PROBLEM 6-32______
Assume that a division of Bose makes an electronic component for its speakers. Its manufacturing process for the component is a highly automated part of a just-in-time production system. All labor is considered to be an overhead cost, and all overhead is regarded as fixed with respect to output volume. Production costs for 100,000 units of the component are as follows:
Direct materials $300,000
Factory overhead
Indirect labor $80,000
Supplies 30,000
Allocated occupancy cost 40,000 150,000
Total cost $450,000
A small, local company has offered to supply the components at a price of $3.30 each. If the division discontinued its production of the component, it would save two-thirds of the supplies cost and $30,000 of indirect-labor cost. All other overhead costs would continue.
The division manager recently attended a seminar on cost behavior and learned about fixed and variable costs. He wants to continue to make the component because the variable cost of $3.00 is below the $3.30 bid.
Required:
1. Compute the relevant cost of (a) making and (b) purchasing the component. Which alternative is less costly and by how much?
2. What qualitative factors might influence the decision about whether to make or to buy the component?
Instructions:
1. Review the printed template called Problem 6-32 that follows these instructions. In some problems, some of the problem data have been entered for you in the data input section of the spreadsheet.
2. There are 10 FORMULAS in the template that you need to provide to complete your analysis. Using the spaces provided below, write the formulas where requested in the template.
FORMULA 1 ______FORMULA 4 ______
FORMULA 2 ______FORMULA 5 ______
FORMULA 3 ______FORMULA 6 ______
PROBLEM 6-32
Continued
FORMULA 7 ______FORMULA 9 ______
FORMULA 8 ______FORMULA 10 ______
- Click the Excel icon from the program manager screen to start the spreadsheet program. Click on the Open File SmartIcon/Button to retrieve the template for the problem. Then enter the 10 FORMULAS where indicated on the template.
Type the answer where indicated.
4. Click the Save File SmartIcon/Button to save your work.
5. Click the Print Button to print your work.