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    1. The document discusses whether Toblerone Corporation should make or buy part X-24 from an outside supplier, Ferrero Company. The costs of making 10,000 units internally are outlined and purchasing from Ferrero for $40 per unit is considered. 2. If the part is purchased, fixed overhead costs would be reduced by $4 per unit. Additional savings and potential revenue from leasing facilities are also discussed. 3. The supplier requires leasing equipment for $80,000 to fulfill the order, which needs to be considered in the make vs buy decision. Sunk costs are also identified as irrelevant to the decision.

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    ZX

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    JP
    27 views2 pages
    1. The document discusses whether Toblerone Corporation should make or buy part X-24 from an outside supplier, Ferrero Company. The costs of making 10,000 units internally are outlined and purchasing from Ferrero for $40 per unit is considered. 2. If the part is purchased, fixed overhead costs would be reduced by $4 per unit. Additional savings and potential revenue from leasing facilities are also discussed. 3. The supplier requires leasing equipment for $80,000 to fulfill the order, which needs to be considered in the make vs buy decision. Sunk costs are also identified as irrelevant to the decision.

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    1. The document discusses whether Toblerone Corporation should make or buy part X-24 from an outside supplier, Ferrero Company. The costs of making 10,000 units internally are outlined and purchasing from Ferrero for $40 per unit is considered. 2. If the part is purchased, fixed overhead costs would be reduced by $4 per unit. Additional savings and potential revenue from leasing facilities are also discussed. 3. The supplier requires leasing equipment for $80,000 to fulfill the order, which needs to be considered in the make vs buy decision. Sunk costs are also identified as irrelevant to the decision.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    27 views2 pages

    ZX

    Uploaded by

    JP
    1. The document discusses whether Toblerone Corporation should make or buy part X-24 from an outside supplier, Ferrero Company. The costs of making 10,000 units internally are outlined and purchasing from Ferrero for $40 per unit is considered. 2. If the part is purchased, fixed overhead costs would be reduced by $4 per unit. Additional savings and potential revenue from leasing facilities are also discussed. 3. The supplier requires leasing equipment for $80,000 to fulfill the order, which needs to be considered in the make vs buy decision. Sunk costs are also identified as irrelevant to the decision.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    CHAPTER 4 : Differential Cost Analysis (Relevant Costing) KAEB Make or Buy a part

    Toblerone Corporation manufactures part X-24 for us in its production cycle. The cost per unit

    for 10,000 units of part X-24 are as follows: Direct Materials P 6.00 Materials handling costs

    (20%) 1.20 Direct Labor 20.00 Variable overhead 5.00 Fixed overhead 11.00 Total 43.20 Ferrero

    Company has offered to sell Toblerone Corporation 10,000 units of part X-24 for P40 per unit. If

    Toblerone accepts Ferrero’s offer, P4 of the fixed overhead per unit could be eliminated. The

    materials handling costs pertain to the cost of receiving and inspecting incoming materials and

    other components which are not included in the overhead. If the part is outsourced from an

    outside supplier, one-half on the released facilities could be used to produce a new product,

    Citrus, which is expected to generate a contribution margin of P90,000 per year. Additionally, a

    savings of P15,000 is expected if the parts are purchased outside. The other half of the released

    facilities could be rented out for P60,000 per annum. The outside supplier requires that an

    equipment be leased to meet the order of the company. The equipment rental cost of P80,000

    shall be charged to the Company. Required: 1. What alternative is better, make or buy the part

    and by how much is the advantage? 2. The sunk cost (or irrelevant cost) in the decision of

    making or buying part. Accept or reject a special sales order The manufacturing capacity of

    NorthWind Corporation’s facilities is 50,000 units of product a year. A summary of operating

    results for the year end December 31, 2016 is as follows: Total Per Unit Sales (38,000 units) P

    3,800,000 P 100 Less: Variable costs and expenses 2,090,000 55 Contribution Margin 1,710,000

    P 45 Less: Fixed costs and expenses 900,000 Operating income P 810,000 A distributor

    company has offered to buy 12,000 units at P90 per unit during 2017. Assume that all of the

    corporation’s costs would be at the same levels and rates in 2017 as to 2016. Required: Should

    NorthWind Corporation accept or reject the special sales order? (Consider the following cases
    independently.) 1. The corporation has no alternative use of the idle capacity. 2. The corporation

    can rent out the idle capacity for P200,000. 3. The corporation can use the idle capacity to

    produce a new product that could contribute a P600,000 contribution margin

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