Please answer the following while showing your steps, the numbers with a red x n
ID: 2511627 • Letter: P
Question
Please answer the following while showing your steps, the numbers with a red x next to them are wrong.
Make or Buy Walsh Corporation currently makes the nylon mooring cover for its main product, a fiberglass boat designed for tournament bass fishing. The costs of producing the 2,000 covers needed each year follow: Nylon fabric Wood battens Brass fittings Direct labor Variable manufacturing overhead Fixed manufacturing overhead 5320,000 64,000 32,000 128,000 96,000 160,000 Calvin Company, a specialty fabricator of synthetic materials, can make the needed covers of comparable quality for $320 each, F.O.B. shipping point. Walsh would furnish its own trademark insignia at a unit cost of $20. Transportation in would be $16 per unit, paid by Walsh Corporation. Walsh's chief accountant has prepared a cost analysis that shows that only 30% of fixed overhead could be avoided if the covers are purchased. The covers have been made in a remote section of Walsh's factory building, using equipment for which no alternate use is apparent in the foreseeable future. a. Prepare a differential analysis showing whether or not you would recommend that the mooring covers be purchased from Calvin Company. If appropriate, use a negative sign with your answer to represent a net disadvantage answer. Do not use negative signs with any other answers. Make or Buy Differential Analysis $ 712,000 Cost to purchase covers: Costs avoided by purchasing covers: Direct materials $416,000 Direct labor 128,000 Variable manufacturing overhead 96,000 160,000 12,000 X Net advantage (disadvantage) to purchase alternative 24,000 xExplanation / Answer
Ans)
a) Make or Buy Differential Analysis
Cost to purchase Covers (320 + 20 + 16) X 2000 = 712000
Costs avoided by purchasing covers:
Direct materials ( 320,000 + 64000 + 32,000) = 416000
Direct labour = 128000
Variable manufacturing overhead = 96000
Fixed manufacturing overhead ( 160,000 X 30%) = 48000 688,000
Net Disadvantage to purchase alternative 24000