Reference no: EM132951169
Zoolander Inc. (the company) manufactures appliances. One of their divisions manufactures a timer which are used in several of their appliances.
They produce 38,000 timers annually.
The cost per unit for the timer is as follows:
Description Cost
Direct materials5.40
Direct labour1.80
Variable overhead1.35
Fixed overhead3.15
Total cost11.70
Of the total fixed overhead assigned to the timers, $26,600 is directly traceable to the production of the timer. The remaining fixed overhead costs are common fixed overhead and therefore unavoidable.
An outside supplier has offered to sell the timers to Zoolander Inc. for $9.50 per unit.
Required:
Problem 1: Analyze the above information and determine if the company should make or buy the timers.
Problem 2: If there was no other alternative use for the facilities that is currently used to produce the timers, should the company make or buy the timers?
Problem 3: What is the most that the company would be willing to pay an outside supplier for one timer?
Problem 4: If the company buys the timers, would their operating income increase, decrease, or stay the same?
Problem 5: If the company buys all of their timers, by how much would their operating income change?
Problem 6: If the company could rent out the space that is currently used to produce the timers for $16,000 per year, should the company make or buy the timers?
Problem 7: If the company buys the timers and then rents out the space that is currently used to produce the timers for $16,000 per year, by how much would their operating income change?
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