Relevant Cost and Decision Making 4.16 Make or buy Yoklic Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows: Regina Corp has contacted Yoklic with an offer to sell it 5,000 subassemblies for $55.00 each. REQUIRED: Should Yoklic make or buy the subassemblies? Create a schedule that shows the total quantitative differences between the two alternatives. The accountant decided to investigate the fixed costs to determine whether any incremental changes would occur if the subassembly were no longer manufactured. The accountant believes that Yoklic will eliminate $50,000 of fixed overhead if it accepts the proposal. Does this new information change the decision? Show your calculations. Ignore the information in part (B). Now suppose Yoklic could use the capacity released under the buy alternative to make a different subassembly that it currently purchases from a vendor for $20. The manufacturing engineer believes that the company can use the existing equipment to manufacture the subassembly for $13 each (direct materials, direct labor, and variable overhead). The firm uses about 5,000 of these subassemblies. Create a schedule that shows the difference between the two alternatives. 4.18 Special order The Cone Head House sells ice cream cones in a variety of flavors. Data for a recent week appear here: The Cone Head’s manager received a call from a university student club requesting a bid on 100 cones to be picked up in three days. The cones could be produced in advance by the store attendant during slack periods and then stored in the freezer. Each cone requires a special plastic cover that costs $0.05. REQUIRED: 4.20 Outsourcing, business risk Saguaro Systems produces and sells stereo systems for MP3 players. The following information has been collected about the costs related to the systems: The managers are deciding whether to outsource production to a Mexican company that has offered to produce these systems for $48 each. The managers estimate that $260,000 of Saguaro’s fixed costs could be eliminated if they accept the offer. Direct labor employees are guaranteed pay for 40
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