Inspection costs if processor is purchased from Auburn Relevant (Varies between alternatives) Processor Department Manager's Salary Relevant (Varies between alternatives) Depreciation on machinery used to make the processors Irrelevant (Sunk cost) Allocated corporate costs Irrelevant (Unavoidable future cost)

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