Scribd Logo
Upload

Welcome to Scribd!

  • 18 views

    Prob4 9

    Uploaded by

    Nerizza Somera
    The document discusses whether a company should make or buy plastic milk jugs. Currently making them costs ₱15.75 per 1000 jugs. An offer to buy them for ₱14 per 1000 is considered. Buying them would save on costs from eliminated production and gain rental income, making it the cheaper option totaling ₱150,000 versus making them for ₱157,000.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Prob4 9

    Uploaded by

    Nerizza Somera
    18 views2 pages
    The document discusses whether a company should make or buy plastic milk jugs. Currently making them costs ₱15.75 per 1000 jugs. An offer to buy them for ₱14 per 1000 is considered. Buying them would save on costs from eliminated production and gain rental income, making it the cheaper option totaling ₱150,000 versus making them for ₱157,000.

    Original Description:

    prob4-9

    Original Title

    prob4-9

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses whether a company should make or buy plastic milk jugs. Currently making them costs ₱15.75 per 1000 jugs. An offer to buy them for ₱14 per 1000 is considered. Buying them would save on costs from eliminated production and gain rental income, making it the cheaper option totaling ₱150,000 versus making them for ₱157,000.

    Copyright:

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

    Prob4 9

    Uploaded by

    Nerizza Somera
    The document discusses whether a company should make or buy plastic milk jugs. Currently making them costs ₱15.75 per 1000 jugs. An offer to buy them for ₱14 per 1000 is considered. Buying them would save on costs from eliminated production and gain rental income, making it the cheaper option totaling ₱150,000 versus making them for ₱157,000.

    Copyright:

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

    Nerizza A Somera

    BSBA-FM4

    PROBLEM 5.
    Magnolia makes the 1-gallon plastic milk jugs used to package its premium goat’s milk. The company has been
    approached by a plastic molding company with an offer to produce the milk jugs at a cost of ₱14.00 per
    thousand jugs. Magnolia’s president believes the company should continue to produce the jugs and the plant
    manager has recommended accepting the offer because the cost to produce the jugs is greater than the
    purchase price. The company’s cost to produce one thousand jugs is as follows:

    Direct materials………………………….……………………… ₱4.00


    Direct labor ………………………..………………………………₱2.75
    Variable manufacturing overhead……………………………… ₱3.50
    Fixed manufacturing overhead, traceable ……………………..₱3.00
    Fixed manufacturing overhead, common……………………… ₱2.50
    Total production cost………………………………………….. ₱15.75
    One-half of the traceable fixed manufacturing costs represent supervisory salaries and other costs that can be
    eliminated if the milk jugs are purchased. The balance of the traceable fixed manufacturing costs is
    depreciation of manufacturing equipment that has no resale value. Some of the space being used to produce
    the milk jugs could be used to store empty jugs, eliminating a rented warehouse and reducing common fixed
    costs by 20%. The rest of the space could be rented to another company for ₱30,000 per year. Moo Milk
    produces 10,000,000 milk jugs per year. Should magnolia make or buy the milk jug?

     Current Cost of Producing 1,000 Jugs by Magnolia:


     DM: ₱4.00
     DL: ₱2.75
     VMO: ₱3.50
     FMO (traceable): ₱3.00
     FMO (common): ₱2.50
     Total production cost: ₱15.75

     Cost to Purchase 1,000 Jugs from the Plastic Molding Company:


     Offered cost: ₱14.00 per thousand jugs
    MAKE BUY
    DM: ₱4.00 •Offered cost: ₱14.00 per thousand jugs
    DL: ₱2.75
    VMO: ₱3.50
    FMO (traceable): ₱3.00
    FMO (common): ₱2.50
    Total production cost: ₱15.75 per thousand jugs
    10,000,000 / 1000 = 10,000 x 15.75= ₱157,000 10,000,000 / 1000 = 10,000 x 14= ₱140,000

    Total cost for 10,000,000 jugs is ₱157,500. Total cost for 10,000,000 jugs is ₱140,000.
    Savings from eliminating half of traceable fixed
    manufacturing costs:
    ₱3.00 / 2 = ₱1.50

    ₱1.50 * 10,000 = ₱15,000

    Savings from reducing common fixed costs by 20%:

    20% * ₱2.50 * 10,000 = ₱5,000

    Additional income from rent: ₱30,000

    ₱140,000 (purchase cost)


    - ₱15,000 (traceable)
    - ₱5,000 (common)
    + ₱30,000 (Rent Income)
    = ₱150,000

    Magnolia makes the milk jugs; the total cost would be Magnolia buys the milk jugs; the total cost would be
    ₱157,000 ₱150,000

    Magnolia should consider buying the milk jugs from the plastic molding company rather than
    producing them.

    You might also like