ques 1

The $90000 in fixed overhead cost charged to the new product is a common
cost thar will be the same whether the tubes are produced internally or
purchased from the outside.hence not relevant

Total manufacturing overhead cost per box of chap-off 1.4

Less:fixed portion(90000/100000) 0.9
Variable overhead cost per box 0.5

the total variable cost pf producing one box of chap off

Direct material 3.6
Direct Labor 2
Variable manufacturing overhead 0.5
total variable cost per box 6.1

If tubes for the chap off are purchased from outside supplier

Direct materials($2*80%) 2.7

Direct Labor(1*90%) 1.8
Variable manufacturing overhead(0.30*90%) 0.45
cost of tube from outside 1.35
total variable cost per box 6.3

therefore the company should reject the outside supplier offer

a savings of $0.20 per box of chap-off will be realised producing
tubes internally

Cost avoided by purchasing tubes

Direct materials($2*20%) 0.9
Direct Labor(1*10%) 0.2
Variable manufacturing overhead(0.3*10%) 0.05
total cost avoided(Maximum Price willing to be paid) 1.15

at a volume of 121,000 boxes the company should buy the boxes

cost of making 121000 boxes

120000boxes*6.1 $ 732,000
Rental cost of equipment $ 40,000
Total variable cost (making) $ 772,000

cost of buying 120000 boxes

120000boxes*6.3 $ 756,000

ques 4
company should buy the 121,000 boxes from outside suppliers
ques 1
The $96000 in fixed overhead cost charged to the new product is a common
cost thar will be the same whether the tubes are produced internally or
purchased from the outside.hence not relevant

Total manufacturing overhead cost per box of chap-off 2.3

Less:fixed portion(96000/120000) 0.8
Variable overhead cost per box 1.5

the total variable cost pf producing one box of chap off

Direct material 5.4
Direct Labor 3.8
Variable manufacturing overhead 1.5
total variable cost per box 10.7

If tubes for the chap off are purchased from outside supplier

Direct materials($5.4*70%) 3.78

Direct Labor(3.8*90%) 3.42
Variable manufacturing overhead(1.5*90%) 1.35
cost of tube from outside 2.3
10.85

therefore the company should reject the outside supplier offer

a savings of $0.15 per box of chap-off will be realised producing
tubes internally

Cost avoided by purchasing tubes

Direct materials($5.4*20%) 1.62
Direct Labor(3.8*10%) 0.38
Variable manufacturing overhead(1.5*10%) 0.15
total cost avoided 2.15

the company woulD not be willing to pay more than $2.15

at a volume of 120,000 boxeS the company should buy the boxes

cost of making 120000 boxes

120000 boxes * $1070 per box $ 1,284,000

total cost $ 1,284,000

cost of buying 120000 boxes

120000 boxes * $10.85 per box $ 1,302,000

savings on Manufacturing the boxes $ (18,000)

ques 4
company should make the 120,000 boxes
from outside suppliers

Ques 5
the company woulD not be willing to pay more than $2.15
ques 1
The $120000 in fixed overhead cost charged to the new product is a common
cost thar will be the same whether the tubes are produced internally or
purchased from the outside.hence not relevant

Total manufacturing overhead cost per box of chap-off 1.8

Less:fixed portion(120000/100000) 1.2
Variable overhead cost per box 0.6

the total variable cost pf producing one box of chap off

Direct material 4.1
Direct Labor 2
Variable manufacturing overhead 0.6
total variable cost per box 6.7

If tubes for the chap off are purchased from outside supplier

Direct materials($4.1*80%) 3.28

Direct Labor(2*90%) 1.8
Variable manufacturing overhead(0.6*90%) 0.54
cost of tube from outside 1.3
6.92

therefore the company should reject the outside supplier offer

a savings of $0.22 per box of chap-off will be realised producing
tubes internally

ques 2

Cost avoided by purchasing tubes

Direct materials($4.1*20%) 0.82
Direct Labor(2*10%) 0.2
Variable manufacturing overhead(0.6*10%) 0.06
total cost avoided 1.08

the company woulf not be willing to pay more than $1.08

ques 3
at a volume of 122,000 boxed the company should buy the boxes

cost of making 122000 boxes

122000 boxes * $6.70 per box $ 817,400
Rental cost of equipment $ 50,000
total cost $ 867,400

cost of buying 122000 boxes

122000 boxes * $6.92 per box $ 844,240

savings on buying the boxes $ 23,160

ques 4
company should make the 100,000 boxes and remaning 22,000 boxes
from outside suppliers

cost of making:100000 boxes * $6.7 per box 670000

cost of buting:22000 boxes * $6.92 per box 152240
Total cost 822240

this is best as if we compare this to ques 3 we save $ 22,000

which is less than if we purchase 122,000 from outside suppliers