Question

Q1
WLS Company currently makes a key component for their tractors in house. The costs are as follows:
Per Unit
Direct Materials $ 4.00
Direct Labor             6.00
Allocated Overhead          10.00
Total Cost        $20.00
If the component is purchased from an outside vendor the company will reduce their overhead costs by 80%. What is the maximum purchase price the company should consider to move to an outside vendor without respect to any other issue?
(present calculations for partial credit). Label your answer.

Q2
What issues should be considered when making decisions about outsourcing and eliminating the production of a key sub assembly for products manufactured by a company? Your answer should be presented as a bulleted list.

Q3
What issues should be considered when deciding whether to eliminate a product line? Your answer should discuss the issues of profitability and include the concept of the contribution format income statement as well as the effect on sales for the company.

Q4
Explain how using a predetermined overhead rate can affect profits and losses? That is, why might the predetermined overhead be inaccurate when compared to the actual results of the activities affected by the predetermined overhead rate? Your answer should begin by explaining how a predetermined overhead rate is calculated and conclude with why there would be variances from the original estimated values in the calculation (do not discuss any variables except those directly related to the predetermined overhead rate calculation).

Q5
Explain the rationale for the starting point for a manufacturing company’s budget? That is, what is the first budget and why is that important? How does it affect all remaining budgets?

Q6
When considering how much of a product to produce or acquire for the period, describe the specific items you would use in the calculation? Your answer should be based on the budget chapter as well as on the basic formula related to inventory, discussed at various points throughout our class.

Q7
Explain the high low method including its calculation and the cost formula for total cost. Your answer should include how it is calculated, what purpose it serves, and what issues may arise regarding the accuracy of the resulting conclusion regarding costs.

Solution Preview

This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.

The maximum purchase price to be considered is simply equal to the incremental costs the company will incur should it choose to produce the component themselves.
It is equal to the sum of direct materials, direct labor and variable overhead costs, which is 80% of the allocated $10 overhead cost.
Maximum Purchase Price = 4 + 6 + 8 = 18
...

This is only a preview of the solution. Please use the purchase button to see the entire solution

Related Homework Solutions

Accounting Questions
Homework Solution
$75.00
Business
Accounting
Santangelo
Falmouth
Revenue
Expenses
Net
Bonds
Pension
Fund
Cash
Accounting Questions
Homework Solution
$50.00
Accounting
Relevant
Costs
Future
Myopic
Behavior
Centralization
ROI
Titanic
Revenue
Budget
Market
Accounting Questions
Homework Solution
$30.00
Business
Accounting
Jingtao Jewelers
Transaction
Revenue
Marcus Charleston
Cash
MadHatter
Homework Solution
$39.00
Accounting
MadHatter
Baseball
Caps
Faculty
PSU
Manufacture
DM
DL
Labor
Budget
Quantity
Price
Variances
Business Questions
Homework Solution
$63.00
Accounting
Business
Finance
Economy
Cash Conversion Cycle
Inventory Turnover
Investments
Payments
Sales
Monthly Fee
Annual Fee
Get help from a qualified tutor
Live Chats