Homework: Chapter 11 Save Score: 0 of 20 pts 5017(4 complete) HW Score: 50%, 50
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Homework: Chapter 11 Save Score: 0 of 20 pts 5017(4 complete) HW Score: 50%, 50 of 100 p E11-25 (book/static) Question Help The Svenson Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2017 and the expected costs in 2018 (Click the icon to view the make-versus-buy information) Read the requirements (Click the icon to new the costs.) Requirement 1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2018 Costs of CMCB Cost per Unit Direct materials Direct manufacturing labor Variable batch manufacturing costs Fixed manufacturing costs Requirements Avoidable fixed manufacturing costs Unavoidable fixed manufacturing costs 1. Calculate the total expected manufacturing cost per unt of making CMCBs in 2018 2. Suppose the capacity currently used to make CMCBs will become idle if Svenson purchases CMCBs from Minton. On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations Now suppose that if Svenson purchases CMCBs from Minton, its best alternative use of the capacity currently used for CMCBs is to make and sell special circuit boards (CB3s) to the Essex Corporation, Svenson estimates the following incremental revenues and costs from Total manufacturing costs 3. CB3s Total expected incremental future revenues Total expected incremental future costs $2,000,000 2,150,000 On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations Enter any number in the edit ields and then ci parts PrintDoneExplanation / Answer
1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2018.
Production Level
10,000
Variable manufacturing costs
Direct materials cost per unit
$170
Direct manufacturing labor
45
Batch costs (setups, materials handling and quality control)
$120,000
12
Fixed Costs
Avoidable Costs
$320,000
32
Unavoidable Costs
$800,000
80
Total expected mfg. cost per unit to manufacture 10,000 units
$339
Incremental cost per unit if purchased from Minton
$300
Incremental cost savings per unit by not producing CMCBs internally
Variable manufacturing costs saved by not producing CMCBs internally
Direct materials cost per unit
$170
Direct manufacturing labor
45
Unit batch costs (setups, materials handling and quality control)
$120,000
12
Fixed Costs
Avoidable Costs (1)
$320,000
32
Incremental mfg. costs per unit saved by not producing CMCBs
$259
Disadvantage of buying CMCBs and having freed capacity remain idle
$41
(1) Note: The unavoidable fixed costs of $800,000 will continue to be incurred regardless of
the decision to make or buy. These costs are therefore, irrelevant to the decision at
hand.
Incremental cost of producing CMCBs internally
$259
Net cost of buying and using freed capacity to produce CB3s
Cost of buying from CMCBs Minton
$300
Net benefit/loss of using freed capacity to produce CB3s.
Incremental revenue associated with CB3s
$2,000,000
Incremental costs associated with CB3s
2,150,000
Net loss associated with producing CB3s
($150,000)
Extra cost per unit to be absorbed by the 10,000 CMCBs
15
Net cost of buying CMCBs and using freed capacity to produce CB3s.
$315
Disadvantage of buying CMCBs from Minton and producing and selling CB3s
$56
Note: As long as producing CB3s yields a net loss, Svenson should just produce CMCBs.
$3,000,000
1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2018.
Production Level
10,000
Variable manufacturing costs
Direct materials cost per unit
$170
Direct manufacturing labor
45
Batch costs (setups, materials handling and quality control)
$120,000
12
Fixed Costs
Avoidable Costs
$320,000
32
Unavoidable Costs
$800,000
80
Total expected mfg. cost per unit to manufacture 10,000 units
$339
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