Adams Electronics currently produces the shipping containers it uses to deliver

Question

Adams Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,000 containers follows: Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs $5,100 6,100 3,800 11,100 28,400 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Adams for $2.50 each Required a. Calculate the total relevant cost. Should Adams continue to make the containers? b. Adams could lease the space it currently uses in the manufacturing process. If leasing would produce $11,400 per month, calculate the total avoidable costs. Should Adams continue to make the containers? a. Total relevant cost Should Adams continue to make the containers? b. Total avoidable cost Should Adams continue to make the containers?

Explanation / Answer

a) Total relevant cost unit level materials 5,100 unit level labor 6,100 unit level overhead 3,800 product level cost(11,100*1/3) 3700 Total relevant cost 18,700 answer cost of buying (9000*2.50)= 22500 b) Should Adams continue to make the containers Yes c) total avoidable cost (11400+18700)= 30100 d) Should Adams continue to make the containers N0

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