reading assignment for chapter7 is in the pdf attachment.Part 1see attachment to answer this part.part 2See attachment to answer this part.part 3For this week’s reflection, please write three comple
Part 1
Wheels, Inc., currently manufactures its own custom rims for automobiles. Management is interested in outsourcing production of these rims to a reputable manufacturing company that can supply the rims for $80 per unit. Wheels, Inc., incurs the following annual production costs to produce 10,000 rims internally.
|
|
Per Unit | Total Annual Cost at 10,000 Units |
| Variable production costs |
| |
| Direct materials | $ 20 | $ 200,000 |
| Direct labor | $ 10 | 100,000 |
| Applied (and actual) factory overhead | $ 30 | 300,000 |
| Fixed production costs |
|
|
| Factory building and equipment lease |
| 70,000 |
| Factory insurance |
| 50,000 |
| Production supervisor’s salary |
| 100,000 |
| Total production costs |
| $ 825,000 |
If production is outsourced, all variable production costs, factory building and equipment lease costs, and factory insurance costs will be eliminated. The production supervisor’s salary cost will remain regardless of the decision to outsource or to produce internally because the supervisor recently signed a long-term contract with Wheels, Inc.
Required:
a. Perform differential analysis using the format presented in Figure 7.2. Assume making the rims internally is Alternative 1, and buying the rims from an outside manufacturer is Alternative 2.
b. Which alternative is best? Explain.
Part 2
Quality Glass currently manufactures windshields for automobiles. Management is interested in outsourcing production of these windshields to a reputable manufacturing company that can supply the windshields for $45 per unit. Quality Glass incurs the following annual production costs to produce 15,000 windshields internally.
|
Per Unit | Total Annual Cost at 15,000 Units | |
| Variable production costs | $ 8 |
|
| Direct materials | $ 10 | $ 120,000 |
| Direct labor | $ 11 | 150,000 |
| Applied (and actual) factory overhead |
| 165,000 |
| Fixed production costs |
| 390,000 |
| Total production costs |
| $ 825,000 |
If production is outsourced, all variable production costs will be eliminated, and 80 percent of fixed production costs will be eliminated. Regardless of the decision to outsource or to produce internally, 20 percent of fixed production costs will remain .
Required:
a. Perform differential analysis using the format presented in Figure 7.2. Assume making windshields internally is Alternative 1, and buying windshields from an outside manufacturer is Alternative 2.
b. Which alternative is best? Explain.
c. Summarize the result of outsourcing production using the format presented in Figure 7.3.
